James Gatto


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James Gatto

  1. 1. Gamblification! Interaction between Social Games and Online Gambling James Gatto Leader, Social Media & Games Team Social Gambling & Gaming Summit December 10, 2013 Pillsbury Winthrop Shaw Pittman LLP
  2. 2. GAMBLIFICATION High Reward High Risk Convicted on 103 of 104 Counts on Internet Café Sweepstakes Faces Up to 30 Years in Prison 2 | Gamblification!
  3. 3. Enforcements are Increasing  Internet Sweepstakes Enforcements – FL, OH, CA, NC ….  Internet Gambling Arrests  Prediction Markets – Intrade  And the list goes on! 3 | Gamblification!
  4. 4. Key Takeaways The law lags innovative technology/business models Recognize there is great risk … including jail Understand that there is subjectivity in the law Details make a difference May not get certainty, but can certainly minimize risk if ….. Get knowledgeable counsel and follow advice 4 | Gamblification!
  5. 5. Social Media/Games Meets Gambling Mechanics 5 | Gamblification!
  6. 6. Gamblification Range of Activities  Illegal gambling  Lotteries Not-gamblification  Legal, regulated gambling  Non-real money casino games  Contests/sweepstakes business models  Win stuff in games/mini-games  Non-real money prediction markets 6 | Gamblification! Gamblification
  7. 7. Overview of Competitive Landscape  Casinos  Gambling Technology Companies (IGT, Aristocrat, SG, etc.)  Social Games Companies  Legal Online Gambling Operators (off-shore)  Platform Providers 7 | Gamblification!
  8. 8. Sample Acquisitions  Caesar’s – Buffalo Studios and Playtika  IGT – Doubledown  Bally Technologies - SHFL Entertainment 8 | Gamblification!
  9. 9. Legal Issues 9 | Gamblification!
  10. 10. Patents Where there is rapid innovation… there are significant patent filings Gamblification is no exception! 10 | Gamblification!
  11. 11. What CAN be patented? Short answer: If you can build it, you can patent it!  Features  Functions  Processes  Business methods  More 11 | Gamblification!
  12. 12. What CANNOT be patented? The only three categories the Supreme Court has ruled to be not patentable: Abstract Ideas Laws of Nature Natural Phenomena What these exclusions have in common is all are not tangible 12 | Gamblification!
  13. 13. US Patent Office Entire Classifications Related to Aspects of Gamblification 13 | Gamblification!
  14. 14. US PATENT CLASSIFICATIONS Class: 273 Amusement Devices: Games Sub-class Title 269 Lotto or bingo type 270 With attached pieces 271 Alignment games (e.g., tic-tac-toe, go-moko) 272 Word, sentence, or equation forming (e.g., SCRABBLE, hangman) 273 Memory or matching games (e.g., concentration) 274 Betting or wagering board (e.g., casino) 14 | Gamblification!
  15. 15. US PATENT CLASSIFICATIONS Class: 463 Amusement Devices: Games Sub-class 9 Title In a game requiring strategy or problem solving by a participant (e.g., problem eliciting response, puzzle, etc.) 10 With chance element or event (e.g., backgammon, Scrabble, etc.) 11 Card- or tile-type (e.g., bridge, dominoes, etc.) 12 Ultimate outcome dependent upon summation of plural card or tile values (e.g., blackjack, etc.) 13 Ultimate outcome dependent upon relative odds of a card or tile combination (e.g., poker, etc.) 16 In a game of chance (e.g., lot, etc.) 17 Lot match or lot combination (e.g., roulette, lottery, etc.) 18 Plural lots (e.g., keno, etc.) 19 Plural matches create pattern (e.g., bingo, etc.) 20 Lot-to-lot combination (e.g., slot machine, etc.) 21 Having means to alter combination probability 22 Lot generator (e.g., card distribution, simulated dice, random number generator, etc.) 25 Credit/debit monitoring or manipulation (e.g., game entry, betting, prize level, etc.) 15 | Gamblification!
  16. 16. US PATENT CLASSIFICATIONS Class: 700 Data processing Sub-class Title 90 Specific Application, Apparatus or Process 91 Contest or contestant analysis, management, or monitoring (e.g., statistical analysis, handicapping, scoring) 92 Scoring 93 Probability determination or handicapping 16 | Gamblification!
  17. 17. US PATENT CLASSIFICATIONS Class: 705 Data processing: financial, business practice, management, or cost/price determination Sub-class 14.1 Title Discount or incentive (e.g., coupon, rebate, offer, upsale, etc.) 14.11 Trade or exchange of a good or service for an incentive 14.12 Incentive awarded or redeemed in connection with the playing of a video game 14.13 Determining discount or incentive effectiveness 14.14 Chance discount or incentive 14.16 Referral award system 319 Social networking 17 | Gamblification!
  18. 18. US PATENT CLASSIFICATIONS Class: 715 Data processing: presentation processing of document, operator interface processing, and screen saver display processing Sub-class Title 700 Operator Interface (e.g., graphical user interface) 757 Virtual 3D environment 848 Interface represented by 3D space 850 Navigation within 3D space 851 On-screen navigation control 18 | Gamblification!
  19. 19. US PATENT CLASSIFICATIONS Class: 902 Electronic funds transfer Sub-class 23 Title Electronic transfer of funds for an entertainment, amusement, or gambling application 19 | Gamblification!
  20. 20. Common Misconceptions | Patents Take Too Long Misconceptions Truth  Getting a patent takes too long   The games industry moves so quickly that patents are obsolete before they issue Can take 2-5 years to obtain a patent under normal process  Properly drafted patents apply to more than one game  Innovative features, functions, and mechanics typically last through several generations of games within a genre  Track I procedure can cut time to 69 months 20 | Gamblification!
  21. 21. Common Misconceptions | Only Valuable if Enforced Misconception Truth Patents are only valuable if they are enforced  Patents have many types of value – offensive and defensive  Patents can act as a deterrent for competitors with patents  Filing patent applications can make obtaining patents harder for competitors  Patents are assets that add to the overall value of a company  New patent rules enhance defensive value of patents (First to File) 21 | Gamblification!
  22. 22. Legal Issues with Gamblification How do you ensure that you stay on the legal side of things? Comply with U.S. Federal and State Law and Foreign Laws 22 | Gamblification!
  23. 23. Overview of US Federal Laws  Most federal laws do not define gambling  Most federal statutes facilitate enforcement against activities that violate state (or federal) gambling and illegal lottery laws  except sports betting 23 | Gamblification!
  24. 24. Overview of Federal Laws UIGEA prohibits businesses from knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the Internet and that is unlawful under any federal or state law. Targets financial institutions/payment processors 24 | Gamblification!
  25. 25. Overview of Federal Laws UIGEA Does Bitcoin get around this? No payment processor? Even if so, need to address state law 25 | Gamblification!
  26. 26. Overview of Federal Laws Important UIGEA exclusions for Gamblification participation in any game or contest in which participants do not stake or risk anything of value other than: i.personal efforts of the participants in playing the game or contest or obtaining access to the Internet; or ii.points or credits that the sponsor of the game or contest provides to participants free of charge and that can be used or redeemed only for participation in games or contests offered by the sponsor The points or credits exclusion may cover various forms of virtual currency But still need to consider state law 26 | Gamblification!
  27. 27. Overview of State Laws State Lottery/Gambling Laws      Most substantive law is state law Most states have laws prohibiting illegal lotteries Many have separate anti-gambling laws Many state laws were written pre-Internet Some states are now crafting specific legislation to address online gambling 27 | Gamblification!
  28. 28. The Formula for Gambling Consideration + Chance + Prize = Illegal 28 | Gamblification!
  29. 29. The Formula for Gambling Typical scenario  User pays money to participate in an activity  Receives a chance to win  A cash prize or valuable tangible goods 29 | Gamblification!
  30. 30. The Formula for Gamblification Remove one of the three components  Remove consideration/payment: prize + chance = Sweepstakes  Remove chance: prize + consideration = skill-based contest  Remove prize: consideration + chance = ??? (who would pay for a chance to win nothing of value?) 30 | Gamblification!
  31. 31. Consideration not every time a user pays money is there the type of consideration that triggers gambling money is not the only type of consideration that may be relevant (consideration can be non-monetary) 31 | Gamblification!
  32. 32. Consideration? Examples: Product Promotion Sweepstakes McDonald's Monopoly Game Buy Big Mac/fires; get prize token for chance to win $$$ Illegal? – pay, chance to win, prize No! – because free AMOE (no purchase necessary) 32 | Gamblification!
  33. 33. Consideration? Examples: Text to Win Sweepstakes Get chance to win by sending text Illegal? Yes (in some states because premium text charge) 33 | Gamblification!
  34. 34. Consideration? Examples: Fantasy sports pay entry fee for chance to win league monetary prize Illegal gambling? No – payment for services/predetermined prize not based fees Humphries v. Viacom (NJ) 34 | Gamblification!
  35. 35. Chance vs. Skill Some states:     Predominantly skill = skill even if some chance Material degree of chance Any chance Pure chance 35 | Gamblification!
  36. 36. Prize Prize must be something of value Zynga poker - buy chips for real money, earn chips, but can not cash out Man convicted in UK for stealing $12 million Zynga poker chips Virtual goods usable only in game = value? 36 | Gamblification!
  37. 37. Impact of Virtual Goods/Currency When virtual goods or currencies are used, determining if there is a payment or prize can be more complicated Does virtual good/currency have value? How did the player acquired the virtual good/currency? What can the player do with the virtual good/ currency? With whom can the virtual currency be used? Is it a “dual currency” model? Is there a secondary market? Check out our paper: Overview of Legal Issues with Virtual Currency (www.socialgameslaw.com) 37 | Gamblification!
  38. 38. Secondary Markets Online markets where virtual goods, virtual currency, accounts, avatars, etc. are bought, sold, traded Most contravene the terms of service and can result in termination of user account 38 | Gamblification!
  39. 39. Impact of Second Markets on Value Do Secondary Markets create “value” for virtual goods? What if you can sell Zynga poker chips for real money? Could this impact a lottery/gambling analysis? 39 | Gamblification!
  40. 40. Impact of Secondary Markets on Value? NCAA Lottery Case  People interested in NCAA Final Four tickets sent in $150 per ticket and $6 handling fee (consideration)  Winners determined “randomly” (chance)  For losers, NCAA returned the $150 but kept the $6  For winners, NCAA kept the $150 + the $6 40 | Gamblification!
  41. 41. Impact of Secondary Markets on Value? NCAA Lottery Case  Illegal Lottery? Consideration = ($6)? Chance (random draw) Prize (ticket that can be scalped for multiples of face value)? 41 | Gamblification!
  42. 42. Impact of Secondary Markets on Value NCAA Lottery Case Court concluded the tickets were not prizes  NCAA created the primary market for the tickets, and the value realized by the NCAA is in fact the face value of the tickets  But for the NCAA issuing tickets to one of its events, there could never be a secondary market  Mere speculation that the tickets would have an increased value in a secondary market 42 | Gamblification!
  43. 43. Impact of Secondary Markets on Value Key Takeaway from NCAA Lottery Case?  An item is not a prize in a lottery if no market exists for the item before it is offered by the person running the purported lottery  Beneficial ruling for social media and game companies that issue virtual goods or currency in certain gamblification models Caveat: these facts, this court; others facts/states might differ 43 | Gamblification!
  44. 44. Internet Sweepstakes Cafés pay for time chance to win free AMOE like McDonald’s Monopoly Sweepstakes 44 | Gamblification!
  45. 45. Kompu Gacha        Creative monetization model Could only win virtual goods – no cash out! Declared illegal – Japanese FTC Several major game companies Stocks dropped 20% Targeted kids? No fixed odds/consumer complaints? If consumers complain – regulators will focus Just cause others are doing it … doesn’t make it legal 45 | Gamblification!
  46. 46. Check out our blog for more on gamblification www.socialgameslaw.com 46 | Gamblification!
  47. 47. Questions? James Gatto Pillsbury Winthrop Shaw Pittman LLP Social Media & Games Team Leader Tel: 703-770-7754 1650 Tysons Boulevard, McLean, VA 22102-4856 Email: james.gatto@pillsburylaw.com www.pillsburylaw.com/socialmedia 47 | Gamblification!