"Famous Last Words"

The '690 Attack (March 2005)

Dear Jim,

I heard there is a 3-D patent case going around the games industry. As a developer, is this something I should worry about?

Dear UK:

Patent litigation is a traditional profit center in the games industry.

Magnavox was not successful with its early Odyssey system; but a patent it controlled covering collisions of a pixel with an object on a raster screen display resulted in huge settlements. A big judgment against Activision led to Activision's bankruptcy and reorganization when the patent was litigated by Philips Corporation, parent of Magnavox.

Similarly, the original Atari, as a video game pioneer and patent owner, engaged in patent fights with its competitors when it could no longer compete in the hardware and games arenas.

American Video Graphics, L.P. (“AVG”) is the owner of United States Patent No. 4,734,690, filed April 6, 1987 and granted March 29, 1988, titled “Method and Apparatus for Spherical Panning.”

The patent describes a method of displaying 3-D panning and a zoom feature on a graphics display terminal.

In 2004, McKool Smith, a Texas law firm, filed suit in the United States District Court in Tyler, Texas against 12 publisher defendants, claiming that multiple games released by these twelve infringe upon what has become known as the ‘690 patent.

Defendants are Electronic Arts, Take-Two, Ubisoft, Activision, Atari, THQ, Vivendi Universal, Sega of America, Square Enix, Tecmo, LucasArts, and Namco Hometek. Several of these defendants have joined together to mount a common (and very costly) defense.

McKool Smith has undertaken extensive research into the game releases of each of the defendant publishers. It has cited many, many examples of games it claims infringe the patent. Letters have also been sent by McKool Smith to developers and publishers of 3-D view MMO games threatening litigation unless patent license fees are paid.

In selecting its litigation targets, McKool Smith has chosen to go where the money is. But even if developers are not named in the lawsuit, they will most certainly feel the fury.

Here's why.

Development contracts commonly contain the following representation (or a close variation):

“Developer warrants and represents that (the Game) is not and will not be the product of copying of any property or creation of any third party and does not and will not constitute an infringement of the patents, copyrights, trademarks, trade secrets or other intellectual property, publicity, property, privacy, or proprietary rights of any third party.”

This is often followed by an indemnification clause:

“Developer hereby indemnifies and holds Publisher harmless from and against: (i) any and all damages, losses, obligations, liabilities and (ii)any and all costs and expenses, including attorneys' fees and expenses, suffered, sustained, incurred, or required to be paid by and of them as a result of any claim alleging breach of any of the representations or warranties set forth herein or the infringement or misappropriation of any patent, copyright, trademark, trade secret or other intellectual property, publicity, property, privacy, or proprietary right of any third party.”

If a developer has represented to its publisher that the game will not infringe any patent, and the indemnification requires that developer hold the publisher harmless against any claim that if proven true would constitute a breach, the developer may be contractually liable to its publisher for the entire cost of the defense plus any award or settlement if the suit comes to that conclusion.

I regard the broad impact of the AVG Patent litigation as the business equivalent of the Indonesian tsunami sweeping over the game industry.

The AVG patent was unknown to every publisher and developer. The fact that twelve publishers have been named, and that many, many games will be cited as potential infringers, makes it clear that this was an unknown patent, a landmine waiting to explode.

Since developers are commonly on shaky financial ground, if the full brunt of these indemnity claims falls to them, this entire strata of the industry could be wiped out.

Publishers who believe a vibrant developer community is critical for the long term creative and commercial growth of the industry should consider releasing their developers from potential publisher liability under their patent representations and indemnities in regard to the ‘690 patent. There is no evidence of intentional or even reckless developer conduct here. Developers should offer to assist their publishers in any way as publishers mount the defense.

For every developer, I strongly urge never make a blanket representation that a game does not infringe upon a patent. An alternative for a developer is to represent that it will not knowingly infringe on a patent, or that to the best of its knowledge and belief, no patent has been infringed in development of the game.

For games in progress, I recommend developers consider asking their publishers to waive all claims against them arising out of the ‘690 patent. In the alternative, developers may want to consider refusing to deliver code that may be infringing (since to do so may result in default under their I.P. representations cited above). This refusal could mean the end of 3-D games until the litigation is resolved.

An approach such as this could be viewed as the “Lysistrata” solution (after the Greek drama by Aristophanes in which the women of Athens refused to have sex with their husbands and lovers until the war was ended).

The ‘690 patent litigation is an attack on the industry as a whole. It is indeed something for developers to worry about – but if developers and publishers can find common ground, and help one another in the ways that each is best suited, it is an attack can be fought and peace can come again.