Monday, September 20, 2010

Vernor vs Autodesk: The Implications

All right, let's wade into the swamp that represents the potential consequences of the Vernor vs. Autodesk decision.

First off, there's no guarantee that this case isn't overturned on appeal, although DQ Copyright Law Advisor Nhut Tan Tran believes it's unlikely. I do think, though, that the circumstances of this case and used game sales appear to have some key differences.

For one, selling a physical copy after you've upgraded to a newer version seems different than selling a game. Well, it is different, but the decision seemed to rest heavily on the nature of the license agreement, not the details of the transaction itself. For the court, it seemed that the license agreement defined the transaction.

Also, someone who buys a disc-based game can't look at the licensing agreement, decide they don't agree, and return the game for a refund. With Autodesk, you can.

For the sake of discussion, though, let's assume that the decision doesn't get overturned. What then?

As a starting point, consider this e-mail from an executive in the industry who will remain anonymous:
Game companies are not "moving to" the licensing model. We've always been there. It is just that the licenses are more in your face with digital distribution. But don't for a second think that we have been in anything other than a license model for over a decade.

With MMOs and online play, game companies often require multiple licenses -- one for the client and offline play (often referred to as the single player campaign) and another for online play. MMOs often have two or more agreements: the game license agreement and the terms of service for the MMO subscription. Again, nothing new. 

That's an excellent point. I think what I've personally always done is look at those licensing agreements, laugh at their stringency, and move on. And the reason I was laughing is because I mistakenly assumed that they would never be found legally enforceable. I thought it was sort of like tenant rights,where tenants can sign all kinds of outrageous leases, but no matter what the lease says, there are certain rights that cannot be forfeited.

Joke's on me, apparently.

So let's say that Vernor vs. Autodesk is both upheld on appeal and the decision is not narrowed in scope. Does this mean that console games will immediately switch to a restrictive licensing model that forbids resale?


Well, they could, if they wanted to lay off a third of the industry within 18 months.Would that actually happen? Maybe not, but the gaming industry doesn't know one way or the other, and it would be a risk of epic proportions. 

Successful companie are like lawyers in courtrooms: they never ask a question when they don't already know the answer. Shutting down the used game market would be asking a question having absolutely no clue about the answer.

In general, that's bad business.

However, that doesn't mean there won't be a few test cases. Would anyone be surprised if Bobby Kotick decided to crush the resale market for a Modern Warfare game, for example? I don't think it takes much of a leap to imagine a console version with the same restrictive licensing agreement as the PC version. It also doesn't take much of a leap to imagine some amusing and ridiculous "concession" to consumers--say, a $54.95 purchase price instead of $59.95.

That way, in the imaginary world of Bobby Kotick, he can present himself as a champion of consumers. Yes, selling copies of any Modern Warfare game would easily net you more than $20 for months after its release, but he's counting on us being unable to do the math.

Actually, who am I kidding? He's just going to charge $60, anyway.

I think that's one reasonable scenario--that a high-profile publisher chooses a game they believe we can't live without and uses it as a test case.

Another reasonable scenario: even if some publishers decide to effectively end resale of their products, other companies won't. It will be used as a competitive advantage in terms of marketing to consumers. So it's possible that, over time, a tiered market emerges, with a non-resale tier competing with a tier where resale is still allowed. 

That will give us some interesting choices.

The most interesting aspect of this, though, is the apparently titanic collision that's looming between retailers and publishers. It seems like everyone has announced they're going full bore into the used games market in the last two months.

What do those companies do now? Could they work out an agreement with the gaming publishers where a voluntary "resale royalty" of X dollars is included in any used game sale? I think that's a likely outcome, and if it does happen, here are the basic effects:
1. Trade-in prices for games go down, because of the X dollars that have to go to the gaming company upon resale.
2. The used market will become less attractive. If you're selling a game back for $10 less, then have to buy some kind of  "online pass" if you buy a used game, that's a double whammy.

Without that, I don't see how a resale market is viable. This decision appears to give 100% of the leverage to publishers, not retailers or consumers.

Oh, and if publishers do kill the used market? Piracy will explode. And publishers will use that as an excuse not to lower game prices.

Is there any possible way that this court decision could be a benefit to consumers? No.

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