Microtransactions: Small Payments With Huge Consequences

By Christopher Campise (Rutgers Law Student)

A microtransaction occurs when a customer, usually the owner of an internet capable app or game, makes a small purchase within the medium to unlock more content. Often, this business model is employed by developers in freemium contexts, where the initial download is free, but more extensive features and content can only be unlocked after the payment of real-world currency. However, advancing technology has resulted in microtransactions being employed in an ever expanding array of settings, including education. This is troubling as gamers, users, and students frequently lack basic ownership rights in the virtual property they purchase.  

The use of microtransactions is not exactly a new practice. Decades ago, microtransactions arguably appeared in phone booths, where quarters were inserted to purchase minutes, and in arcades, where coins and tokens were used to purchase extra races or lives. In these situations, microtransactions were benign, real currency was exchanged for an immediately used temporary and tangible benefit.  

Unfortunately, the situation is much different today. Rather than simply place a coin in a machine, customers must now assent to complex boilerplate clickwrap and browsewrap agreements. In short, these are contracts whose terms a user must accept before accessing the product. A common example would be the terms and conditions Apple forces all iPhone users to accept in order to update their devices.

Nevertheless, despite their widespread use, the average consumer of digital content often fails to even read these agreements. For example, retailer GameStation added language to its terms and conditions stipulating that whoever bought games from their site after a certain date, agreed to relinquish ownership of their “immortal soul” to GameStation should the retailer exercise the option. Of course, this was an April Fool’s prank by the retailer, but it was intended to send a serious message, as over 7,500 people had essentially willingly signed away their souls.

Additionally, these agreements are usually strikingly biased in favor of the developers and control customers’ rights within the applications in almost every way. Furthermore, assent to such contracts does not necessarily result in direct ownership of the product. Although many customers likely believe that they are granted a vested property right when they purchase an app or game, they instead often receive only a revocable license.

This does not mean that agents of the developer will be dispatched to repossess the licensed property, but in the context of applications with online capability, it could mean that support is legally revoked, sometimes resulting in lost purchases, gameplay functions, or progress. An example of such a contract is the end user license agreement (basically a type of clickwrap) applicable to enablegames’s games for players with disabilities. This agreement states in part that users are entitled to a “revocable right and license…to use one copy of the [g]ame software.”

With regard to microtransactions, many concerning issues arise from the use of these agreements. Many of the contracts even state that users have no legal rights in the virtual content they purchase. Thus, in theory, substantial amounts of real world currency could be stolen or lost if the developer decided to seize or otherwise dispose of the virtual assets. Additionally, the lack of a vested property interest in the virtual content means that a user would have no legal recourse if the property were stolen by a third party via hacking or otherwise. Ironically, even if there were legal rights in the virtual content, there would still be highly limited legal recourse against the developer, as the initial agreements usually mandate that arbitration be employed in the event of a dispute.

Basically, developers are subjecting their customers to their own self-serving legal regimes. Regardless of how much money is spent via microtransactions, in-app content and sometimes even the applications themselves, can be seized or revoked at will. No court order, warrant, due process, or other legal protections are applicable. The developers can also amend these self-contained legal systems at will, with no repercussions or user input. For example, Steam, a popular entertainment platform where games can be bought and played, recently informed one customer that should he not accept the updated clickwrap agreement, his account and all of its content could be permanently deleted.

In almost no other area of law can one’s property rights, achieved through a legal exchange of currency, be instantly and arbitrarily extinguished by a private party. Fortunately, there are signs that courts will begin to protect the rights of the digital consumer, as users begin to invest ever greater amounts of time and real-world currency into an increasingly diverse range of applications. For example, in Bragg v. Linden Research, the District Court for the Eastern District of Pennsylvania ruled that a user was not compelled to participate in mandatory arbitration with a developer, despite his accepting of the terms and conditions which provided for it. This was significant since Bragg was one of the first decisions of its kind, and the player stood to lose the equivalent of thousands of dollars of in-game assets. The court ruled in favor of the user, stating that the developer’s terms and conditions were unconscionable.

Regrettably, courts have also ruled against the consumer in such contexts. For example, in ProCD, Inc. v. Zeidenberg, the Seventh Circuit upheld a physical form of clickwrap, called a shrinkwrap, on the theory that usage of software is sufficient to constitute acceptance of the agreement’s terms. However, the ProCD court did note that such agreements could still be voided under established doctrines such as unconscionability. Hopefully, with the increasing prevalence of microtransactions, courts will err on the side of user protection, as in Bragg.

Generally, unconscionability is a defense against enforceability of contracts broken into two parts, procedural unconscionability, and substantive unconscionability. Procedural unconscionability primarily addresses problems in the bargaining process. On the other hand, substantive unconscionability is focused more on issues with the terms of the contract itself, such as gross bias.

Unconscionability seems well-suited to challenge the traditional agreements governing applications and their content due to the increasing use of microtransactions. From a procedural unconscionability standpoint, users with little to no negotiating power must accept the often buried, almost concealed terms of these agreements, if they want access to their device or app. Thus, given the ubiquity of these apps and other mediums, users are essentially forced to accept their surprising terms, potentially forfeiting their content, if they want to remain current with modern society. Speaking to a similar line of reasoning, Justice Sotomayor once stated that courts must, “reconsider…premise[s]…ill suited to the digital age.” Certainly, the law up to this point had not conceived of digital property, paid for with microtransactions, being unfairly seized in a virtual world.

Similarly, from a substantive unconscionability standpoint, the rights granted to the users are wholly biased and insufficient. As it stands now, users have virtually no protection under the terms of the agreements they are forced to accept, which can usually be amended at any time. Some courts find substantive unconscionability is present when the contract terms “shock the conscience.” Surely, it would be difficult to find a situation more shocking to the conscience than people’s assets being seized, lost or stolen on a whim, with no legal recourse. The fact that this property only exists in the digital realm is relatively meaningless considering that the virtual property carries just as much, and sometimes more, real monetary worth than more tangible assets.

In short, as technology develops, so too does the scope of microtransactions, which raises many concerns. For example, one newer virtual reality application designed to increase students’ familiarity with human anatomy, appears to be a useful pedagogical tool. However, the app initially only includes the skeletal system, with each new module of human anatomy requiring an extra purchase via microtransaction. It is difficult to imagine struggling students investing in an app, when their rights of use and microtransaction purchases could be extinguished at any moment via the terms of service. Rather, students would likely opt to pay the one-time fee to purchase a textbook, where ownership rights are not ambiguous and terminable.

Such possibilities are unfortunate as the application of virtual reality could provide a more intuitive experience than reading from a textbook. Another grim possibility is that wealthier students, not as concerned with potential loss and attending private schools with greater resources, will avail themselves of these new mediums, putting their peers at a disadvantage in an increasingly competitive job market. In addition, if educators become aware of this potential disparity, they might prohibit such tools, stifling the implementation of new educational methods. Similarly, in the gaming realm, users often enter virtual worlds as an escape from real life; little do they know that they are often escaping into a totalitarian regime, in which they lack even the most basic property rights. In sum, the increased attaching of real monetary value to virtual assets through the use of microtransactions, means that greater safeguards must be imposed to protect users’ investments.

 

PTAB and the Question of Tribal Immunity

By Brian Lewis (Rutgers Law Student)

Most patent, trademark, and copyright law is exclusively governed by Federal law. Violations of these laws are addressed in Federal court. A party can raise a defense of sovereign immunity, a legal principle which grants immunity to sovereign entities unless the sovereign entity has waived immunity or by an express statement or action. Following such a defense, violations are no longer confined to lawsuits in a Federal court, but can also extend to various federal administrative procedures. One such example is an inter partes review (IPR), in which a trial like proceeding is held before an administrative court to challenge the validity of patents. The Patent Trial and Appeal Board (PTAB) is an administrative law body of the United States Patent and Trademark Office (USPTO) which decides such issues of patentability.

Recent litigation has questioned not only the limitations of PTAB, but also the protection afforded by the sovereign immunity doctrine. General examples of sovereign entities include the Federal government, each U.S. state, State Universities, and the American Tribal Nations. A trend has recently emerged wherein a company will assign rights of a patent to an entity protected by sovereign immunity. In turn, that entity will then transfer an exclusive license back to the company. This transaction, though simple, has the profound effect of allowing a company to “rent” sovereign immunity. Because the sovereign entity owns the patent and not the company, it can limit IPR challenges performed by PTAB.

Of particular interest is when sovereign immunity is claimed by a member of the American Tribal Nations. This has been aptly named Tribal Sovereign Immunity (TIP) amongst IP scholars. Surprisingly, TIP has avoided the Supreme Court decisions over the last 40 years in which the Court has imposed increasing restriction on tribes’ jurisdiction and authority. A Tribe is a sovereign government that cannot be sued unless the Tribe expressly waives its immunity or Congress unequivocally abrogates its immunity. When a Tribe becomes the owner of a patent through partnership with a company, the transitive property generally utilized in mathematics applies. Namely, if the Tribe owns the patent and the patent and is protected under TIP, then licensing of the patent back to the company affords the protection of TIP to that company.

In a recent decision, PTAB shut down the St. Regis Mohawk Tribe’s claim of sovereign immunity. Allergan assigned its patents for the ophthalmic drug Restasis® to the tribe for $13.5 million plus yearly royalties surpassing that amount. The St. Regis Mohawk Tribe, as owner of the drug, claimed TIP when PTAB attempted to challenge the patent. Because Allergan received the exclusive license for the drug, it remained a secondary party to this challenge. PTAB determined that the Tribe is not immune from its proceedings as a sovereign entity and the patent could be challenged. In the eyes of PTAB, it is clear that Allergan is still the owner of the drug even though actual ownership belongs to the St. Regis Mohawk Tribe. The Tribe’s attorneys appealed the decision while noting that the Tribe is an indispensable party to this proceeding whose interests cannot be protected in its absence. In lieu of PTABs decision and the potential problems that can arise, the Federal Circuit issued a stay of further PTAB proceedings pending the St. Regis Mohawk Tribe’s sovereign immunity appeal.

The Allergan patent has helped unearth an issue with sovereign immunity and has exposed a weakness of the USPTO concerning a potential abuse of power. PTABs role is to adjudicate property rights. Action by PTAB against the use of TIP might deprive a tribal sovereign of a necessary revenue stream. This constitutes a civil action to which the tribal sovereign is supposed to be immune (absent a decision by Congress). As more and more companies attempt to exploit the transitive property loophole created by TIP and renting sovereign immunity, PTAB and the Federal Circuit will need to strongly consider the short term and long terms effects of its decisions. Sovereign immunity is an important principle generally held to too important or valuable to be interfered with. A decision against Allergan’s claim will dilute the principle. A decision for Allergan may open the floodgates.

There are positives and negatives to cabining TIP, but what remains for the future of patents given PTAB’s recent decision against Allergan’s claim of sovereign immunity and the subsequent appeal is unclear. Whether Allergan’s tactic will ultimately succeed remains unknown. One thing is clear: if PTAB does not limit Tribal Sovereign Immunity, we will see an ever-increasing trend of pharmaceutical giants developing close relationships with the American Tribal Nation. For those tribes, such a relationship may be welcomed. It may help offset the many hardships within those communities such as poverty and lack of jobs which were created due to colonial dispossession. However, in terms of Intellectual Property, the consequences can be devastating and lead to unchallengeable patents.
By Brian Lewis

Cryptocurrency: Fostering Innovation, or Alienating It?

By Devorah Peretz (Rutgers Law Student)

If you haven’t been living under a rock in the past year, you have definitely heard about Bitcoin; possibly more than you care to. Innovative technologies enable Bitcoins to be “mined”, when complex math problems are solved and added to Blockchain, a public ledger. Bitcoin, and other cryptocurrencies, were created with the goal of open-sourced software, enabling and encouraging “permissionless innovation”. The idea is that this new form of a global currency should motivate creation without the obstacle of intellectual property rights. On the other hand, bitcoin and other cryptocurrencies are constantly filing numerous international patents, which under the Patent Cooperation Treaty, allows them to enforce their patent in up to 152 countries. This treaty, gives the patent holder exclusive property rights over their invention. How then, can these two seemingly contradictory objectives coexist? It seems fairly obvious that by filing for patents on their intellectual property, and by attaining absolute control, they by default are closing open access to their ideas.

By limiting access to their singular holders, patents on cryptocurrency mining technology naturally eliminate the availability of fair competition; a necessary component to the success of Bitcoin and like technologies. The CEO of Coinbase, a cryptocurrency platform, Brian Armstrong, claims that while their true intentions are indeed for open- sourced, and shared technology, they must file for patents in defense of patent trolls. In order to keep their mining technology open to all, they must protect it from some. Assuming patents is the only way to achieve this protection, the question in this ever-advancing technological world is if there is a way to harmonize the conflicting ideas of protecting one’s ideas from being abused, and simultaneously promoting freedom of technology?

Coinbase has attempted to solve this conflict by signing a Patent Pledge, whereby they publicly guarantee that they will not enforce their patents against any innovation by start-up companies. This way, they can see to it that their patents are purely defensive, preventing abuse of their technology, while simultaneously allowing others to utilize it for the good. This concept is in line with preventing a “tragedy of the commons”. In property law, we recognize that although people have the sole right to their property, there is a public interest concern in utilizing all property fully, and preventing waste. Blockstream, another platform, adopted the Patent Pledge and additionally joined a Defensive Patent License. The DPL essentially creates a mutual agreement between all participants to an environment of shared patents. The BDPL has been created as an attempt to improve the DPL and address its’ limitations, by offering advances such as penalizing licensees who break their agreements or by giving access to third parties. However, since these approaches were not developed specifically to meet the demands of the Bitcoin world, they are limited in their effectiveness. Unfortunately, there are loopholes in every system, and because these solutions are not legally binding, participating companies are exposed to weaknesses that abusers take advantage of.

Presently, the world of cryptocurrency is virtually governmentally unregulated. This makes it challenging to propose a definite solution to the perpetual problems patents create. However, the future may bring more clarity. As Bitcoin becomes more widely accepted by large companies such as Overstock, it looks probable that governments will attempt to regulate certain aspects of the currency. If this becomes the case, this could be a more certain way to compromise the two ideals, and positively promote both. The government could require certain compliance with patent standards, as far as how accessible they must be to the shared public, and on the other end of the spectrum, they could enforce certain violations. One country in particular has already been rumored to potentially pass a Bitcoin mining ban. China, the largest producer of Bitcoin in the world, has recognized that although “cryptocurrencies were meant to be stateless”, governments still have a role in preventing potential criminal activity. Following this line of thinking, with the exception of a complete ban, governments can further the objectives of this ownerless currency, by ensuring everyone play fair.

Lastowka Short-Form Writing Competition – SUBMISSIONS DUE 4/1/18

The Rutgers Institute for Information Policy & Law is pleased to announce the Lastowka Short-Form Writing Competition. Open to Rutgers students and recent graduates (class of 2017), the award will be given to an entry of 500-1,500 words on a topic of intellectual property or information policy more broadly.  

Professor Greg Lastowka (1968-2015) will be remembered for his inquiry into how people innovate, create, and produce cultural capital though playful exploration. His pathbreaking scholarship in the areas of copyright, trademark, cyberproperty, video games, and virtual worlds forged new fields and impacted multiple areas of IP and other law.

The Lastowka Writing Competition, accompanied by a $500 prize, will be awarded to a short piece in the form of a blog post or other related entry that addresses a cutting-edge issue and offers a new, interesting, and well-reasoned perspective on an area of IP or information policy. Entries should use blogpost formatting, including hyperlinks to legal sources, press, and other commentary in lieu of footnotes. Graphics and other visuals are encouraged. Qualifying entries will be posted on the RIIPL blog. Examples of student-written blogposts can be found on riipl.rutgers.edu. The 2017 winner was Anne Colrick and the 2016 winner was Carl Minniti.

Entries should be sent by April 1, 2018 to ude.sregturnull@lpiir   

 

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