gaming ip Archives - ARTAEV AT LAW PLLC

Skill-based real-money gaming has been a popular form of entertainment across the world for hundreds of years. From Roman legionnaires wagering on an early version of backgammon to $5 eight-ball games at your local pool hall, skill games have always attracted players looking for a chance to win real money. With smart phones in every pocket, skill-based gaming has entered a new era where anyone with an internet connection can play various money skill games through their phone or computer and stake anywhere from $0.25 to hundreds of dollars on the outcome.

Gaming is a rapidly growing industry and the skill-based real-money market is no exception. Indeed, there is already at least one publicly-traded California-based company (Skillz.com; SKLZ) investing substantial resources in the real-money skill-based U.S. market. However, any sort of real-money gaming business implicates federal and state-level regulation. While a government license is not necessary in most states, your game must still pass private sector review. Apple’s App Store is indispensable in the current market; advertising through social media like Facebook is another must. Banking and payment processing is likewise an integral part of your ability to run a business.

I have advised a number of companies, both international and U.S. based, on the legality of their skill-based real-money games. Through Artaev at Law, I have prepared detailed memorandums and analysis for a number of companies, as well as provided consultation to investors seeking more information about the real-money skill-games market. As a game developer, here is what you need to know:

1. Get Your Game to the Players.

If you were to get into the full-scale casino gambling market, you would have to comply with stringent state-level regulatory requirements, pay substantial application and licensing fees, and otherwise deal with an intricate governmental regulatory framework. Further, in the few states where casinos are even legal, there is only a limited number of licenses that a state will issue. In other words, it is impossible. But real-money skill gaming operates outside the gambling regulatory framework, which means you don’t have to go through a government licensing or regulatory approval process to offer your product (in most states).

Instead, real-money skill game providers find themselves faced with so-called private company gatekeepers. The popularity of real-money skill gaming is in large part due to the ubiquity of the smartphone. Apple’s App Store is the only practical way to get real-money skill games onto iPhones (no, people will not “unlock” their iPhones to sideload your real-money skill game, especially when the App Store already has a robust selection of these games that are easy to download and use). Google’s Play store does not currently allow real-money skill games, so there developers must either provide sideloading options or use a Progressive Web Application (PWA).

The bottom line is that developers must pass Apple’s “gatekeeping” to even get their app on the market. That means complying with the App Store Review Guidelines. Section 5.3.4 is particularly important:

5.3.4 Apps that offer real money gaming (e.g. sports betting, poker, casino games, horse racing) or lotteries must have necessary licensing and permissions in the locations where the app is used, must be geo-restricted to those locations, and must be free on the App Store.

Apple considers real-money skill games to fall into this category, even though skill games do not depend on chance like the “sports betting, poker, casino games, horse racing” examples. This guideline can be distilled into three requirements: (1) The app must be legal where you are offering it; (2) The app must be geo-restricted to only those locations where it is legal; and (3) the app must be free.

The first requirement is the most important and the most confusing for app developers. How do you demonstrate that your app has “necessary licensing and permissions” if the states where you are offering your real-money skill games do not regulate such games? This is a situation where a legal opinion or memorandum from an experienced gaming attorney is helpful. In general, such a legal opinion will describe your game, explain how the game fits within existing federal regulations, and then present a state-by-state analysis (supported by applicable statutory and case law citations) to show that the skill game does not violate those states’ anti-gambling prohibitions or any other law.

The second requirement of geo-restriction is self-explanatory. Your app can only offer real-money gaming if the user verifies their location in a state where such gaming is legal. You can still offer practice or play-money games without geo-restriction (or if the user does not want to or cannot verify their location).

The third requirement is that the app must be free. Section 5.3.3 of the review guidelines further clarifies that “in-app purchase” cannot be used to purchase credit or currency for use in the real-money gaming app. That means that you will need to set up some sort of external mechanism for deposits, link the user’s existing account and balance to the app, and ensure compliance with the external payment processors’ requirements.

Once submitted, the review process can take between several weeks to more than a month. A lot depends on whether your app is similar to other apps already approved or whether it is something completely new. Other factors, like the reviewer or the law firm reviewing the legal analysis may also impact the timeline.

2. Advertise Your Game.

Advertising is critical to your app’s success and online advertising platforms have special rules for real-money games. Social media companies like Facebook and Twitter require prior approval and permission before running your gaming ad. The process is similar for both platforms and generally involves filling out a questionnaire, selecting the geographic areas you are targeting, providing a link to your app’s website, and submitting a legal opinion that your app comports with the law where it will be advertised. Google and YouTube (owned by Google) do not currently allow real-money skill game advertising.

This process may be a bit more lengthy than getting approval from the App Store. Depending on the nature of your product, your location, and the platform, the process may take several months. The social media platform may also come back with additional specific legal questions for your counsel to answer. The level of follow up and scrutiny is hard to predict because the social media companies farm out the review to outside law firms, which have their own standards and review processes.

3. Set Up Your Payment Processor and Bank.

Once your game is live and advertised, it’s time to start making money. There are a lot payment processors out there (PayPal, Square, etc.) and each has their own set of rules and guidelines for business accounts. The federal Unlawful Internet Gambling Enforcement Act applies to payment processors, so they must be especially careful not to facilitate illegal gambling activities. Credit card companies present another potential obstacle, as credit card companies often lump skill-based gaming with gambling into the 7995 merchant code.

For example, after states started rolling out regulated sport-betting options, Visa issued guidance that made its payment services available for “all transactions that are consistent with local, federal, and international laws.” Visa introduced new 7800-series merchant codes for legal gambling, but none of those codes apply to real-money skill gaming transactions. Practically, this means that skill-gaming transactions may still fall under the blanket 7995 code and Visa may not authorize the transaction. Nor does Visa issue an MVV (merchant verification value) for 7995 merchants, meaning that skill-based real money gaming companies are limited as to their direct-pay options.

This essentially requires skill-game companies to explore options through payment providers like PayPal. Provided you are based in the United States and can link a bank account, the process should be straightforward. If you are based in another country however, there is a whole another set of hurdles to overcome.

There’s More.

Getting your game approved, advertised, banked is only the first step. You will also need robust terms and conditions that govern your relationship with your users, which is especially critical when dealing with real-money gaming and facing potential payout disputes. A privacy policy is also a must, especially if you are offering your game internationally. Then there is the issue of taxation and whether you should be paying excise tax on skill-based game wagers. Real-money skill-based gaming is a hot market, but requires experienced legal counsel to get through these various issues.

Have more questions? Do you need help getting your app through the review process? Contact Dan Artaev today by emailing dan@artaevatlaw.com or by phone or text at (269) 930-0254.

Disclaimer: This guide is not intended to be and does not constitute legal advice. It is for informative and promotional purposes only. Do not take any action or refrain from taking any action based on this guide, and always consult with a qualified professional about the circumstances of your particular case. Each set of facts is unique and different circumstances apply to each individual business.

Board games are still big business. Even before the pandemic limited entertainment options, the board game industry already accounted for $1.8 billion of sales in 2013 – or almost 10% of the entire toy market in the United States. In the first half of 2020’s lockdown, Hasbro reported a 4% increase in gaming revenue over the same six month period in 2019. The global board game market is projected to grow to over $20 billion by 2025, and the ubiquity of online retail has made board games a truly global industry. And, digitization of board games (making them available on smartphones and tablets) has only increased the popularity and accessibility of these products for mainstream consumers.

Although the board game market is not as big as video games, board games have significantly lower development costs and can be designed without specialized knowledge like graphic design, coding, etc. Like writing a book, anyone can do it, so long as they come up with a good concept, it is entertaining, and the execution works. For example, one of the most popular games that has made millions of dollars is Cards Against Humanity. An R-rated version of Apples of Apples, the design and concept is extraordinarily simple – it consists of questions or concepts on black cards, and words or sentences to create an absurd/funny/offensive response on the white cards. Yet the concept was so well-executed and entertaining that it became an instant hit.

The relative simplicity of board game design however poses a host of unique legal issues. As a developer, you may have already been threatened with legal action, or worse, have had to defend yourself from a lawsuit. Or, perhaps you are considering legal action against a blatant copy of your original idea. Protecting your concepts and business requires an understanding of the three primary forms of intellectual property protections: copyright, trademark, and patent law. So what do you need? As always, the answer is “it depends.”

Copyright

Intuitively, board games should enjoy some sort of copyright protection. After all, they consist of booklets, printed boards, and other materials not dissimilar from literary works. As a general rule, the rules, boards, artwork, and other aesthetic or literary elements to a game are copyrightable and protected as such. These protected elements are referred to as the “theme” of the game. Distinct from the “theme” of the game are the game mechanics, which cannot be copyrighted. “Game mechanics” is the actual gameplay – which can be as simple as roll the dice and move a token. The United States Copyright Act codifies this concept and expressly states that copyright protection does not extend to “any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work.” 17 USC 102(b). As an example, the “Monopoly” name, mascot, property names, and token designs would all likely be protected under copyright law. However, the game play concept itself – that is moving around the board, buying up properties, and charging rent to other players who land there – is not. There is no bright line rule however, especially given the increased complexity of board games and card games, and each situation will be driven by its own unique factors.

Trademark

Trademark protection exists chiefly to prevent customer confusion and to protect the integrity of a brand. In the board game context, trademark will primarily protect the name of the game, but can also protect unique “trade dress” elements that constitute unique game board designs, cards, and tokens. For example, in addition to owning the trademark for “Monopoly,” Hasbro also registered recognizable designs from the game, including the railroad symbol, the “jail” and “go to jail” images, and the layout of the “Monopoly” game money. As an aside, the actual status of the “Monopoly” trademark is unsettled, as following years of legal proceedings, a 1983 appellate court case decided that “Monopoly” had become a generic terms and no longer was associated with the source publisher, Parker Brothers. Congress responded to the ruling by amending the Lanham Act to clarify that purchaser motivation is not the test and that a mark can only be deemed generic when its “primary significance” to the general public is the generic description of particular goods or services.

Patent

Patents are most often associated with scientific discoveries and mechanical devices. In the board game context, a patent may be available to protect a game’s unique mechanics. Again, we are not talking about general methods of play here, but rather something truly unique. A so-called utility patent could be available if the mechanics meet the unique and non-obvious test. However, patent protection is fairly expensive to obtain and to police, so while patent protection may be available, it may not be practical. Also, any sort of public disclosure, such as playtesting, may defeat patent claims. “Monopoly” was actually patented in 1935 by Parker Brothers, with the description including the rules, the “apparatus of a board game consisting of a continuous path around the board,” and other claims, including the Chance and Community Chest cards. The patent has little value however, as it expires in 20 years, and is so specific that it likely limits the protective scope of the patent itself.

Other Intellectual Property Concerns

The most two common questions designers ask are: (1) I am making a game; how can I prevent someone from copying it? and (2) I am making a game that is similar to X; how do I avoid getting in trouble for copying? While you may have taken steps to protect your intellectual property, the fact is that board games are especially vulnerable to knockoffs and plagiarism. The low development cost and lack of “trade secret” type secret components make it simple for an unscrupulous developer to simply take a game, rebrand it, and release it as their own. International law may even become an issue if an overseas company takes and repurposes your idea. By hiring an attorney as part of your team, you can ensure that you have taken the right steps to obtain copyright protection for your rules, art, etc., and that you have properly registered your trademarks. An attorney can also ensure that any contractors – such as artists – properly assign all rights back to the game developer through “work for hire” agreements. Licensing agreements with any publisher must also delineate the rights and responsibilities of all parties. Royalties and assignments must be fair, clear, and definite. If you have a co-designer or a business partner, you must absolutely have a business agreement before your idea starts making money, so there are no surprises or hard feelings. If there are copyright concerns or knockoffs, a DMCA takedown notice or demand letter is often an effective tool to dissuade would-be thieves. Conversely, if you are receive a takedown notice or demand from another designer, you need to have an effective and prepared attorney ready to respond.

Contact Artaev at Law PLLC to set up your initial consultation. We are Michigan’s gaming law firm and we specialize in the unique concerns that you may encounter as a game designer.

Disclaimer: This guide is for general informational and promotional purposes only. Nothing herein constitutes legal advice. Every situation is different and faces its own unique set of challenges. Do not take any action or sign any contract until you have obtained specific guidance from a qualified professional.