What is happening in Epic Games vs Apple? Part two

The dispute between Epic Games and Apple continues to generate discussion in the video games industry. As LegalPlay, we have already described the origins of the dispute and the lawsuit filed by Epic Games in an earlier post. As promised, we are following the latest reports on the matter. We invite you to read the summary and analysis of the latest reports in the dispute, which have appeared since the previous post.

Unreal Engine on iOS is safe, Fortnite still out of AppStore

As we have mentioned in the previous post, in response to Epic Games’ actions, Apple planned to block Epic’s access to Apple’s developer tools, which would prevent further development of Unreal Engine on iOS and macOS. In reaction to Apple’s announcement, Epic has applied for a temporary restraining order prohibiting Apple from blocking access to developer tools and restoring Fortnite to the App Store.

On August 24th, Judge Yvonne Gonzalez Rogers agreed to the first of two Epic’s motions. The judge prohibited Apple from taking any adverse action blocking Epic Games’ access to Apple’s development program because of the placement of an alternative payment method in Fortnite. As to the motion to restore Fortnite to the App Store, the judge decided not to impose such an order on the Cupertino company.

The judge made the order effective until a decision is made on the preliminary injunction (which is, in simple terms, more “permanent” than a temporary restraining order). A hearing on this subject was held on September 28th – for more information see below.

Google asks for not merging cases regarding Google Play and App Store

In early September, Google reacted to the lawsuits. On September 3, lawyers representing the company from Mountain View filed a motion to the California court not to combine the Epic Games lawsuits against Apple and Google in one proceeding. Google has invoked several convincing arguments in its submission.

Firstly, Google pointed out that other antitrust cases that are already ongoing against Apple and Google are at completely different stages. Secondly, the proceedings against Google also include non-US subsidiaries of Google. Finally, Google argued that the cases differ in substance, as Google and Apple apply a different business model.

The cases have not been joined, therefore Google managed to convince the court. Clearly, such a turn of events works in favor of the company. First of all, this will probably give Google more time to prepare its arguments in its own trial. Regardless of the outcome of the case against Apple, the Internet giant will be able to build its argumentation by pointing out the differences in the terms of service of Android and Google Play Store compared to iOS and App Store.

20-09-03 Google Opposing Co… by Florian Mueller

Fight fire with fire – Apple reacts with a countersuit

On September 8th Apple filed a response to the Epic Games lawsuit in court. In its reply, Apple not only referred to the arguments of Fortnite’s creators, but also decided to file counterclaims.

In its submission, Apple stated that Epic only pretends to be Robin Hood, while the case is “nothing more than a basic disagreement over money”. The company noted the value  presence on Apple’s platform for Epic Games, which the developer is now unwilling to pay for. Placing an alternative payment method without Apple’s consent was, in the company’s opinion, not only a breach of the agreement that Epic entered into with Apple, but also damaged the company behind devices bearing the symbol of a bitten apple. Apple argues that Epic Games itself knowingly first attempted to obtain preferential terms and then intentionally brought the damages upon itself, which it is now challenging in court. Interestingly, Apple refers in the motion to Epic Games’ relationship with Tencent (the Chinese giant owns 40% of the company), suggesting that it is the Chinese company that is behind the whole affair.

Apple’s reply is available here.

Coalition for App Fairness

Before the hearing set for September 28th, Epic Games, alongside 13 other companies including Spotify, deezer and Basecamp, announced the creation of the Coalition for App Fairness, an organization directly targeting Apple’s practices, which are the subject of Unreal Engine developers’ lawsuit.

Issues raised by the organization include anti-competitive practices contained in Apple services regulations, the 30% “Apple tax” on almost all iOS transactions and the lack of consumer choice. Microsoft recently responded to the organization’s calls by publishing 10 new app store principles on the Microsoft Store, which reflect those proposed by the Coalition for App Fairness.

Back to the court dispute: trial date set and preliminary injunction issued

On September 28th, the court hearing mentioned above took place. Both parties had a chance to present their arguments in the dispute before Judge Rogers and answer her questions. During the hearing (which could be watched on Zoom), the judge did not make a decision on the preliminary injunction, but on the basis of her remarks, conclusions can be drawn as to her current perspective on the case.

Epic pointed out that when deciding to enter into a dispute with the world’s largest company, he was aware that the fight would be difficult and Apple might want to “take revenge” on the company, so his in-court and out-of-court actions were planned and calculated. Fortnite’s creators argued that the distribution and payment system on iOS can be as open as on computers with macOS.

The judge observed that other parties are also accusing Apple of unfair conduct and this may affect the outcome of the dispute. The judge agreed with Apple’s argument that Epic had brought damages on itself in the dispute. She also pointed out that 30% of platform commissions seem to be a standard in the video games industry, and closed ecosystems such as iOS have existed for decades. On the other hand, the judge agreed with Epic regarding the argument that by adding an alternative payment system, Fortnite’s developers have been able to prove that an In-App Payment system is a separate service.

The decision on the preliminary injunction was made on October 9th. The judge upheld her earlier decision. Apple was ordered not to suspend Epic Games access to the Apple Developer Program because of Fortnite-related activities. However, the game will remain outside of the App Store, as the judge did not impose an obligation on Apple to bring it back.

Judge Yvonne Gonzalez Rogers also announced a schedule of further proceedings in the case. The trial date is set for May 3, 2021. Before the trial there would be a discovery phase, so the parties were given time to collect and present evidence in the case.

In the meantime, parties are still exchanging their replies and argumentation, which they are using to persuade the court. For example, Apple in its most recent response points out that even though Fortnite was removed from App Store, gamers are still able to avoid the Apple commission for in-game purchases. Everyone who installed the game from App Store before it was taken down (and did not uninstall it) can still play it, which includes buying DLCs using payments directly to the Epic Games.

US Congress published the outcome of its investigation against Big Tech

In the meantime, the US Congress has published a report concluding the investigation against Google, Amazon, Facebook and Apple concerning potential monopolistic practices.

The report directly refers to the Epic Games dispute with Apple and Google. The Committee on the Judiciary of the House of Representatives states that both companies are using their dominant position to impose high charges on mobile game developers and are blocking alternative payment systems.

It is also worth noting the comments of former Apple App Store director, Phil Shoemaker, included in the report. Shoemaker believes that the amount of commission charged by Apple does not have much to do with the costs incurred, and that the Apple Arcade service, present on the App Store, violates the same Apple’s guidelines, which Cupertino company refers to when blocking access to services such as Microsoft xCloud and Google Stadia. Apple Arcade (as well as Google and Microsoft services) provides access to a wide range of games in exchange for a monthly subscription.

The Commission also made recommendations. Among the Recommendations included, among others, the introduction of requirements prohibiting companies from forcing their own services, greater government control over the acquisition of other companies by Big Tech, the strengthening of antitrust regulations and broader control of the Congress over the activities of companies from the Silicon Valley. The recommendations are non-binding, but they indicate an increasingly strong change in the US authorities’ approach to operations of Big Tech, which includes Apple and Google.

Summary and analysis

In a nutshell, recent events can be summarized as follows: the dispute continues and is only just beginning to heat up, Fortnite remains outside the App Store and developers of games and applications using Unreal Engine on Apple devices can rest easy.

From the decisions and statements made by Judge Yvonne Gonzalez Rogers to date, it can be concluded that the judge is currently more inclined to rule in favor of Apple. It will be quite a challenge for Epic Games to convince the judge. However, it may turn out that the public discussion the case generates might be enough to make the changes that Epic argues for, if the discussion does not end.

In a broader context, it is worth to notice that regardless of the final outcome of the litigation (which may last for many years), dark clouds are gathering over Apple and other Silicon Valley giants. Both American and European authorities are beginning to see how much strength and impunity these companies have gathered and the need to regulate them.

The first consequences of the dispute on the situation in the industry can already be observed. In addition to the abovementioned rules introduced on Microsoft Store, Redmond company also announced a plan to revise the rules on the Xbox platform. Google, in turn, announced that it will make it easier to use alternative application stores (such as Epic Games Store) in the next version of Android. It seems that both corporations consider the forced change of the rules as feasible and decided to apply the first changes in order not to become the subject of further criticism.

The changes made in the direction proposed by Epic Games seem to be positive for the video game industry. The conclusions expressed in the previous post on LegalPlay remain applicable. Bigger competition in the mobile game distribution markets, including in-game payments, should result in more money flowing to the industry’s accounts (at the expense of platforms), enabling gamedev to grow even faster. It may also turn out that the changes will affect console markets as well, although in this case the situation is much more complicated, as console manufacturers often sell their devices at prices which are close to production costs, making their profits almost exclusively from selling console games.

One thing is certain: both sides are facing a long court battle. We will continue to follow and report on the latest developments in the case. To stay up to speed, we encourage you to visit our website regularly. If you have any question about the topic, feel free to ask us!

Main image: © Adobe Stock/Epic Games



Can LeBron James’ tattoos be replicated in sports video games?

From the video games industry perspective, the coronavirus lockdown does not seem to impact the operation of US courts. In last weeks, we got a few important decisions. One of them, described here on LegalPlay in the previous post, concerned the use of Humvees in Call of Duty games (and, more broadly, the use of trademarks in video games). Today, we would like to focus on the other one. It concerns the second best selling video game title in the US – NBA 2K series – and another American icon – LeBron James.

Tattoos could be considered a source of potential legal issues. As a work, they are usually protected by copyright. In general, the copyrights to the tattoo belong to the tattoo artist. As a result, the artist has a right (for example) to decide how the tattoo is disseminated or whether the person on which the tattoo is inked can remove or modify it. As the tattoos are placed on human body, it could lead to a conflict between copyright, publicity rights and a right to make decisions regarding one’s own body. The problem is not new – in the United States, there were cases involving the famous Mike Tyson’s face tattoo presented in The Hangover Part II or Carlos Condit’s tattoo presented in UFC Undisputed 3 video game. However, all past cases were settled – no final decision was made by the court. This time, the court had a chance to speak, and its decision would certainly make the gaming industry happy.

NBA 2K is the best-selling video game series which aspires to simulate the feeling of a professional NBA basketball game. 2K Games (and Take-Two, its owner), the publisher of the video games series, was sued by the company called Solid Oak Sketches. Solid Oak Sketches has acquired from their authors exclusive licenses to copyrights of five tattoos of three different basketball players – LeBron James, Eric Bledsoe and Kenyon Martin. Solid Oak claimed that 2K has infringed upon its copyrights when it included these five tattoos in their games without a license from Solid Oak.

In its defense, 2K has claimed that it was actually legal for 2K to include players’ tattoos in their games and it had three different legal bases to do so. Firstly, it argued that the use of the tattoos was de minimis and therefore not infringing. Secondly, it claimed that it had acquired implied licenses from the players to present their tattoos in the games. Finally, it held that 2K’s use of the tattoos was fair use under US copyright law.

Judge Swain has agreed with the publisher on all three arguments and included a great explanation of every one of them. To understand the decision, it is best to analyse these findings separately.

De Minimis Use

For a US court to find a copyright infringement, two matters must be demonstrated: that the defendant actually copied the plaintiff’s work and that the copying is illegal because there is a substantial similarity between the defendant’s work and the protectible elements of the plaintiff’s work. The first part is indisputable here – the tattoos were in fact copied in NBA 2K video games. However, the second part is more problematic for Solid Oak. To be substantially similar, the copying must be more than de minimis.

For the copying to be de minimis, the copying of the copyrighted material must be trivial. In the analysis of this issue, the court took into account the following circumstances: the amount of the copyrighted work that is copied, the observability of the copyrighted work and factors such as “focus, lightning, camera angles, and prominence”. To reach a decision in this, Judge Swain also employed an ordinary observer test.

Application of all these rules led the court to hold that the use of tattoos was de minimis. No reasonable lay person would say that the tattoos in games were substantially similar to those licensed to Solid Oak. The tattoos appear only on three players out of over 400 available in the games. The tattoos in games are very small – they are 4.4% to 10.96% of their real-life size. When they appear, their display is small and indistinct, because they appear in the environment of a dynamic basketball game. All these factors considered, the use of tattoos was de minimis.

Implied license

2K held that it had an implied license to feature the tattoos as part of the players’ likenesses. The tattooists who made the tattoos admitted that they knew when they were inking them on players’ bodies that players were likely to appear in public or in media presenting their works. Therefore, the artists gave non-exclusive licenses to the players to use the tattoos as part of their likenesses. Players have then granted NBA the right to license their likeness to third parties. NBA granted such license to the creators of NBA 2K. Additionally, the players also gave direct permission to 2K to use their likenesses in the games.

Because all these actions were taken before Solid Oak was granted the copyrights to tattoos, the court concluded that 2K Games were granted an implied license to use tattoos in the games.

Fair use

Determination whether the use of the copyrighted work is fair use and therefore not infringement, requires consideration of four factors: the purpose and character of the use, the nature of the copyrighted work, the amount and the substantiality of the portion used in relation to the copyrighted work as a whole and the effect of the use upon the potential market for or value of the copyrighted work.

Judge Swain held that the use of tattoos in the game was transformative – they were used for a purpose of recognizability of players in the game, which is a different purpose than that for which they were originally created. Once again, it has been pointed out that in-game tattoos are much smaller and harder to recognise as they appear only as glimpses on the screen. 2K has even provided the data that five disputed tattoos “comprise only 0.000286% to 0.000431% of the total game data”. Even if the use of the tattoos in the game was commercial, consumers do not buy the game because it includes players’ tattoos.

As to the nature of the copyrighted work, the court held that tattoo designs are in fact more factual that expressive, because each of them is based on some other factual work or includes motifs frequently used in tattoos, like flames. Such consideration makes it more likely for the fair use to be found. The court also held that in this case, the copying of entire works was necessary for the purpose of fair use – to make the game more realistic, so this factor does not weigh against the developers. Lastly, the court held that the transformative use of the tattoos in video games does not harm the market for “real” tattoos. There is also no market for licensing tattoos for the use in video games because no developers enters into this kind of agreements. All four factors weigh in 2K Games favor, therefore the court concluded that there was fair use in the disputed case.

2K Games scored a big win in this legal match. The judge has decisively held that the developers have legal right to show copyrighted tattoos if they acquired the license to feature players’ likenesses. This decision would certainly discourage other entities like Solid Oak Sketches, which planned to make money out of licensing tattoos for use in games or other media. The freedom of artistic expression has once again been protected. It is also a good sign that the video games industry is determined to fight for their rights in courts, therefore enriching the case law and helping other developers in similar situations. Unfortunately, district court decisions do not create binding precedents, so it is still safer for a tattooed person to get a written release from the tattooist than worry later.

In Poland, the copyright protection awarded to tattoos is similar. The dispute regarding Mike Tyson’s face tattoo, mentioned in the introduction, could have appeared in Poland as well, because famous Polish energy drink manufacturer has put the boxer’s likeness on drinks’ cans. The author of the tattoos could potentially impact the use of the tattoo. The person on which the tattoo is inked should keep in mind that in Poland, the tattoo artist also has moral copyrights, which give him even more ways to influence the use of a tattoo. On the other hand, one could argue (as it was argued in the case) that the tattoo artist is usually aware that the tattoo may be shown on person’s body in different situations and therefore gives the person an implied license to use it as part of its’ likeness.

This court decision is not final as it could still be appealed by Solid Oak Sketches, however according to Solid Oak’s attorney, it seems unlikely.

The decision can be read in full here.

Can Activision use Humvees in Call of Duty? An important decision for video games industry

The video games industry has had a troublesome relationship with the arms industry for quite some time. Companies like Electronic Arts or Activision Blizzard used to get into license agreements with gun manufacturers and include special thanks to them in game credits, which sparked controversies connected with the American debate on gun violence. At least from 2013, EA stopped entering into licenses with gun manufacturers, however it emphasised that it still has a right and intention to use them. Around the same time, EA has settled its case with the makers of Bell Helicopters regarding the use of the their machines in the Battlefield 3, where it held that the US Constitution’s First Amendment gives it a right to depict these machines in the game without obtaining licenses.

Last week (on March 31st), United States District Court for the Southern District of New York has issued a decision which confirms the view held by EA, however in a case involving another big publisher – Activision Blizzard. Almost three years ago, Activision has been sued by AM General, the manufacturer of the iconic military vehicle – the Humvee. AM General has asserted that Activision has used the Humvee without its permission in several Call of Duty titles, which meant it infringed upon AM General’s intellectual property rights. As it now turns out, it did not.

In short, the court has decided that because the use of the Humvee in the Call of Duty franchise has an artistic purpose, the First Amendment’s freedom of speech prevails over the trademark rights granted to the Humvee manufacturer. It has also compared the use of trademarked goods in video games to such use in other works of art, such as movies.

In its analysis, the court has applied the two-pronged standard test introduced in the Rogers v. Grimaldi case for the use of trademarks in works of art. Under the first prong of the Rogers test, court had to decide whether the use of the trademark has any „artistic relevance to the underlying work whatsoever”. The court said that it does, as Call of Duty games aim to provide players with a sense of realism, and featuring real-life military vehicle certainly helps that.

Under the second prong of Rogers test, the court had to analyse whether the use „explicitly misleads as to the source of the content of the work”. To decide this issue, the judge applied another standard test – eight-factor Polaroid test. Once again, the court sided with Activision stating that the use of Humvees in the games is not explicitly misleading. Although the strength of Humvee mark weighed in plaintiff’s favor, Activision prevailed regarding all other seven factors. AM General failed to prove that the consumers may confuse its’ products with Activision products. The judge has also pointed out that Call of Duty is not a product which competes with AM General’s products. Activision’s clients are consumers, whereas Humvees are addressed and sold mainly to armies.

According to a survey conducted by AM General, only 16% of consumers were confused as to the AM General’s association with Call of Duty. As the judge stated in the decision, “less than 20 percent confusion regarding two companies’ ‘association’… is at most some confusion”, not compelling enough to say there has been an infringement. Judge has also invoked the case regarding the use of a knockoff Louis Vuitton bag in the Hangover II movie, where it has been said that “moviegoers are sophisticated enough to know that the mere presence of a brand name in a film, especially one that is briefly and intermittently shown, does not indicate the brand sponsored the movie”. As the judge said, „there is no reason to believe that video game players are any less astute”.

As a result, the decision stated that the use of Humvees was legitimate. It was artistic in nature, because it enhanced the games’ realism, and the „realism can have artistic merit in itself”. There is also no substantial confusion as to the source the marks depicted in Call of Duty games. In a case of moderate risk of confusion, the First Amendment rights prevail.

Although it does not create any precedent, the US District Court decision is a great win for the video games industry. It is an important example of how to apply the Rogers test and how video games in the United States earn the same status as works of art as books, games or movies, in case of which you do not need to ask for a permission if you want to briefly show the trademarked product. The decision also shows that the First Amendment once again proves to be a very powerful tool in protecting the artistic expression in the USA. It is interesting to briefly consider how the case would be decided in Poland – it could be argued that such short incidental display of a trademark does not use the mark in its trademark functions. In Poland, however, the case law on the protection of artistic expression is not as widely developed as in the US.

The situation regarding this case could develop, as the decision could be appealed by AM General. The full text of the decision can be found here.

Coming to Steam: second-hand game sales? A few words on the Valve ruling in France

A few days ago the European gaming community was electrified with a news story from France. On 17 September a French court issued a ruling, referred to as „monumental” or „landmark” by some commentators (including the plaintiff), in the case of a French consumer protection association UFC-Que Choisir brought against Valve, the operator of Steam.

According to the ruling, issued after almost 3 years of proceedings, the court stated that Steam is not allowed to prohibit its users, in their Terms and Conditions, from selling their digitally purchased games. In the court’s opinion, the reselling of digital entertainment licenses is not prohibited on any legal grounds. Therefore, it should be allowed, just as it is the case with physical copies of video games, due to the fact that “the author no longer has control over subsequent resales” once they’ve exhausted their right to the material by authorizing the initial sale.

The consequences of this ruling could potentially be significant for the whole digital video game retail market and expand from the French jurisdiction to the whole Europe, provided, of course, that the ruling is upheld by the court of appeal. Steam and other operators would have to remodel the functionalities of their platforms (not to mention their business models) to allow the players to rescind ownership of their digital licence and transfer it to the buyer.

But the impact and potential legal problems could be much more significant than that. Take for example skins, personalised weapons or armour and other in-game purchases or loot acquired from loot boxes. Would those items expire or get transferred to the buyer along with the game? If so, would the seller be entitled to claim a higher price for the extra content in the game? And if they would, how would that affect the legal qualification of loot boxes in various European jurisdictions, when they would gain monetary value?

The gamers’ community on Reddit (r/Games) quickly identified other possible consequences of adopting that approach:

  • move to subscription based models;
  • no more free content updates;
  • shutting down servers of re-sellable games;
  • no more seasonal sales or discounts, instead – frequent and steady price reductions;
  • fewer offline games and general increase in gameplay time;
  • EU becoming a separate market (like China), possibly some games not being available in the EU.

The experts agree, however, that it is much too soon to count your chickens and start pricing your virtual shelf. There is going to be an appeal, which may very well overturn the ruling. The idea of exhaustion of the publisher’s rights in the digital context (which would prevent the publisher from interfering with second-hand dealing with digital content and, therefore, allow players to re-sell their digital games) has been widely discussed for years, including, in particular, in the case of Oracle v UsedSoft (2012), where it was stated that the exhaustion takes place in relation to software. However, as video games are – quite obviously– much more than just software, the interpretation of the UFC-Que Choisir v Valve case may vary, especially because, to an extent, different laws will be taken into account.

The actual, not hypothetical, impact of the French court ruling remains to be seen. Some argue that in the ever-evolving digital entertainment market, seeing constant changes in the content consumption models, the core question of digital exhaustion may soon become irrelevant. Maybe in a few years, maybe even before the case is finally resolved, the actual possession of a copy of a game will be obsolete, due to common use of streaming? The law hardly ever keeps up the pace of technology, so this is, indeed, very probable. We must wait and see for ourselves.