10 Court Rulings That Changed The Video Game Industry

The law significantly impacts the video game industry, which becomes most apparent when courts rule on major gaming matters.

Video games are a form of interactive entertainment that has existed for decades. As such, it's not surprising that they are subject to legal frameworks, whether legislation, jurisprudence, legal doctrine, or other regulations. However, while laws may be enough to cover most video game-related concerns, there inevitably comes a time when they don't, or are ambiguous, at the very least. That's when the courts step in.

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Most video game cases are eventually settled out of court to avoid a long process that could risk ultimately yielding a negative result. That said, a few cases, the truly coin-flip ones, complete their procedural trip through the courts all the way to the ruling, where their fate is entirely in the hands of judges. Owing to their landmark nature, these cases often shake the industry to its core and become important precedents for video game jurisprudence.

Loot boxes are consumable virtual boxes that contain a randomized selection of items or loot. As such, players don't know what is in the box before purchasing it. Hence, many have argued that loot boxes constitute a form of gambling, which could violate gambling regulations in many jurisdictions. However, the use of virtual currencies and the guarantee that players will always obtain something, even if it isn't what they wanted, have been an obstacle to regulating loot boxes through the current gambling legal framework.

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In February 2023, an Austrian district court changed this status quo when it voided a contract between Sony and several FIFA players who spent over €85,000 on player card packs. According to the ruling, since it is possible to trade FIFA card packs on a secondary market, they constitute a "financial benefit" under the Austrian Gaming Act because resellers can profit from chance. Therefore, the court classified loot boxes as "illegal gambling" in violation of Austria's gambling monopoly. While loot boxes remain legal in Austria, they will require a license. This ruling is monumental in providing a roadmap for regulating loot boxes and compensating affected plaintiffs.

When there are many authors for a single work, dividing the co-authorship rights can become a headache. Co-authorship is of particular concern in the video game industry as there can be anywhere from a single to hundreds of developers working on a single game, not to mention having to deal with studios and publishers. Copyright laws may provide for this eventuality in great detail, but nevertheless, how much of a contribution is required in order to be considered a co-author is not always clear.

In December 2015, the Quebec Superior Court faced a dispute over the development of Extreme Roadtrip. Roofdog Games Inc. lead developer Germain had spent $20,000 and 1200 hours on the game when Seggie had volunteered to contribute some artwork for free. Seggie demanded a 25% share of the profits when the game became a success. The court ruled against Seggie, stating that he had not, among other things, made a substantial contribution to the game. The judge opted for a more flexible framework instead of imposing a rigid percentage of contribution for co-authorship, which encourages developers to hammer out better contracts with clear language regarding authorship.

Most video game cases are purely intellectual property disputes, but many also have a labor component. It's not unheard of for developers to leave a studio for another or, as is increasingly the case, start their own independent studios. Beyond losing talent, studios can find themselves losing market shares as their former employees use their previous experience and knowledge to compete against them. As such, big studios usually insist on non-compete clauses in their employment contract to prevent this scenario.

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In October 2003, the Quebec Court of Appeals found itself in a battle between Ubisoft and EA. Ubisoft sought an injunction to stop five former employees who were part of its Tom Clancy: Splinter Cell core team from being hired by their rival EA. The Civil Code of Quebec allows employers to prevent former employees from competing against them by contract. Since four of the five developers had a non-compete clause in their contract, the court granted Ubisoft's injunction, preventing EA from hiring them. This case is significant for solidifying the legality of non-compete clauses.

The Digital Millenium Copyright Act, or DMCA, became a household name only a few years ago, but the law was passed in 1998 as a way for the US to conform to the WIPO treaty. Importantly, the new measures strengthened copyright laws against potential infringers who traffic in technology primarily designed to circumvent a technological measure that effectively controls access to a copyrighted work. The statute would significantly impact cheaters depending on how deeply they tamper with the game itself.

In December 2010, the US 9th Circuit Court of Appeals was seized by Blizzard. The company MDY had programmed a bot to grind early levels of World of Warcraft for its subscribers. Blizzard reacted by enacting the Warden technology, which blocked unauthorized third-party software from connecting to WoW. In reaction, MDY created another software to hide the bot from Warden. Ultimately, the court sided with Blizzard. Indeed, while Warden did not affect the game's literal elements in the files and resources, MDY's interference with it did affect the "non-literal elements," like a player's dynamic experience. This unprecedented interpretation of copyright opened the door to copyrighting functional gameplay aspects of a video game that go beyond mere creative expression.

The concept of technological neutrality stipulates that copyright law should not discriminate between any particular form of technology. For example, whether someone chooses to play Street Fighter on a Commodore 64 or an arcade machine, the law shouldn't privilege one over the other. In the age of the internet, the distinctions between physical and digital copies of a game can often be murky in many regards, but when it comes to technological neutrality, the statute is clear.

In July 2012, the Supreme Court of Canada ruled on a major case. The ESA represented publishers and distributors who allowed players to download games from the internet. SOCAN represented musicians who had copyrighted music in video games. SOCAN argued that a downloaded copy constituted a ­communication of the games to the public via telecommunication, which would entitle the musicians to additional compensation. However, the court disagreed, stating that the musicians were already fully compensated because it couldn't discriminate between a physical copy bought in-store and a digital copy downloaded from the internet. In the Copyright Act, communicating means executing or performing, not creating a digital copy of the game. So, for example, streaming is a form of communication, but selling a game on Steam is not.

Violence in video games is a topic that refuses to go away, no matter the era. Since the first wave of video games on arcades and primitive computers, various organizations have advocated for stricter regulations, especially for violent games like Grand Theft Auto. Some countries like Germany censored video games like Wolfenstein over a fraught history with Nazis. Other countries like New Zealand or the UK even outright banned games that indulged in gratuitous violence, like Manhunt 2. There is no end to scrutiny against video games, even from ostensibly free countries.

In June 2011, the US Supreme Court rendered one of the most important rulings in video game history. Striking down a California law that banned selling video games to children without parental supervision, the court ruled that video games were a form of speech protected under the US Constitution's First Amendment. Few video game rulings concern fundamental rights, but this is the most significant constitutional win for the industry and gamers.

A right of publicity is a right to one's own likeness. When it comes to likeness, the resemblance between a real-life person and a game character, for example, must be close to uncanny to violate this right. This is especially important for sports games like FIFA or Madden because EA is literally using players' images. In that case, they would have to do so with their permission, which could include compensation for using their likeness.

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In May 2013, the US 3rd Circuit Court of Appeals caught EA violating the right of publicity. Ryan Hart was an NCAA college football player for Rutgers between 2002 and 2005. EA used Hart's likeness to create a nameless player for its NCAA Football game without permission, which EA said was protected by freedom of expression because it created a new character. Nevertheless, Hart sued EA for violating his right of publicity. The court would notice that the video game character inspired by Hart resembled him to a T right down to his biographical information. The ruling sided with Hart stating that EA had not "sufficiently transformed" his likeness to call it a "new expression."

Steam is a digital distribution service for video games founded and run by Valve. PC gaming in the information age is almost synonymous with Steam. As of late, Steam's sheer dominance as a digital game distributor has earned it accusations of acting as a monopoly. While Valve is usually fighting with publishers, the developer can also find itself up against unhappy customers. Depending on how much a jurisdiction protects consumer rights, litigation can become a headache for platforms like Steam, especially in Europe.

In October 2022, the Court of Appeal of Paris rendered an important ruling on video game consumer rights. The Federal Union of Consumers sued Valve over abusive clauses in Steam's Subscriber Agreement. The Union contested many of the Agreement's clauses, from Terms of Service to data privacy and intellectual property rights. Overall, the court ruled in favor of Steam, with most of its Agreement considered legal. The only clause found to be abusive requires Steam mods created by players to be licensed to Valve in perpetuity without any clear compensation package outlined. This ruling isn't the most impactful, but it's one of the few addressing video game consumer rights.

Reverse engineering is the act of deconstructing a product to extract design information from them. The act is legal, but the lines can blur when using company assets. Nowadays, many companies are very protective of their intellectual property and will explicitly prohibit reverse engineering through user licenses. When the video game industry was still in its infancy in the 1990s, even large companies had trouble navigating the legal maze.

In October 1992, the US 9th Circuit Court of Appeals set an important precedent. At the time, Sega would systematically impose licensing deals on third-party developers for the Genesis console in exchange for Sega's copyrighted cartridge code. Wishing to avoid extra costs, Accolade reverse-engineered the Genesis and later the Genesis III to program their cartridges for compatibility. Sega sued for copyright infringement. The court disagreed because Accolade reverse-engineered to understand how to make their own games compatible, which falls under fair use, and not to pass off Sega's work as their own, which would be infringement. This case was highly influential in establishing fair use guidelines for reverse engineering, and as a result, advancing hardware development.

Every gamer has heard of Pong – the game where two players bounce a white pixilated dot across the screen. Arcade machines were popular back when Pong was at the top of the video game world, and one of those machines was Magnavox's Odyssey. Magnavox was granted a very broad patent on its devices for "ball and paddle" games, which will set the company on a collision course with Activision, a major developer for the Atari 2600, Commodore 64, and the first PCs.

In May 1988, the US Federal Circuit Court of Appeals rendered the first video game ruling in history. Magnavox had the patent for games like Tennis and Ice Hockey that followed the "ball and paddle" format and sued Activision for not licensing. Activision argued for a narrow patent reading, while Magnavox argued for a broad reading. The court ruled in favor of Magnavox and foresaw that it wouldn't make sense to narrowly define video game patents as specific circuitry on a board to account for technological advances. Instead, the spirit of the patent would protect a video game's expression as much as the functional aspects that make the game playable.

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Bhromor is a law student at the University of Ottawa Faculty of Law. Working in the courts by day and professional journalist by night, Bhromor loves turning his academic knowledge into writing. In his spare time, he enjoys presenting panels at conventions and playing video games.