Lawyers Evolve with Industry Changes in Video Games

As the video game industry gathered recently in Los Angeles for the Electronic Entertainment Expo (E3), there was a great deal for those in the business to be optimistic about. Last year, video game software unit sales increased 15% in the United States, according to market research companies. And one report released in May 2009 revealed that nearly two out of every three Americans played a video game of some kind within the past six months, compared to only about half of U.S. consumers who went to a movie over the same period.

All this activity hasn't been lost on the lawyers whose practices are focused on the video game industry. “Games remain very popular and video game companies are relatively bullish,” says Mark Skaist, a Newport Beach, CA-based partner at Stradling Yocca Carlson & Rauth who has been representing video game publishers and developers in transactional matters for 17 years. Skaist adds that while many of his clients have lately been asking for discounted rates, he hasn't received those requests from those in the video game business.

Among the issues driving demand for lawyers with experience in the industry is the still-evolving nature of the business model on which game makers rely. Increasingly, Skaist and others with industry experience say, the traditional practice of developers creating games and then handing them over to publishers is being replaced by a model in which game developers play a critical role throughout the process of bringing a game to market.

“There are more developers looking to step up to the plate with self-funded or partially funded games that they are able to monetize on better terms than the traditional model,” says Patrick Sweeney, a counsel in the interactive media and entertainment practice at Nixon Peabody. The firm's practice represents publishers, outside investors, developers and advertisers.

The continued popularity of massively multiplayer online games like Sony's EverQuest, and the growing popularity of games played on mobile devices, such as Apple's iPhone, and on social networking sites is making the traditional business model obsolete.

Sony's Free Realms, which debuted earlier this year, is one of the latest examples of the industry's constant evolution. The tween-targeted, multiplayer online game had attracted one million users just 17 days after being released. The game also employs a micro-transaction business model under which players pay for virtual goods instead of a set fee to participate in the game.

While developing Free Realms, Sony turned to Latham & Watkins partner Roxanne Christ. “The shift to micro-transactions as a revenue model for the game raised legal issues that needed to be addressed,” Christ says. Lawyers at Latham were involved in establishing the rules that would govern players' digital wallets, in addition to drafting end-user licensing agreements and helping Sony navigate its relationships with outside development studios.

Innovations like micro-transactions and the video game industry's growing entrepreneurial bent has resulted in more work for lawyers who know the territory, Skaist says. “Now that developers are doing things themselves, they have me working on rights clearance and other distribution related issues,” Skaist says. Previously, the developers' legal needs mostly involved contracts with publishers.

In recent years, large national firms have been keen to seek out this work. Last year, Los Angeles-based Sheppard Mullin established a video game industry practice to counsel companies ' including game developers and publishers ' on patent, entertainment, labor and tax issues. The group's clients have included Activision, which Sheppard Mullin represented in a patent infringement claim, and Sony Online Entertainment.

Two years ago, Nixon Peabody acquired four-attorney video game boutique Offner & Anderson. David Anderson, who co-founded the firm and is now a Nixon Peabody partner in Los Angeles, says Offner's video game industry clients outgrew their exclusively corporate capabilities. “We got to the point where we could better sever our clients at a bigger firm where were could provide them access to litigation and other practices,” Anderson says.

There are some reasons to wonder whether the work will continue to grow. Beneath the recent signs of vitality, there are suggestions that the overall economic malaise is rippling into the video game industry. April saw an industry-wide sales dip of 17%, with actual games sales declining 23% and console sales falling 8%, according to the NPD Group. For the time being, though, lawyers equipped to play in this field should have plenty of chance to say “Game On.”

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Counsel Moves and Grooves

Compiled from Incisive Media reports

Patrick Linden has joined Sherman & Howard as partner in the Denver office. Linden will focus on transactional, sports and entertainment law. Previously, Linden was a partner at Kamlet Reichert. ' Mark A. Vega has joined the business/corporate practice in the Los Angeles office of Luce, Forward, Hamilton & Scripps. Vega will focus on entertainment, marketing, advertising and new media matters. Previously, Vega was general counsel/IP steward at Omelet, a Los Angeles-based advertising and marketing agency. ' Kenneth B. Anderson has joined the New York office of Sheppard, Mullin, Richter & Hampton as special counsel in the entertainment, media and technology practice. He was with Loeb & Loeb.