February 2019

Corporate Cheat Codes: When Does Video Game Hype Become Securities Fraud?

February 6, 2019
Corporate Ethics, Internet, Securities Law

By: Alex Karnopp

As production consolidates around a few key players, larger economic growth in the video game industry masks underlying corporate concerns of securities fraud. Last year, the video game industry reached an important milestone, earning the title of “world’s favorite form of entertainment.” In 2017, the video game industry generated $108.1 billion, more than TV, movies, and music. While other entertainment industries saw revenue decline, the game industry increased 10.7%. This drastic jump in revenue has made investors happy. In 2017, most companies producing hardware or software for the industry easily beat the broader market. NVIDIA, a popular graphic card producer, jumped up 80% over the year. Nintendo, similarly, saw an 86% increase. Even more drastically, Take-Two Interactive shot up 117%.

Red flags in the industry, however, indicate changes are needed to sustain growth. For one, production costs and technological innovations hinder profitability as games take longer and cost more to bring to market. Making matters worse, game fatigue remains high, meaning an audience remains focused on a game only for a small window. High development risk has led to a pattern of mergers and acquisitions – large, publicly traded companies either acquire publishing rights or development teams altogether to diversify holdings and increase profitability.

This consolidation has had interesting impacts on video game development. Publicly traded companies face tremendous pressure from investors to uphold profitability – to the frustration of developers. Developers are constantly faced with unrealistic deadlines from executives looking to maximize profit, ultimately leading to the release of low-quality games. As large game publishers learn to deal with the interplay between profit and content, they may also face legal consequences.

What may seem like “corporate optimism” to some, looks more like fraudulent misstatements to investors. In 2014, the “disastrous launch” of Battlefield 4 (which was rushed to hit the release of the PS4 and Xbox One) sent Electronic Art’s stock plummeting. As both executives and producers claimed the title would be a success, investors brought lawsuits, claiming they relied on these false statements. Similarly, the recent split between developer Bungie and Activision has led to rumors of lawsuits. Constant frustrations over sales and content finally led to a split, dropping Activision stock by more than 10%. Investors claim Activision committed federal securities law by failing to “disclose that the termination of Activision-Blizzard and Bungie Inc.’s partnership … was imminent.” As large, publicly traded publishers begin dealing with the effects of a consolidated market on content and profits, it will be interesting how courts interpret executive actions trying to mitigate missteps.

Tinder Shows Discrimination Can Take All Shapes in the Internet Age

February 4, 2019
Discrimination, Social Media

Caleb Holtz, MJLST Staffer

On January 20th Tinder Inc., the company responsible for the popular dating mobile app, filed a proposed settlement agreement worth over $17 million. The settlement seeks to settle claims that Tinder charged older users more to use the app solely because of their age. Interestingly, while many people think of age discrimination against a group for being too old as being solely the concern of AARP members, this discrimination was against people over the age of 29. This is because of the relatively low threshold in California as to what can constitute age discrimination under California civil rights and consumer protection laws.

Discrimination is incredibly common in the Internet age, at least partially because it is so easy to do. Internet users develop a digital “fingerprint” over time and usage which follows them from website to website. Data contained within a digital “fingerprint” can contain information from “websites you visit, social platforms you use, searches you perform, and content you consume.” Digital fingerprinting is becoming even more common, as enterprising trackers have discovered a way to track users across multiple different browsing applications. When this information is combined with data users willfully give out on the internet, such as personal data on Facebook or Tinder, it is incredibly easy for companies to create a profile of all of the users relevant characteristics. From there it is easy to choose on what grounds to distinguish, or discriminate, users.

Discrimination in this manner is not always necessarily bad. On the most positive end of the spectrum, institutions like banks can use the information to discern if the wrong person is trying to access an account, based on the person’s digital fingerprint. More commonly, internet companies use the data to discriminate against users, controlling what they see and the price they are offered. A quintessential example of this practice was the study that found travel websites show higher prices to Mac users than PC users. Advocates of the practice argue that it allows companies to customize the user experience on an individual basis, allowing the user to see only what they want to see. They also say that it allows businesses to maximize efficiency, both in terms of maximizing profits and in terms of catering to the customer flow, which would therefore lead to a better user experience in the long run. To this point, the argument in favor of continuing this practice has generally won out, as it remains generally legal in the United States.

Opponents of the practice however say the costs outweigh the benefits. Many people, when shown just how much personal data follows them around the internet, will find the practice “creepy”. Opponents hope they can spread this general sentiment by showing more people just how much of their data is online without their explicit consent. This idea has support because, “despite its widespread use, price discrimination is largely happening without the knowledge of the general public, whose generally negative opinion of the practice has yet to be heard.”

More serious opponents move past the “creepiness” and into the legal and ethical issues that can pop up. As the Tinder case demonstrates, online discrimination can take an illegal form, violating state or federal law. Discrimination can also be much more malicious, allowing for companies looking for new employees to choose who even sees the job opening, based on factors like race, age, or gender. As Gillian B. White recently summarized nicely, “while it’s perfectly legal to advertise men’s clothing only to men, it’s completely illegal to advertise most jobs exclusively to that same group.” Now, as the Tinder case demonstrates, in certain scenarios it may be illegal to discriminate in pricing as well as job searches.

So what can be done about this, from a legal perspective? Currently in the United States the main price discrimination laws, the Sherman Antitrust Act, the Clayton Act, and the Robinson-Patman Act were created long before the advent of the internet, and allow for price discrimination as long as there is a “good faith reason”. (Part of the trouble Tinder ran into in litigation is a judge’s finding that there was not a good faith reason to discriminate as they were). There are also a plethora of discrimination in hiring laws which make certain discrimination by hiring employers illegal. Therefore the best current option may be for internet watchdog groups to keep a keen eye out for these practices and report what they come across.

As far as how the law can be changed, an interesting option exists elsewhere in the world. European Union data privacy laws may soon make some price discrimination illegal, or at the very least, significantly more transparent so users are aware of how their data is being used. Perhaps by similarly shining sunlight on the issue here in the states, consumers will begin forcing companies to change their practices.

Animal-Product Substitutes – Does It Really Matter What We Call Them?

February 4, 2019
Climate Change, Food and Agriculture

Nick Hankins, MJLST Staffer 

Fake meat is getting good, really good. The ImpossibleTM Burger 2.0, developed by Impossible Foods Inc., is a big upgrade from its 1.0 counterpart. The 1.0 has been referred to as a “good replacement for a bad burger” and compared to an “OK Sizzler steak” –not the type of reviews to make turncoats out of meateaters.  The 2.0, on the other hand, was hailed as “a triumph of food engineering,” “a burger that could truly wean people off their meat lust,” and (probably most flatteringly) “a well-massaged Kobe ribeye.” Importantly, the latest Impossible Burger has real meat qualities, it can be juicy and red in the middle along with a texture containing small chunks like real beef.

Aside from being an obviously capable meat substitute, the Impossible Burger has the potential to get people to eat less beef and that’s good news because beef isn’t exactly environmentally friendly. In fact, beef is responsible for 41% of livestock greenhouse gas emissions, which account for 14.5% of total global emissions. The UN Intergovernmental Panel on Climate Change report found that changing our diets (including eating less meat) could contribute 20% of the effort necessary to keep global temperatures from risings 2°C above pre-industrial levels. So switching out regular burgers for ImpossibleTM  ones might be one step in the right direction toward fighting global warming.

It turns out that not everyone is on board with meat substitution products, like the Impossible Burger. In February of last year, U.S. Cattlemen’s Association filed a petition with the U.S. Department of Agriculture calling for official definitions for the terms “beef” and “meat.” USCA argued, in its petition, that “[c]urrent labeling practices may cause consumer confusion in the market place.” However, it doesn’t look like this petition has gone very far. Unlike the U.S., France actually passed legislation that banned foods based largely on non-animal ingredients from being labeled as if they were. Recently, in response to lab grown meat (meat that is synthetically grown and not a vegetable substitution like the Impossible Burger) Terry Goodin, Indiana General Assembly representative, has put together a bill that aims to ensure that lab grown meat makers do not try to sell synthetic meat as the animal-grown original.

Manufacturers of meat alternatives argue that the ability to name their product after its meat analogue is important for branding their products to provide appropriate expectations to consumers. Names for animal product replacements like Soylent and “aquafaba” (a vegetable based egg replacement) simply don’t have the branding power to be super marketable. Considering that last year United States residents were projected to eat a record amount of meat, we might not want to bar meat alternatives from potential branding strategies just yet. In any case, it might not be worth a 20-year naming-rights battle, like the one currently being waged against dairy replacement products.

Virtual Reality in Education & the ADA: More Accessibility or Less Accessibility?

February 4, 2019
Education, New Technology

Yvie Yao, MJLST Staffer 

Imagine that students no longer need to go to a lab to have a lab experience or go to France to visit the Eiffel Tower. Though sounding impossible, edtech companies that integrate virtual reality (“VR”) technology into the classroom learning experience have enabled these activities.

Copenhagen-based company, Labster, plans to use VR to create virtual labs that will allow students to perform experiments and hone their skills in a risk-free environment. U.S.-based companies, like Nearpod and Alchemy Learning, can take students on virtual field trips to learn about everything from the Amazon rainforest to ancient Roman ruins.

While kids love VR technologies, edtech companies ought to be careful about creating content or products within legal boundaries. After edX’s settlement with the U.S. Department of Justice (“DOJ”), edtech companies may face increased scrutiny under the Americans with Disabilities Act (“ADA”). DOJ claimed that edX’s website, as well as the open online courses offered on its platform, were not fully accessible to individuals with disabilities, thus violating the ADA.

“Massive open online courses have the potential to increase access to high-quality education for people facing income, distance, and other barriers, but only if they are truly open to everyone” said Acting Assistant Attorney General Gupta.

The same can be said for VR applications in education. Courses with the aid of VR technology provide access to high-quality education for students facing different barriers. Yet, the technology itself is less accessible to individuals who are blind or have low vision, who are deaf or hard of hearing.

Title III of the ADA prohibits discrimination on the basis of disability by public accomodations, which include places of education and requires these places to take necessary steps to ensure individuals with disabilities are not treated differently. In the edX settlement, DOJ appeared to interpret edX itself as a place of education within the ADA’s definition of public accommodation. This has two implications. First, purely online educational entities without any physical location qualify as places of education. Second, other web-based education-related service providers might fit the definition of a place of education.

With the law in mind, edtech companies providing online learning content using VR that integrate the content into school curriculums, should be aware of the implications of the ADA and take necessary steps to provide auxiliary aids and services sufficient to enable disabled students to fully participate in the technology.

Virtual Reality in Education & the ADA: More Accessibility or Less Accessibility?

February 4, 2019
Education, New Technology

Yvie Yao, MJLST Staffer 

Imagine that students no longer need to go to a lab to have a lab experience or go to France to visit the Eiffel Tower. Though sounding impossible, edtech companies that integrate virtual reality (“VR”) technology into the classroom learning experience have enabled these activities.

Copenhagen-based company, Labster, plans to use VR to create virtual labs that will allow students to perform experiments and hone their skills in a risk-free environment. U.S.-based companies, like Nearpod and Alchemy Learning, can take students on virtual field trips to learn about everything from the Amazon rainforest to ancient Roman ruins.

While kids love VR technologies, edtech companies ought to be careful about creating content or products within legal boundaries. After edX’s settlement with the U.S. Department of Justice (“DOJ”), edtech companies may face increased scrutiny under the Americans with Disabilities Act (“ADA”). DOJ claimed that edX’s website, as well as the open online courses offered on its platform, were not fully accessible to individuals with disabilities, thus violating the ADA.

“Massive open online courses have the potential to increase access to high-quality education for people facing income, distance, and other barriers, but only if they are truly open to everyone” said Acting Assistant Attorney General Gupta.

The same can be said for VR applications in education. Courses with the aid of VR technology provide access to high-quality education for students facing different barriers. Yet, the technology itself is less accessible to individuals who are blind or have low vision, who are deaf or hard of hearing.

Title III of the ADA prohibits discrimination on the basis of disability by public accomodations, which include places of education and requires these places to take necessary steps to ensure individuals with disabilities are not treated differently. In the edX settlement, DOJ appeared to interpret edX itself as a place of education within the ADA’s definition of public accommodation. This has two implications. First, purely online educational entities without any physical location qualify as places of education. Second, other web-based education-related service providers might fit the definition of a place of education.

With the law in mind, edtech companies providing online learning content using VR that integrate the content into school curriculums, should be aware of the implications of the ADA and take necessary steps to provide auxiliary aids and services sufficient to enable disabled students to fully participate in the technology.

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