The California action involves antitrust claims brought by Datel against Microsoft and highlights some of the strategies Microsoft is using to gain an advantage over competitors in the Xbox accessory market, as well as some of the obstacles it faces in doing so.

Datel filed the complaint in response to a Microsoft software update for the Xbox 360 that rendered Datel’s memory cards incompatible and useless with respect to the system, and allegedly affected interoperability of other Datel accessories. While Microsoft claims that it released the software update to prevent gamers from cheating, Datel alleges that the explanation is merely a pretext for Microsoft’s attempts to monopolize the Xbox accessory market.

Microsoft has already lost, in a motion to dismiss, the argument that any limitations requiring Xbox gamers to use only Microsoft accessories are commensurate with the contractual terms found in the Xbox Terms of Use and Warranties, and therefore lawful. Although the court agreed that clear language in such documents limiting users to specific aftermarket accessories could be a valid contractual obligation rather than unlawful anticompetitive conduct, it found the language in this case too ambiguous to warrant early dismissal of the claims.

Microsoft has now brought out another weapon from it’s arsenal—the Digital Millenium Copyright Act. Microsoft asserts, in a counterclaim against Datel and a pending motion to bifurcate, that Datel’s memory cards circumvent Microsoft’s access and copy-protection technology, in violation of the DMCA. Because the cards are unlawful under the DMCA, Microsoft argues, the loss of card sales is not a cognizable antitrust injury.

In its defense, Datel has asserted a number of arguments—that there is no violation of the DMCA; that the gamers themselves are the copyright holders of the games that they save on the memory cards; and that, even if the facts could establish a DMCA violation, the memory cards fall within the explicit exception to the DMCA that allows reverse engineering to facilitate interoperability of computer programs. Regarding this last argument, Datel compares its technology to “jailbreaking” a smartphone to allow installation of unauthorized programs, a process which the Copyright Office recently proclaimed to be legal.

Although the court has yet to resolve various claims and defenses, its decision could have a significant impact on the video game accessory market, particularly the ability of independent manufacturers to market system compatible accessories that rely on circumvention of access and copy-protection technology. Stay tuned for updates as the case unfolds.

The complaint was filed in the District Court for the Northern District of California on Thursday, July 29, 2010, by former Cincinnati Bengal and Tampa Bay Buccaneer Michael “Tony” Davis, on behalf of himself and about 6,000 former NFL players. It claims that EA is intentionally pilfering the players’ publicity rights under California law, through the unauthorized use of the players’ likenesses to recreate over 140 NFL teams of the past.

Specifically, the complaint states that older versions of Madden NFL included player profiles for each “player” on a “vintage” team featured in the game, such profiles including descriptions of the players’ positions, number of years of NFL experience, physical characteristics, and relative skill level in different facets of the game. These descriptions were so close to the true characteristics of real former NFL players that consumers of the game could easily discern what player was being represented.

This inclusion of “vintage” NFL teams allowed game consumers to pit classic teams of the past, such as the ’84 San Francisco 49ers or the ’72 Miami Dolphins, against each other or against current teams. Sales of the 2009 edition of Madden NFL generated approximately $400 million in revenue, according to the complaint. EA discontinued the vintage team feature in the 2010 edition of Madden NFL.

The complaint further notes that EA paid the NFL Players Union about $35 million to license the use of current players’ likenesses in Madden NFL, but attempted to get around paying licensing fees for former players’ likenesses by making small changes to player information that consumers could easily see through. For example, the game featured a halfback for the ‘79 Tampa Bay Buccaneers who was 26 years old, measured 5’11”, weighed 215 pounds, had four years of pro football experience, and wore number 37. In reality, Plaintiff Tony Davis was a 26-year-old, 5’11”, 215 pound halfback for the ’79 Bucs in his fourth year in the NFL, but wore number 27.

Plaintiffs are seeking compensatory, statutory, and punitive damages, in addition to disgorgement of profits attributable to the use of the players’ likenesses in all versions of Madden NFL sold from July 29, 2008 through the date of filing of the complaint.

This is not the first time EA has had with the issue of athletes’ publicity rights. EA is already facing a similar action over its NCAA Football and NCAA Basketball games, brought on behalf of former NCAA football and basketball players who allege EA misappropriated their likenesses as well. NFL Hall-of-Famers Jim Brown and Herb Adderley filed amicus briefs in that action. The court denied EA’s motion to dismiss that complaint in February, and EA is appealing the decision.

Additionally, Jim Brown was a plaintiff in an action against EA filed in 2009 in federal court; the sole federal claim in that action was dismissed on First Amendment grounds in September, and the court declined to exercise jurisdiction over the remaining state law claims. That case is currently on appeal to the 9th Circuit Court of Appeals.

After the law was defeated at the Ninth Circuit, Governor Schwarzenegger announced the filing of a petition for certiorari, asking the U.S. Supreme Court to save the law,
arguing that the same justifications for precluding sales of pornography to minors should be applied to violent video games. “By prohibiting the sale of violent video games to children under the age of 18 and requiring these games to be clearly labeled, this law would allow parents to make better informed decisions for their kids,” Schwarzenegger said. “I will continue to vigorously defend this law and protect the well-being of California’s kids.”

California’s appeal faces a steep uphill battle, however, since the Ninth Circuit decision is just one of several similar Appeals Court rulings that all to have reached the same conclusion; the restriction of video game sales on the basis of violence is unconstitutional. To save the California law, the Supreme Court would have to reverse its long-standing First Amendment jurisprudence and hold that violent material deserves more limited constitutional protection.

The right of publicity is the right of a person to control commercial use of his or her name, image, likeness, or some other identifying aspect of identity. According to the lawsuit, there are close similarities between real-life college athletes and the virtual athletes in EA’s games. “Electronic Arts matches the player’s skin tone, hair color and often even a player’s hair style…” The complaint also alledges that EA’s virtual athletes are depicted with unique accessories, such as wristbands, glasses, visors and headbands, identical to those worn by their real-life counterparts.

This new suit against EA comes on the heels of another important right of publicity case decided last year, that one involving a fight over the use of athletes’ statistics in fantasy sports. In that case, Major League Baseball lost its Missouri common law right of publicity claim at the 8th Circuit (and was denied an appeal by the Supreme Court) over the names, likenesses, and statistics of MLB athletes used by a fantasy baseball league operator. The 8th Circuit balanced the right of publicity in Missouri against federal First Amendment free speech protections, and decided the latter should triumph.

And just last week, the Minnesota District Court (located within the 8th Circuit) granted summary judgment in favor of CBS, saying that CBS Fantasy Sports should not have to pay licensing fees to the National Football League Players Union for NFL athletes’ names, likenesses, and statistics. The lower Minnesota court, not surprisingly, followed the 8th Circuit’s lead in holding that the First Amendment trumped Minnesota’s right of publicity laws when it comes to fantasy sports.

These courts denied the NFL Players Union’s and MLB’s claims against fantasy sport operators because the courts felt that athletes’ names and statistics are in the public domain, and therefore enjoyed First Amendment protection. These two cases, along with the new suit against EA, deserve attention because the courts have not yet given straightforward guidance on where to draw the line between permitted and prohibited uses of athletes’ statistics and likenesses. This uncertainly is perhaps even more opaque when we take into account that states like California and New York typically rule more strongly in favor of plaintiffs with right of publicity claims, due to the importance of personalities on those markets.

Are the facts a basketball player stands six foot six inches tall, plays guard for the Bulls, and wears jersey number 23 in the public domain? Or, under what circumstances will the facts that the player has dark skin, is bald, wears Nikes, and sticks his tongue out when he dunks merit First Amendment protection?

Game companies need to take stock of the law surrounding the use of names, images, likenesses, and statistics, and evaluate the associated risks, before including any aspect of a real-life athlete’s or other person’s identify into a game.

California’s Civil Code §1798.82 is a good example of a customer “notification” law, and many other states have followed California by enacting similar laws. California Civil Code §1798.82 requires business to disclose any data breach involving California residents.

“Any person or business that conducts business in California, and that owns or licenses computerized data that includes personal information, shall disclose any breach of the security of the system following discovery or notification of the breach in the security of the data to any resident of California whose unencrypted personal information was, or is reasonably believed to have been, acquired by an unauthorized person.”

This law applies to any business keeping “personal” information about California residents, no matter where the website or server collecting the information is physically located. So, a company with a website accessible by California residents, sending advertisements into California, or selling a game in California must comply with this law, even if the business stores its customer information in a database outside of California.

The definition of “security breach” in the law is the “unauthorized acquisition of computerized data that compromises the security, confidentiality, or integrity of personal information maintained by the person or business.” A security breach could be anything from a malicious hack to a misdirected email to a lost laptop. The expense of notifying customers about compromised data is the big reason that, on average, a lost or stolen laptop costs a business almost $50,000, according to a recent Intel-commissioned study.

The California law does not provide a specific timeframe to send notification to affected customers after a security breach, only that notification must be made “in the most expedient time possible and without unreasonable delay.” Non-compliance with the notification requirement opens the door for affected customers to sue the business for damages. To mitigate this risk, customer “notification” laws should be carefully examined by all businesses that collect customer information, preferably before an actual breach occurs.

Lastly, just because a business follows the notification procedure under California Civil Code §1798.82, it won’t be immune from suit on other grounds. Customers affected by a security breach may still file lawsuits based in tort or other commercial causes of action.