Hi, and welcome back to Legal Geek. This week, we review how patent acquisition and enforcement in a potentially trolling manner can backfire to the tune of millions of dollars, in a case over automatic card shufflers used in gaming settings like casinos.
https://archive.org/details/LegalGeekEp145
An Illinois federal court awarded over $300 million dollars of trebled damages to a group of companies this week in a dispute over automatic card shufflers. That's a pile of money even a casino would pay attention to. How did this seemingly simple technology get to this verdict in court?
The story begins in 2012 when a company called Shuffle Tech patented and developed some new automatic card shuffling machine technology, and then collaborated with other companies like DigiDeal to manufacture and market these to casinos and other gaming establishments. The goal was to make and sell about 1200 of these machines a year, with a profit margin of $7,500 dollars on each one.
But when this machine debuted in late 2013 and began to be sold, a patent infringement lawsuit was filed by Scientific Games, another player in the shuffling market. The patent infringement lawsuit was expensive as always in the U.S., and defending this lawsuit ate up most of the seed money Shuffle Tech had collected for building its business. Thus, Shuffle Tech had to quit making shuffling machines and sell its own IP, pushing this new company out of the market.
Shuffle Tech and the collaborators then filed an antitrust lawsuit against Scientific Games, arguing that Scientific Games enforced patents which it knew to be invalid. To this end, in the U.S. there is an obligation for patent applicants to cite any material and relevant prior art they are aware of so that the Patent Office can properly consider all the evidence before granting a patent. Shuffle Tech noted that prior art that seemed to invalidate the patents they were sued upon was cited by Scientific Games in other cases at the Patent Office, but not these ones. In other words, the claim was that Scientific Games knowingly committed fraud on the Patent Office, and thus, was violating antitrust laws when enforcing invalid patents against Shuffle Tech.
Scientific Games argued against this assertion, noting that it had a good faith belief these non-cited prior art documents were not highly relevant to the new cases. But the Illinois court apparently disagreed, imposing a verdict and damages of $105 million dollars against Scientific Games this month, and then tripling the damages to $315 million, as is customary in antitrust law cases. So whether Scientific Games was using troll-type litigation activity or just bad faith in the patent process, the end result was a massive verdict against it. Perhaps just competing in the open market with Shuffle Tech would have been better.
The Bottom Line is, while some companies may not want to comply with the U.S. patent rules to disclose a lot of prior art information when that information is known, the potential risks outweigh the potential gains. By not doing proper due diligence when applying for the patent here, Scientific Games lost in the end their patents and also millions of dollars on top of it. You truly do have to know when to hold em and know when to fold em in this field, which is something a casino equipment company should likely know.
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Tuesday, August 21, 2018
Tuesday, August 7, 2018
Legal Geek No. 144: Scooters Take the Streets, and Create Legal Issues
Hi, and welcome back to Legal Geek. This week, we review a new scooter craze for mobility options in cities and the legal issues they are creating.
Just this past week in my own town of Cincinnati, the company Bird descended upon us with a slew of rentable motorized scooters that people can use to easily transport from one part of town to another. Bird is one of three electronic scooter companies, the others being Lime and Spin, to hit the streets in recent weeks and months in major cities. It's basically a more advanced version of bike share programs available in many cities, or a less advanced version of electronic car rentals available in some cities.
The rentals are fairly inexpensive as well, typically costing $1 plus a few cents per minute. Thus, many people have immediately taken advantage of this new option for mobility in cities, but this has already begun to raise some legal issues and concerns.
First, electronic scooters are much like bikes in that it can be unclear whether they belong on the roadways or on the sidewalk with pedestrians. This lack of clarity has led to some accidents, and liability issues for such accidents can be hard to sort out in a new context where the rules are not clearly established. Furthermore, cities are needing to adjust just like they have with rentable cars and bikes to dealing with problems such as scooters being left in inconvenient places around the city.
But the biggest potential issue actually relates to privacy law for the consumers, which is something most users will not think about when deciding to rent a scooter. All three of these companies persistently track your whereabouts when on the scooter, so as to protect themselves from loss of the scooters. This comes with the downside that these companies know exactly where their consumers have been, which could include information on attending things like political protests or certain religious services. As of now, the companies have not disclosed how long they reserve this information, and they have explicitly reserved the right to share the information with third parties.
Organizations like the ACLU are already expressing concerns with these practices from the scooter companies, and they may be able to pressure the companies to at least better disclose their privacy and information policies. But if you plan to take advantage of this new mobility option, you should do so with the knowledge that they are tracking you, associating your movements with the identity information they collect such as driver's license and credit card information.
The Bottom Line is, new technologies can make things like mobility within a city much easier, but they often come with new legal issues to figure out. While in the early phase of things like the scooter craze, consumers need to stay as informed as possible of the risks involved before agreeing to use the new technology. That being said, I suspect many of these issues will be sorted out and it will be for the better for all who have this new additional option.
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Monday, July 23, 2018
Legal Geek No. 143: The "Top Secret" Patent Purgatory
Hi, and welcome back to Legal Geek. This week, we cover the topic of secret or classified patents, which is a field of patent applications most people do not realize even exists.
Back in the days of World War I and II, Congress authorized the Patent Office to classify certain patent applications related to defense technologies. As the Cold War ramped up in 1952, this process became permanent law when the Invention Secrecy Act was enacted. The Act prevents disclosure of new inventions and technologies that, in the opinion of defense, intelligence, or other informed government agencies, pose a threat to national security.
There are multiple levels of secrecy order that the Patent Office can apply under the Act. On the lighter side, an invention may be prohibited only from export but still allowed to be disclosed to third parties for legitimate business purposes. This ranges all the way up to a full secrecy order, which bars the issuance of the patent, requires secure and secret storage of the invention, and restricts foreign filings and any public disclosures.
While these orders are often applied to government and military contractors based on the technologies they develop, regular citizens have also fallen into this purgatory of the patent world when their inventions are deemed critical to national security. The number of patent applications being held in secret is typically around 4 to 7 thousand, although the number is expected to grow alongside the growth in overall patent filings. In some circumstances, like a patent granted on a rocket motor technology in 2009 but filed in 1998, the application can be delayed for 10 years or more. And there's nothing an applicant can do about it, in reality.
The primary criticism of this secrecy order practice of the USPTO is that there is very little oversight of the agencies giving guidance to the Patent Office on whether an invention truly meets the definition of posing a threat to national security. Furthermore, the Patent Office will not even share the criteria used for determining whether to consider a secrecy order, deeming this as protected under national security as well.
Indeed, the government tends to be over inclusive when it comes to protecting national security. For example, solar panel technology was almost subject to secrecy orders in the 1970s, but these have obvious non-military useful applications. More recently, a patent issued on a cryptograph in 2000 for a patent filed in 1936, at which point the technology for manual decoding of messages was decades out of date technologically.
The Bottom Line is, the secret patent system does serve a purpose in certain limited circumstances and technological fields, but the potential downside for applicants left in purgatory or on hold is staggering. It's unlikely that this practice will go away, but legal challenges are happening to try and open up more visibility on the process. The whole point of patents is to promote innovation by disclosing inventions to all, so it's ironic that this system also shuffles some inventions into the darkness, sometimes for many years or even decades.
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Monday, July 16, 2018
Legal Geek No. 142: Winter is Coming for one HBO Brand Competitor
Hi, and welcome back to Legal Geek. Although I promised another Supreme Court themed-segment last week, three long ones in a row is a bit heavy, so we'll come back to that in a week or two to look ahead at the Roberts Court. Instead, this week, we review the latest conflict HBO has entered in the branding space, this time over a company trying to register the phrase "Winter is Coming" as a trademark.
HBO's Game of Thrones brought home a leading 22 Emmy nominations this week for last summer's Season 7, and with such a hot and marketable property, the network is highly defensive at protecting any IP that may arise and be marketable from this show. Another example of this also happened this week when HBO opposed a trademark application for "Winter is Coming" on wine as applied for by a company named Purple Wine Company.
When a company or individual files for a trademark with the U.S. government, the application is first examined for whether the mark qualifies for protection, e.g., does it conflict with any prior registrations in the same field of goods or services or is it merely descriptive or generic, etc. If it passes examination and is allowed, the mark publishes for a period of weeks so that third parties can oppose the registration if they believe they have superior rights to the mark. That's what happened here, as HBO regularly monitors the allowed published new marks for conflicts such as this.
Unlike some other high-value IP companies who need to rely on prior common law use to try and oppose such a trademark registration, HBO has 4 different trademark registrations already finalized on this phrase, which is the title of the first episode of the show as well as the household motto of the Starks, our primary protagonists on the show. Even though HBO does not necessarily cover wine itself in these other trademark registrations, the breadth of goods extends to related items like wine glasses and the like, so it's a fairly clear case to be made that consumers may find confusion in the use of the same name on another product like wine if it is not licensed by HBO.
Particularly where a company like HBO has multiple prior trademark registrations on a mark, like in this case, the opposition position tends to be difficult for the new applicant to overcome. Thus, I expect the Purple Wine Company's application to be withdrawn and if anything, a license agreement may be reached between these parties to allow the use of the Winter is Coming name while giving HBO its fair share.
When a company or individual files for a trademark with the U.S. government, the application is first examined for whether the mark qualifies for protection, e.g., does it conflict with any prior registrations in the same field of goods or services or is it merely descriptive or generic, etc. If it passes examination and is allowed, the mark publishes for a period of weeks so that third parties can oppose the registration if they believe they have superior rights to the mark. That's what happened here, as HBO regularly monitors the allowed published new marks for conflicts such as this.
Unlike some other high-value IP companies who need to rely on prior common law use to try and oppose such a trademark registration, HBO has 4 different trademark registrations already finalized on this phrase, which is the title of the first episode of the show as well as the household motto of the Starks, our primary protagonists on the show. Even though HBO does not necessarily cover wine itself in these other trademark registrations, the breadth of goods extends to related items like wine glasses and the like, so it's a fairly clear case to be made that consumers may find confusion in the use of the same name on another product like wine if it is not licensed by HBO.
Particularly where a company like HBO has multiple prior trademark registrations on a mark, like in this case, the opposition position tends to be difficult for the new applicant to overcome. Thus, I expect the Purple Wine Company's application to be withdrawn and if anything, a license agreement may be reached between these parties to allow the use of the Winter is Coming name while giving HBO its fair share.
The Bottom Line is, big companies with valuable marks, such as HBO and the Game of Thrones family of trademarks, will typically have the resources to legally enforce and block others from registering or using the rights. This is already the 5th time HBO is opposing an allowed trademark this year, including recent filings against mark applications for Slot of Thrones and for Game of Rooms. But this one is probably the strongest case in favor of the TV network giant, so winter has indeed come for this Wine Company. Of course, if you ever file for trademark and find yourself opposed in this process, it's best to contact me or another attorney to help guide you through the options of this complicated trademark process.
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Friday, July 6, 2018
Legal Geek No. 141: The Legacy of Justice Anthony Kennedy
Hi, and welcome back to Legal Geek. This week, we take a look at the 30 year history of Justice Kennedy on the Supreme Court, as he steps aside following this past term.
https://archive.org/details/LegalGeekEp141
Unlike many justices, including Justice Scalia who we profiled a couple years ago, Kennedy will go down in history as a critical swing vote who truly charted the course of many major decisions as the law has developed in the courts over the past 3 decades. But let's start at the beginning, which was an interesting circumstance for how Kennedy even ended up on this court.
Kennedy was a graduate of Stanford University and Harvard Law School, and after a few years in private law practice he was appointed to serve as a judge on the 9th Circuit Court of Appeals in his home state of California. A decade later, he was nominated by President Reagan in 1987 to be the third choice to fill a seat on the Supreme Court, after the first two nominees Robert Bork and Douglas Ginsburg were voted down and withdrew from consideration. He was such a better nominee than those peers that he sailed through confirmation with a 97-0 vote at the Senate. So this bit of a happy accident led to what became a 30-year run on the highest court in the land.
Kennedy was fairly conservative overall and sided with those judges more than with liberal judges, but he had many libertarian beliefs that would cause him to sometimes disagree with his fellow conservatives or moderate their opinions. This led to him being a swing vote for much of his career at the court, and involvement in many critical and historic decisions of the court. For example, Kennedy was in the majority in 5-4 opinions 346 times during his tenure, compared to being in the minority of a 5-4 decision only 126 times.
Some of his most important decisions include co-authoring the Planned Parenthood v. Casey decision in 1992 that affirmed Roe v. Wade and the right to have abortions. Kennedy was also the deciding vote in the Bush v. Gore 2000 case that ended the recount and effectively awarded the presidency officially to George W. Bush. Another important opinion by Kennedy was in Roper v. Simmons, which outlawed as unconstitutional the death penalty for crimes committed before the defendant turns 18.
While all of these were seminal and important moments where Kennedy spoke on behalf of a 5-4 split in the Court, his primary legacy will be in two areas: LGBT rights and First Amendment protections. This makes sense, as his libertarian views often put him right in the middle on these issues, and he was able to craft quite a legacy in both areas.
Relative to LGBT rights, his first major opinion in the mid-90's was in Romer v Evans, in which the Court struck down a Colorado constitutional amendment denying protected class status to LGBT individuals. In 2003, he authored the Court's opinion in Lawrence v. Texas, finding a Texas law prohibiting sodomy as unconstitutional. Then he made an even bolder move in the 2013 U.S. v. Windsor case where he held the Defense of Marriage Act, which defined marriage as only between a man and a woman, as unconstitutional. That led to his crowning achievement, the 2015 Obergefell v. Hodges decision that recognized a constitutional right to same-sex marriage. Under Kennedy's tenure, the Court went from stopping outright discriminatory laws against LGBT to recognizing fundamental rights of those same people.
Perhaps an even greater legacy will be left in First Amendment practice, where Kennedy was always expansive in his readings of the protections offered by this constitutional amendment. Almost every year Kennedy drafted 1 or more opinions based on his views of the First Amendment, including the recent Trump v. Hawaii case that we covered last week for the 2018 term. Last year he authored the Matal v. Tam trademark case that removed the Lanham Act's ban on disparaging trademarks as being improper viewpoint discrimination by the government under the First Amendment. Most notable in this field was the 2010 decision in Citizens United v. Federal Elections Commission, which freed corporations and unions from the limits previously applied to how much money these organizations can spend on political advertising.
Unlike many justices, including Justice Scalia who we profiled a couple years ago, Kennedy will go down in history as a critical swing vote who truly charted the course of many major decisions as the law has developed in the courts over the past 3 decades. But let's start at the beginning, which was an interesting circumstance for how Kennedy even ended up on this court.
Kennedy was a graduate of Stanford University and Harvard Law School, and after a few years in private law practice he was appointed to serve as a judge on the 9th Circuit Court of Appeals in his home state of California. A decade later, he was nominated by President Reagan in 1987 to be the third choice to fill a seat on the Supreme Court, after the first two nominees Robert Bork and Douglas Ginsburg were voted down and withdrew from consideration. He was such a better nominee than those peers that he sailed through confirmation with a 97-0 vote at the Senate. So this bit of a happy accident led to what became a 30-year run on the highest court in the land.
Kennedy was fairly conservative overall and sided with those judges more than with liberal judges, but he had many libertarian beliefs that would cause him to sometimes disagree with his fellow conservatives or moderate their opinions. This led to him being a swing vote for much of his career at the court, and involvement in many critical and historic decisions of the court. For example, Kennedy was in the majority in 5-4 opinions 346 times during his tenure, compared to being in the minority of a 5-4 decision only 126 times.
Some of his most important decisions include co-authoring the Planned Parenthood v. Casey decision in 1992 that affirmed Roe v. Wade and the right to have abortions. Kennedy was also the deciding vote in the Bush v. Gore 2000 case that ended the recount and effectively awarded the presidency officially to George W. Bush. Another important opinion by Kennedy was in Roper v. Simmons, which outlawed as unconstitutional the death penalty for crimes committed before the defendant turns 18.
While all of these were seminal and important moments where Kennedy spoke on behalf of a 5-4 split in the Court, his primary legacy will be in two areas: LGBT rights and First Amendment protections. This makes sense, as his libertarian views often put him right in the middle on these issues, and he was able to craft quite a legacy in both areas.
Relative to LGBT rights, his first major opinion in the mid-90's was in Romer v Evans, in which the Court struck down a Colorado constitutional amendment denying protected class status to LGBT individuals. In 2003, he authored the Court's opinion in Lawrence v. Texas, finding a Texas law prohibiting sodomy as unconstitutional. Then he made an even bolder move in the 2013 U.S. v. Windsor case where he held the Defense of Marriage Act, which defined marriage as only between a man and a woman, as unconstitutional. That led to his crowning achievement, the 2015 Obergefell v. Hodges decision that recognized a constitutional right to same-sex marriage. Under Kennedy's tenure, the Court went from stopping outright discriminatory laws against LGBT to recognizing fundamental rights of those same people.
Perhaps an even greater legacy will be left in First Amendment practice, where Kennedy was always expansive in his readings of the protections offered by this constitutional amendment. Almost every year Kennedy drafted 1 or more opinions based on his views of the First Amendment, including the recent Trump v. Hawaii case that we covered last week for the 2018 term. Last year he authored the Matal v. Tam trademark case that removed the Lanham Act's ban on disparaging trademarks as being improper viewpoint discrimination by the government under the First Amendment. Most notable in this field was the 2010 decision in Citizens United v. Federal Elections Commission, which freed corporations and unions from the limits previously applied to how much money these organizations can spend on political advertising.
And this First Amendment philosophy was exactly what made the recent Colorado baker case so interesting, as it put an LGBT couple's rights against a First Amendment argument being made by the baker who refused to bake the cake. Kennedy found a way to avoid the conflict between his two judicial beliefs by deciding that case on mostly procedural grounds, avoiding the First Amendment implications that would have perhaps undercut some of his work in expanding LGBT rights. It really makes for a fitting end for both parts of the primary legacy Kennedy leaves from his 30 years at the Supreme Court.
The Bottom Line is, Anthony Kennedy may go down as one of, if not the most influential and important justice of this era. His unique views compared to his fellow justices allowed moderation and compromise, as both sides always needed to seek Kennedy's support to win the day. It will likely be impossible to replace Kennedy with someone truly similar, particularly if Trump picks the replacement from his Federalist Society approved list of conservatives, so we will turn our attention to what the Court will begin to look like in our next segment. Until then, we salute Justice Anthony Kennedy for his long outstanding service to the country and his additions to the jurisprudence of this nation.
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Monday, July 2, 2018
Legal Geek No. 140: Supreme Court Wraps 2018 Term
Hi, and welcome back to Legal Geek. This week, we review the series of major decisions we haven't yet discussed as the Supreme Court 2018 term wrapped up earlier this week with its usual flurry of notable June decisions. Lots of blockbusters to hit, and we'll do it rapid-fire style.
In Masterpiece Cakeshop v. Colorado Civil Rights Commission, the Supreme Court ruled 7-2 in favor of a baker who refused to bake a cake to celebrate the marriage of a same-sex couple. Justice Kennedy wrote the opinion, which is ironic considering he also wrote the Obergefell decision 3 years ago that made same-sex marriage legal. However, this decision was very narrowly-tailored to the facts of this case, in that the court found the Civil Rights Commission to have purposefully targeted the baker based on his religious beliefs, which leaves open the larger constitutional questions about whether such business practices are acceptable under the law. As big as this case seemed in the news, the decision does not set much of a precedent.
In Trump v. State of Hawaii, the most recent version of the President's travel ban was challenged by Hawaii as an unconstitutional restriction on immigration based on his campaign statements from 2016 promising to shut down muslim immigration into the U.S. After the first two versions of his executive order were thrown out in court, a third version has passed the Supreme Court in a 5-4 decision. Justice Roberts wrote the opinion, finding that the President has broad powers under the Immigration and Naturalization Act to make decisions based on national security such as this, but Justice Kennedy wrote a concurring opinion where he noted just because something is constitutional doesn't mean it is right to do. So the current ban against entry from 6 primarily muslim countries stands, but with major disdain from one of the majority justices.
In Janus v. American Federation of State, County, and Municipal Employees, an Illinois employee of a government agency challenged the right of a labor union to collect fair share fees from non-union members for the services labor unions provide for the benefit of all workers. A prior 1977 Supreme Court decision called Abood had allowed this practice, but the Court overruled this in a 5-4 decision based on First Amendment concerns relating to forcing non-union members to subsidize private speech they may disagree with. The conservative majority noted this would put a financial burden on unions, but decided this was OK because of the prior windfall from non-members under the old precedent.
One decision where the liberal justices on the court won the day was in Carpenter v. United States, in which Justice Roberts joined those 4 justices in a 5-4 decision prohibiting the government from accessing historical cell phone location records without a search warrant, deeming that practice violates the 4th Amendment of the Constitution. This privacy law decision was surprisingly not joined by Justice Gorsuch, who has often sided against the government when it comes to privacy concerns, and that makes this a pretty solid indication that the court will remain strong in protecting citizen's rights with new technologies against government intrusion.
Finally, in National Institute of Family and Life Advocates v. Becerra, a California law requiring religious pregnancy clinics to inform clients about alternative state programs for family planning services including abortions was deemed unconstitutional in a 5-4 decision. The conservative justices led by Justice Thomas ruled that this law was a violation of the First Amendment free speech rights because it regulates and targets certain speakers, rather than the speech itself. The State's argument that the law was needed to outreach to low income pregnant women was not found compelling enough to save this law.
Although these are all huge decisions by the Supreme Court, perhaps the biggest news of the week is the court's senior most justice and swing vote Anthony Kennedy is retiring immediately. We will cover his legacy and where the Court goes from here in the next couple weeks, but it is striking that this set of major end-term decision on Kennedy's final term looks a lot like the future, with a lot of conservative justice majorities with the occasional time Justice Roberts sides with the liberal justices.
In Trump v. State of Hawaii, the most recent version of the President's travel ban was challenged by Hawaii as an unconstitutional restriction on immigration based on his campaign statements from 2016 promising to shut down muslim immigration into the U.S. After the first two versions of his executive order were thrown out in court, a third version has passed the Supreme Court in a 5-4 decision. Justice Roberts wrote the opinion, finding that the President has broad powers under the Immigration and Naturalization Act to make decisions based on national security such as this, but Justice Kennedy wrote a concurring opinion where he noted just because something is constitutional doesn't mean it is right to do. So the current ban against entry from 6 primarily muslim countries stands, but with major disdain from one of the majority justices.
In Janus v. American Federation of State, County, and Municipal Employees, an Illinois employee of a government agency challenged the right of a labor union to collect fair share fees from non-union members for the services labor unions provide for the benefit of all workers. A prior 1977 Supreme Court decision called Abood had allowed this practice, but the Court overruled this in a 5-4 decision based on First Amendment concerns relating to forcing non-union members to subsidize private speech they may disagree with. The conservative majority noted this would put a financial burden on unions, but decided this was OK because of the prior windfall from non-members under the old precedent.
One decision where the liberal justices on the court won the day was in Carpenter v. United States, in which Justice Roberts joined those 4 justices in a 5-4 decision prohibiting the government from accessing historical cell phone location records without a search warrant, deeming that practice violates the 4th Amendment of the Constitution. This privacy law decision was surprisingly not joined by Justice Gorsuch, who has often sided against the government when it comes to privacy concerns, and that makes this a pretty solid indication that the court will remain strong in protecting citizen's rights with new technologies against government intrusion.
Finally, in National Institute of Family and Life Advocates v. Becerra, a California law requiring religious pregnancy clinics to inform clients about alternative state programs for family planning services including abortions was deemed unconstitutional in a 5-4 decision. The conservative justices led by Justice Thomas ruled that this law was a violation of the First Amendment free speech rights because it regulates and targets certain speakers, rather than the speech itself. The State's argument that the law was needed to outreach to low income pregnant women was not found compelling enough to save this law.
Although these are all huge decisions by the Supreme Court, perhaps the biggest news of the week is the court's senior most justice and swing vote Anthony Kennedy is retiring immediately. We will cover his legacy and where the Court goes from here in the next couple weeks, but it is striking that this set of major end-term decision on Kennedy's final term looks a lot like the future, with a lot of conservative justice majorities with the occasional time Justice Roberts sides with the liberal justices.
The Bottom Line is, the Supreme Court tackled a lot of big issues in the first full term with a full roster since the long break with 8 justices when Antonin Scalia died. Now the Court will have a new make-up, but you can expect many similar issues to reach the court where the President or lawmakers continue to push boundaries to see what is constitutional. We will continue to watch to see how the Court shifts on these major issues in future segments.
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Monday, June 25, 2018
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.
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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Thanks for reading. Please provide feedback and legal-themed questions as segment suggestions to me on Twitter @BuckeyeFitzy
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Do you have a question? Send it in!
Thanks for reading. Please provide feedback and legal-themed questions as segment suggestions to me on Twitter @BuckeyeFitzy
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