Legal Geek No. 139: Sales Tax Everywhere and Westworld Game Ripoffs

Hi, and welcome back to Legal Geek. This week, we cover the interesting Supreme Court sales tax decision from this week and then dive into a new lawsuit alleging that the Westworld phone game app is simply a ripoff and infringement of Fallout Shelter.

https://archive.org/details/LegalGeekEp139

The Supreme Court ruled in a case entitled South Dakota v. Wayfair that internet retailers such as Overstock, Wayfair, and Amazon can be required by states to collect sales tax on product sales to consumers regardless of whether they have a significant physical presence in the state.  This 5-4 decision overturns a 1992 case called Quill in which it was decided that the Constitution bars states from collecting sales taxes unless a seller has a so-called substantial connection to the state.  That opened the loophole for online retailers to avoid paying sales taxes in some or many states, which was a competitive advantage over local brick-and-mortar stores.

The decision is a victory for local businesses and for the states themselves, which have missed out on a lot of sales tax revenue over the past 25 years.  The biggest negative impact will be felt by small online sellers who now have to figure out how to comply with up to 50 different state laws and tax codes.  The dissent in this decision raised that very concern, but with the named defendant being one of the major online retailers who can handle such logistics, that argument did not win the day.  So expect to pay more sales tax online if you prefer the convenience of online retail.

Turning to our second topic of the week, Bethesda Softworks sued the Canadian game developer Behavior Interactive and Warner Brothers for allegedly ripping off Bethesda's popular Fallout Shelter game when making the recently-released Westworld game app.  Behavior was contracted by Bethesda to help make Fallout Shelter, and they were contractually obligated to confidentiality as well as turning over all intellectual property in this work to Bethesda.

However, it appears from the similar core mechanics of Westworld and Fallout Shelter that some of the game design and/or source code may have been re-used when Behavior worked on the Westworld game for Warner Brothers.  That's precisely what Bethesda is claiming, leading to charges of copyright infringement, breach of contract, and misappropriation of trade secrets.  

The rapid development of the Westworld app by the same team that had previously done Fallout Shelter does raise some red flags, particularly in view of the significant similarities and overlap between the games outside the themes.  While companies have a right to compete in the marketplace following work on a business deal, they must do so while avoiding any intellectual property and contractual issues.  It is typical for companies like Bethesda to protect their investment in the work they pay companies like Behavior to do, both by contract and by work made for hire copyright assignments, and this is done to prevent easy shortcuts to competition, as may have happened here.

If the court finds a contract breach or IP infringement, Behavior and WB may be estopped from continuing the Westworld game or could have to turn over all profits to Bethesda.  In the meantime, if you enjoy Fallout Shelter, you'll probably also enjoy the Westworld game.  We'll keep an eye on this case to see what develops between these parties. 

The Bottom Line is, when there's profit to be made, and with over 120 million players, Fallout Shelter has proven there's profit in this game design, companies will use whatever legal protections they have to keep that profit as long as possible.  While the larger entities here in Bethesda and WB will probably be inclined to settle this dispute at some point, the lesson for the small company Behavior will be to avoid making such mistakes in future contracts or game design work.

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