Monday, September 30, 2019

Legal Geek No. 188: Is "Scraping" Data illegal under U.S. Law?

Hi, and welcome back to Legal Geek.  This week, we cover a California federal case decided this week on whether "scraping" of publicly-available data on websites is illegal when against the terms of service of the website provider.

Last December we covered an interesting web scraping case where Alan Ross Manufacturing tried to craft intellectual property causes of action to stop web scraping and content copying of another company.  If you don't recall that segment, "scraping" is the process of extracting data from the HTML of a webpage in a similar manner as a person viewing the website on a browser, generally for the purposes of data collection and manipulation.

This case stems from a small company called hiQ, which scrapes data from publicly-available portions of LinkedIn and sells reports to employers about which of their employees may be looking for new jobs.  LinkedIn sent a cease and desist letter to hiQ, indicating that such practice was against their terms and also illegal under the Computer Fraud and Abuse Act, the 1986 anti-hacking law still in effect today in the U.S..

We've also covered the CFAA before, and it makes it a crime to access a computer without authorization or exceed authorized access.  This law is broadly written because it predates modern web technologies, but the law is still in force and is continually being interpreted for how it works in the modern context.  LinkedIn argued for an interpretation of the CFAA that would make any affirmative action of an owner, including a cease and desist letter, prohibitions in terms of service, and technical measures like IP-based blocking be sufficient to show that the offending access was unauthorized and effectively illegal hacking under the law.

The California district judge declined such an interpretation of the CFAA.  He noted that when you publish a publicly-available website, it is like having open store hours in that you implicitly give members of the public permission to access that data.  The judge argued that such a broad reading could enable website owners to block access for any reason, including improper reasons like gender discrimination, with the backing of a threat of federal law supporting such blocking.  In short, the potential outcomes from interpreting the CFAA to cover hiQ's conduct in this case would be very problematic for future cases.

The judge further drew a line between public and private portions of websites generally being distinguished by password authentication or the like.  If a page is available to the public without a password, it's presumptively public and any download of data from that should not be considered a violation of the CFAA.  That may also be a key element of whether this decision gets overturned if it is appealed to the 9th Circuit Court of Appeals.

A prior 9th Circuit decision was issued in 2016 regarding scraping of Facebook data from another company, and in that case, the scraping was deemed illegal under CFAA based on a cease and desist letter sent by Facebook to the scraping company.  However, one distinction there is that the data scraped was behind password protection, albeit with the permission of the password owner.  That will certainly be what hiQ argues is a critical distinguishing factor should this get appealed and LinkedIn tries to make that 2016 precedent case apply again here.  We will monitor for such an appeal, as it will help define an important new frontier of how the federal anti-hacking law will be applied moving forward.

The Bottom Line is: no matter how this case linking web scraping and anti-hacking laws comes out, it seems likely that there will be a push in the coming years for Congress to supplement the CFAA with updated new laws better defining the limits of modern web practices with regard to criminality.  If that does not occur, there will continue to be many cases where old, broad language gets interpreted based largely on societal norms like this California case or litigants coming up with unique claims to avoid being locked into the CFAA, as done on other cases we've covered.  Once again, the law struggles sometimes to keep up with the tech.

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Tuesday, September 24, 2019

Legal Geek No. 187: Everybody Copies Warcraft

Hi, and welcome back to Legal Geek.  This week, we cover a new lawsuit filed last month by Blizzard Entertainment against a competing game developer for allegedly knocking off many elements of their series of Warcraft games.

As most listeners of Frogpants network shows know, Blizzard has recently released WoW Classic, a revisit to the original days of World of Warcraft.  That endeavor has been very successful, at least initially, so Blizzard knows the market power of copying elements of Warcraft and reusing them in new game titles.  Warcraft has been a primary profit driver for Blizzard since the initial game's release in 1994.

As such, it should not be surprising to see Blizzard also cast a wider net in trying to stop unfair competition and copying of this same valuable intellectual property.  In this case, a Hong Kong company called JoyFun Inc. released a game entitled Glorious Saga on mobile and web platforms last October.  The marketing materials for Glorious Saga appear to use many visual and audio elements that appear to be copied from the Warcraft series.

Indeed, the alleged copying goes well beyond the marketing materials intended to get players interested in Glorious Saga.  Players of that game have reported that all kinds of original Warcraft elements such as names and artwork for characters, locations, and weapon designs are pulled directly from the Warcraft universe.  Of course, JoyFun did not approach or obtain a license to use this subject material, assuming it is protected by copyright or other IP.

So Blizzard filed the lawsuit in California to try and shut down Glorious Saga and its game servers.  Blizzard makes the case in its Complaint that JoyFun has also previously ripped off IP elements from Pokémon and Yu-Gi-Oh in other games without taking appropriate licenses of the underlying IP.  To this end, JoyFun operates in that legal gray area where they often force companies like Blizzard to pursue them formally to stop this type of game development practice.

The Bottom Line is: While some consumers may have mixed feelings about Blizzard enforcing IP rights in court, in this case Blizzard is still actively developing and exploiting their own Warcraft universe.  That makes it harder to justify what JoyFun is doing at the same time, assuming they did copy these original assets from Warcraft in the Glorious Saga game.  We will continue to monitor to see if JoyFun puts up any significant defense to this lawsuit, at least when we aren't busy leveling in The Barrens or Stranglethorn Vale.

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Tuesday, September 17, 2019

Legal Geek No. 186: Clash of Patent Validity Clans

Hi, and welcome back to Legal Geek.  This week, we cover the first decisions coming down in the massive legal battle over patents alleged to cover basic aspects of successful video game apps such as Clash of Clans.

A company called Gree holds various patents on video game improvements in Japan and the U.S., and they have started to assert such patents against successful game developers such as Supercell, the maker of Clash of Clans and Clash Royale among other titles.  This has launched a worldwide patent battle between Gree and Supercell that is reminiscent of other massive worldwide patent disputes, such as Apple vs. Samsung over mobile phones.

This legal battlefield includes a lawsuit pending in Japan between the companies as well as a series of validity challenges filed against Gree's patents by Supercell in the U.S. Patent Office.  Supercell filed 18 petitions for post grant review or inter parties review challenging that many Gree patents as invalid under U.S. Patent rules, and considering each PGR or IPR process can cost tens to hundreds of thousands of dollars per petition, this is clearly an early step in a multi-million dollar patent war.

The Patent Trial and Appeal Board, the administrative judges who handle such PGR's at the Patent Office, instituted trials on 10 of the 18 Supercell petitions, which means 10 Gree patents are going through the process of detailed validity review this year.  Most of them are challenged based on the Supreme Court's decision in Alice v. CLS Bank, which set standards for what Abstract ideas are not eligible for patent protection in the U.S.

While this battle between the parties may merit future updates, this segment reports on the first couple significant decisions occurring in these PGR proceedings which the Patent Trial and Appeal Board handed down this month.  

First, one of Gree's patents relating to "improving unexpectedness, dramatic impact, and taste when medals or game items are provided as a reward to a player" was stricken down as invalid because it was merely covering a patent-ineligible Abstract idea.  Gree had tried to distinguish their patent from the wagering game rules that have been deemed invalid Abstract ideas by Federal Circuit court opinions in recent years, but the Appeal Board did not find this distinction persuasive.  This is actually the second Gree patent to fall afoul of Alice rules so far, joining another one that tried to broadly cover a method for displaying a battle scene in a computer game.

Second, another Gree patent covering how to execute a battle in a video game was also indicated to be invalid as an Abstract idea by the Appeal Board in a separate proceeding, but the Appeal Board granted Gree the right to amend their claims to add in more detail that may help the claims be directed to patent-eligible subject matter.  Such requests to amend have only been granted by the Appeal Board in about 10% of PGR proceedings over the past few years, so this is a rare and significant win for Gree.  The key will now be for Gree's counsel to develop claim amendments that properly recite how the battle execution system improves the computer system by achieving reduced processing loads and quicker execution times, as these features have been deemed critical to showing that the Abstract idea of the claims is limited to a practical application, one of the ways you can achieve patent eligibility under the Alice rules.

The battle will go on between these two companies and it looks like it could help craft precedent that will define patent eligibility in the video game field for the next few years.

The Bottom Line is: Supercell is a highly profitable company and it makes sense to defend against broad-scale patent infringement claims and attacks to avoid losing all of that profit to Gree.  The Patent Trial and Appeal Board is continuing to apply the recent decisions I've been critical of that say game rules and mechanics by themselves are too Abstract for patent eligibility, so perhaps some of these cases could lead to an appeal of that issue to overturn what I personally believe to be bad precedent hurting all game designers in the tabletop and video game fields.  We will continue to monitor for such developments.

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Friday, September 6, 2019

Legal Geek No. 185: Grand Theft Tax Evasion

Hi, and welcome back to Legal Geek.  This week, we cover an investigative report recently released that indicates Rockstar North, the maker of the Grand Theft Auto video game series, has paid no tax in their home country for 10+ years. 

An investigative nonprofit called Tax Watch UK revealed 2 weeks ago that Rockstar has received over 52 million dollars of tax credits over the past three years.  Furthermore, this report indicated that Rockstar has not paid UK tax for 10 or more years running.  This is interesting because the company is based in Scotland and normally would be a tax boon for the UK.

Especially when you consider that the estimated operating profit of the company is about $5 billion dollars in the same time period, it begs the question, where did all the taxes go?  Perhaps this is a real life case of grand theft, but tax evasion instead of auto carjacking.

Rockstar does operate as a subsidiary of Take-Two Interactive, a U.S. company.  Take-Two believes it is reasonable to push all profits from intellectual properties developed in foreign subsidiaries into the U.S. parent company, thereby allocating these profits to be taxed under U.S. law.  These are done by an internal accounting process called internal royalties, which are paid to selected employees of the U.S. parent company to allow them to allegedly participate in the success of the software titles they help develop.  However, participation really just means moving all the profits to a tax-friendly jurisdiction, probably.  Take-Two has a history of this even with respect to US taxes, having used Bermuda to isolate profits from significant taxation in the 2000s.

The primary problem is that the grant of the tax credits to the Rockstar UK company are for the purposes of boosting growth and profits within the country so as to also increase the overall prosperity and tax base collectible from businesses in the country's economy.  So this nonprofit watch group is asking for a review of future tax credits based on this possible violation of so-called arms length principles that govern when multi-national companies can move profits between jurisdictions.

Generally speaking, arms length principles would not allow for what Rockstar and Take-Two are doing here because the IP is being made in Scotland and the marketing of the product and sales are also in Scotland.  There's nothing criminal about the practice, but the tax benefits may be withdrawn if Take-Two continues to funnel all profits away from Rockstar's home country.

The Bottom Line is: large multinational companies are just like individuals in that we all try our best to pay as little tax as possible.  That leads to stories like this where a home country does not receive any significant taxes sometimes for a decade or more, despite the wild success of a game maker like Rockstar with the GTA series.  International tax evasion may just be a good theme for the next GTA game as well.

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Thanks for reading. Please provide feedback and legal-themed questions as segment suggestions to me on Twitter @BuckeyeFitzy