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Friday, February 29, 2008

Big Ten Network Reaches a Big Impasse

by: Colin J. McIntyre, Associate Editor, MTTLR


In June of 2006, the Big Ten Conference announced its agreement with the Big Ten Network (“BTN”), in which the network paid for the rights to air a variety of Big Ten events and made a commitment to promote Big Ten sports of all kinds.1 Since that announcement, Big Ten sports fans have been watching anxiously as BTN has struggled through negotiations for carriage by the largest cable operators - Comcast most specifically. These negotiations will determine whether millions of cable subscribers will be able to watch many Big Ten games and how much they’ll pay. A critical point of contention has been whether the network will be carried as part of the extended basic cable package or whether it will be incorporated into a premium sports tier package.2 Prior to the network’s debut on August 31, 2007, it claimed to have reached agreements with over 75 small cable providers, as well as satellite providers DirecTV and AT&T U-verse.3 The number of agreements reached by BTN with cable providers rose to 140 by mid-October, but BTN and Comcast were still unable to reach an agreement.4 The parties appear to have made little headway in subsequent negotiations, although both sides continue to proclaim progress.5 As Big Ten sports fans have grown frustrated at being unable to watch games previously available on their basic extended cable services, the Big Ten Network and Comcast have done their best to address viewers’ concerns – by pointing fingers.6

The Dispute

The core issues have been whether there is enough interest among cable subscribers to justify adding the Big Ten Network to the basic extended package and whether the subscribers would be willing to pay any additional costs. Comcast has characterized the Big Ten Network’s coverage as the games no other networks wanted – the leftovers.7 BTN counters that although the Big Ten’s agreements do grant first choice of games to ESPN and ABC,8 it is still getting a valuable slice of the pie containing some important games that can hardly be deemed unwanted.9 The parties have presented conflicting claims of BTN popularity and viewership.10

Agreements between program networks and cable operators typically involve a per-subscriber fee paid by the cable operator.11 Comcast claims that the fee proposed by BTN is unreasonably high and would have to be transmitted to the subscriber. This increased cost imposed on subscribers not interested in receiving BTN amounts to a “Big Ten Tax” in the amount of $13.20 annually, according to Comcast.12 In BTN’s corner, commentators fire back that Comcast would not only force subscribers interested in BTN to pay for digital cable, but also to pay more than $70 annually for the premium sports package.13 While some might consider the $13 “Big Ten Tax” less-than-Comcastic, others would consider this $70 “Premium Sports Package Tax” to be downright Comrageous.

Comcast has done well to present itself as a sensitive protector of downtrodden consumers, upholding fairness by refusing to force subscribers to pay for the allegedly unwanted BTN. However, Comcast appears to contend that placing BTN in the Sports Entertainment Packages is the most fair way to make it available, though it would force BTN desirers to pay for five additional, potentially unwanted channels.14 One commenter suggests that Comcast’s current position makes one wonder about its previous opposition to a la carte programming.15 Comcast previously submitted comments to the FCC,16 which generally indicate a basis for opposing a la carte programming requirements similar to that found in the Booz-Alan-Hamilton study.17 However, with the FCC’s 2006 report questioning the validity of the Booz-Alan-Hamilton study and finding a la carte programming to favor consumers,18 perhaps we will see Comcast revisiting its position as well.

The Actual Reasons

The big question in the standoff between BTN and Comcast is how they can afford not to reach an agreement. BTN has already stated that it was expecting tens of millions of dollars in revenue from broad viewership,19 yet it has already had to bite the bullet for football season and is now well into basketball season. BTN President Mark Silverman claims that BTN cannot survive on a premium sports tier,20 but presumably it is also pretty hard up not being carried by the big cable companies at all. Though accusations of misinformation and mischaracterization have flown back and forth throughout the past several months,21 BTN makes a couple claims that seem convincing. First, it claims that it is willing to negotiate and looking to make a deal and cites the numerous agreements it has reached with other providers.22 Comcast, on the other hand, seems to have remained firm in its insistence on placing BTN in the sports tier.23 Silverman then provides reasonable explanation for declining to allow BTN to appear in a sports package. So what are the incentives for each party to participate in this stalemate?

According to Silverman, placement on the sports tier would mean dramatically reduced viewership,24 to the tune of 96% less revenue than anticipated.25 Although BTN has indicated a willingness to be flexible based on the volume of business brought in by Comcast,26 96% might be larger than the bulk discount BTN had in mind. BTN has also announced its goal of broad distribution, presumably broader than the 4% of Comcast subscribers who currently receive the sports tier.27 Finally, BTN indicates that all regional sports networks with local appeal similar to BTN are carried on basic extended packages, including the 11 RSNs owned by Comcast.28

Comcast’s incentives for sticking by its guns are interesting. Is the six-time runner-up for the title of “Lowest Customer Satisfaction Score” in the cable and satellite industry counting on the goodwill and loyalty of customers to help it weather this storm?29 Or is it true that BTN’s offerings are the day-old casserole of cable programming? Is David Cohen’s reasoning correct when he suggests that the BTN campaign is having little impact on Comcast subscription rates because nobody cares about BTN?30 Commenters have suggested in the past that significant barriers exist to switching from cable to satellite television.31 Besides the normal logistical hassle,32 technological limitations may make satellite unavailable, landlord approval of dish installation may be an impediment,33 and the bundled offering of cable television and broadband services may deter would-be satellite subscribers,34 especially where equivalent broadband service is unavailable35. Cohen’s suggestion seems conclusory, at best. It seems possible that Comcast hopes to enhance its sports tier to collect the larger subscription fees, confident that it can outwait BTN.36 As concerned voices continue to decry the growth of big cable,37 the BTN-Comcast negotiations may be another indication that Comcast’s power may be a little out of hand.38


While the specific details about negotiations remain unclear, a review of the available details allows at least general impressions. As a dedicated Big Ten sports non-fan, I am admittedly not riled that some games are now only available on BTN. However, I find it striking how each side has conducted itself. Comcast’s’ behavior seems equivalent to spreading rumors,39 pouting,40 and taking one’s ball and going home.41 In contrast, the BTN campaign has taken a largely positive or responsive approach.42 On the merits of their positions, each party certainly has a financial interest, and it is difficult to totally resolve the issue without more information about the specific negotiations. BTN has appeared more straight-forward in the statements it has made, though, while Comcast officials and the anti-BTN campaign have seemed evasive and sneaky.43 The continued stalemate in negotiations and the circumstances surrounding the negotiations suggest that Comcast may be using its market power to act as a bully.

1 See General Releases, BigTen.org, The Big Ten Conference Announces Media Agreements Increasing National Coverage of Big Ten Sports, Jun. 21, 2006.

2 See Eric Lacy, Big Ten, cable outlets at impasse, Detroit News, Aug. 24, 2007, at 1D (“What’s not negotiable . . . is the [Big Ten N]etworks stance on having the channel on basic cable.”); Richard Sandomir, Not Everyone Wants Channel That’s All Big Ten, All the Time, N.Y. Times, June 18, 2007, at D5 (“the offer to place the network on the sports tier was not an opening gambit or a negotiating ply.”).

3 BigTenNetwork.com, Frequently Asked Questions, http://www.bigtennetwork.com/corporate/FAQ.asp (indicating that reaching an agreement with Comcast “in the near future” was unlikely) (last updated Dec. 7, 2007) (last visited February 6, 2008).

4 Bob Fernandez, Comcast Holds the Line on Big Ten, Phila. Inquirer, Oct. 10, 2007, at A01. See also Ed Sherman, Comcast vs. BTN spins out of control, Chi Trib., October 10, 2007, at C4 (“Silverman said there has been ‘no movement’ in BTN's negotiations with Comcast”); Interview by Sam Webb with Mark Silverman, President, BTN, (Oct. 3, 2007) (“…there is only so much we can do when the other party is not really interested [in negotiating]”).

5 See, e.g., Michael Zuidema, Big Ten Network Standoff Drags On, Grand Rapids Press, Feb. 22, 2008; Ed Sherman, Big Ten Network, Comcast Continue Battle, Chicago Tribune, Feb. 8, 2008. See also BigTen Network, Cable Having 'Meaningful Talks, WCCO.com, Feb. 26, 2008

6 See, e.g., Myth vs. Fact, BigTenNetwork.com (last visited Feb. 6, 2008); PuttingFansFirst.com, (last visited Feb. 6, 2008) (anti-BTN website funded by Comcast, according to Mark Snyder, Good Luck Finding Today’s U-M Game on TV; Fans Are Biggest Victims of BTN-Comcast Feud, Detroit Free Press, Sept. 1, 2007, at Sports page 1). See also Sherman supra note 5.

7 See Fernandez, supra note 4; Sherman supra note 5.

8 BigTen.CSTV.com, Big Ten Network Frequently Asked Questions, (last visited Feb. 6, 2008)

9 See Webb, supra note 5; Myth vs. Fact, supra note 6.

10 See BigTenNetwork.com supra note 6; Interview by Sam Webb with Patrick Paterno, Director of Communications, Comcast Midwest, (Oct. 3, 2007); Chip Scoggins & Judd Zulgad, U Caught up in Comcast-Big Ten Feud, Star Trib., August 28, 2008 at 8C.

11 See Comments of Comcast Corporation, MB Docket No. 04-207 at 18 (filed July 15, 2004) (“Comcast Comments”).

12 See Teddy Greenstein, Big Ten, Comcast in “Taxing” Fight, Chi Trib., June 22, 2007, at C2; Scoggins supra note 10.

13 See Ed Sherman, Comcast Adding Costs, Not Choices, Chi Trib., Oct. 31, 2007, at C2 (indicating $5.99 per month fee to digital subscribers for sports tier); Fernandez supra note 4. See also BigTenNetworks.com supra note 6 (claiming basic non-digital Comcast subscribers could have to pay up to $280 annually to receive BTN on the sports tier).

14 Comcast.com, Sports Entertainment Package Features, (last visited Feb 6, 2008) (listing CSTV, Fox Soccer, Fox College, NBA TV and NFL Network as the channels in the package).

15 Fernandez supra note 4; Webb supra note 10.

16 See Comcast Comments supra note 11.

17 Booz Allen Hamilton, The a la Carte Paradox: Higher Consumer Costs and Reduced Programming Diversity: An Economic Analysis of the Implications of a la Carte Pricing on Cable Customers (July 2004) (“Booz-Allen-Hamilton Study”).

18 Federal Communications Commission, Media Bureau, Further Report On the Packaging and Sale of Video Programming Services To the Public, Feb. 9, 2006.

19 Fernandez supra note 4.

20 Id.

21 See, e.g., Sherman supra note 5 (Silverman claiming Comcast ad was “mischaracterizing the facts”); Richard Sandomir, Tempers Flare Over Network For Big Ten, N.Y. Times, June 23, 2007, at D5 (referring to a letter from Comcast executive vice president, David Cohen calling statements by Big Ten commissioner, Jim Delany “mischaracterizations and overstatements”); Webb supra note 5 (presenting Silverman questioning Comcast’s decision “go in a full scale advertising attack on the network with lies that they know are inaccurate.”)

22 See BigTenNetwork.com supra note 6 (referencing 150 agreements reached as indication of flexibility); Webb supra note 5 (Silverman indicating that BTN is “getting deals done” and is flexible).

23 See, e.g., Fernandez supra note 4.

24 See id. For several compelling arguments against forcing channels onto themed tiers, see Comcast Comments supra note 11 at 15-33 (arguing that a la cart and themed tier programming significantly reduces viewership and network revenues, which dramatically increases costs to consumers).

25 ($60 M - $2.5 M) / $ 60 M = 96%. Fernandez supra note 4 (indicating expectation of $60M and potential for $2.5M on a sports tier).

26 BTN suggested that due to its size, Comcast would likely pay less than a dollar per subscriber, rather than the $1.10 figure that has been spread around. Id.

27 Id.

28 BigTenNetwork.com supra note 3.

29 American Consumer Satisfaction Index, Scores By Industry: Cable and Satellite TV, (last visited Feb. 6, 2008) (listing consumer satisfaction ratings from 2001-2007 for seven major companies). Looking beyond the cable and satellite industry, of the 156 companies receiving scores in 2007, Comcast received the second lowest, tying with United Airlines and losing out only to Charter Communications. American Consumer Satisfaction Index, Scores by Company, (last visited Feb. 6, 2008)

30 See Fernandez supra note 4 (quoting Cohen saying “"We are seeing, essentially, no impact from that campaign. The market is proving that they are overreaching.").

31 See Comments of Citizen Commenters, MM Docket No. 92-264 at 40-43 (filed 08/05/2005)(explaining costs of switching from cable to DBS) (“Comments of Citizen Commenters”).

32 Id. at 41.

33 Clear exposure to the southern sky is necessary. Id. at 41.

34 See id. at 42-43; Christopher Stern, Comcast Bundles TV, Internet to Keep Customers, Wash. Post, Mar. 26, 2003, at E01.

35 For an example of Comcast reveling in the inferiority of its broadband competition, see http://www.theslowskys.com/home/ (last visited Feb. 6, 2008)

36 This idea has been advanced more than once. See Sherman supra note 13; BigTenNetwork.com supra note 3 (indicating that Comcast could earn up to $280 annually for each non-digital subscriber that signs up for the sports tier).

37 See, e.g., Jay Halfon & Edmund Mierzwinski, U.S. Public Interest Research Group, The Failure of Cable Deregulation, (2003) (“US PIRG Report”); Comments of Citizen Commenters; Letter from Harold Feld and Andrew Jay Schwartzman, Vice President and President, Media Access Project, on behalf of Common Cause et al., to Kevin Martin, Chairman, FCC (Mar. 21, 2007) (supporting implementation of ownership limitations on cable operators) (“Common Cause Letter”); Harold Feld’s Tales of the Sausage Factory, (Jul. 31, 2005, 13:51 EST) (“Fighting Big Cable (and why it matters)”).

38 See, e.g., US PIRG Report; study; Common Cause Letter supra note 37.

39 See Putting Fans First Commercial, (last visited Feb. 6, 2008); PuttingFansFirst.com supra note 6.

40 See PuttingFansFirst.com supra note 6.

41 See Scoggins supra note 10 (reporting Comcast’s withdrawal of sponsorship of a luncheon hosted by the St. Paul Chamber of Commerce and the University of Minnesota, as a result of the university’s Big Ten membership).

42 See, e.g., Big Ten Network Commercials, (last visited Feb 6, 2008) (showing BTN commercials lauding the positive impact of BTN and the importance of the Big Ten to the community); BigTenNetwork.com supra note 6 (responding to Comcast’s statements in a myth vs. fact page).

43 Compare Webb supra note 5 (interviewing BTN President, Mark Silverman) and BigTenNetwork.com supra note 6 with Webb supra note 10 (interviewing Comcast Midwest Vice President, Patrick Paterno) and PuttingFansFirst.com supra note 6.

Wednesday, February 27, 2008

FBI's Next Generation Identification System: New Liabilities for Employers?

by: Cari Athens, Associate Editor, MTTLR

Image "Wellcome Collection" by Chris O'Shea.
Used under a Creative Commons BY-NC 2.0 license.
Like Star Trek and Degrassi High before it, the FBI’s fingerprint database has gone “Next Generation.” The FBI recently awarded a 10-year contract for the “design, development, documentation, integration, testing, and deployment of the Next Generation Identification (NGI) System.”1 Over 47 million fingerprint records are contained in the current database, but little else.2 The NGI system, on the other hand, will be multi-modal: it will combine fingerprints with such other biometric information as iris imaging and palm prints.3 This fusion of data, the FBI hopes, will allow for the more accurate identification of criminals and terrorists.4

In response to the announcement, privacy experts - and non-experts - have raised concerns. They worry about the increased use of our bodies as living identification cards; what will we do, they ask, if the NGI system proves susceptible to hacking or spoofing: get a new eyeball? And, if the technology allows the government to pick our faces out of a crowd, they wonder, will this mean we will begin being watched all the time?5 The FBI acknowledged these privacy concerns, but responded in its press release: “It is important to note that the NGI system will not expand the categories of individuals from whom the fingerprints and biometric data may be collected . . . .”6

It is questionable whether that will pacify privacy advocates, but the statement helps introduce another interesting aspect of the NGI system. While it may not change the categories of people from whom fingerprints, eye scans, and palm prints will be collected, the NGI system will still, for the largest of those categories, provide for a change in what happens to the biometric data once itis collected.

Criminal background checks are required by state and federal statutes for individuals applying for jobs in certain specified industries, and the FBI’s biometric database is made available for that purpose. Michigan, for example, requires that public health employees,7 private security guards,8 and horse jockeys,9 among others, submit to a fingerprint check in order to be licensed or employed. In fact, more than half of all the fingerprint searches performed by the FBI are done for these kinds of background checks;10 10 million were done in 2005 alone.11

The FBI currently destroys or returns to employers fingerprints submitted for such non-criminal justice purposes.12 Under the new “rap-back” component of the NGI system, however, the FBI will offer to keep the fingerprint records submitted by job applicants.13 It can then notify an employer of any subsequent criminal record activity of an employee, including arrests and criminal charges, whether or not they result in a conviction.14

Some employers may be unwilling to stick their noses into the off-work activities of their employees and opt not to participate in the rap-back program – particularly in situations that do not result in a conviction.15 Perhaps they will not want to get involved if an employee is questioned by the police for drug possession or arrested for, say, too many unpaid parking tickets. Perhaps they will reason that, if an employee does get caught up in something serious, they will find out anyway. (“Why hasn’t Joe punched since Tuesday?” “He’s in jail.” “Oh.”) But, despite any discomfort they may feel about participating in the program, they may have an incentive to do so: possible tort liability.

Under the negligent hiring doctrine, employers are liable to a third party injured by an employee if the employer knew or should have known that the employee was unfit and the unfitness proximately caused the injury.16 Some jurisdictions additionally require that the risk of injury be reasonably foreseeable.17 Courts are split whether employers have an affirmative duty to conduct background investigations, but it can come down to a comparison between the type of work the employee performs and the reasonableness of the background check.18

Under the related negligent retention doctrine, the employer’s duty to third parties continues even after the employee has been hired. Thus, if an employer learns at some point that an employee is unfit, it can be held liable to a third party if it fails to take action, such as reassignment or termination, and the unfitness proximately causes an injury.19 If the employer had no notice that an employee was unfit, it generally cannot be held liable.20

The rap-back system would provide employers with a no-fuss, little-muss way to monitor the criminal activity of their employees. It will be interesting to see what effect, if any, it will have on negligent retention claims. If an employer has the option to participate in the program, but chooses not to, out of discomfort or respect or for any other reason, will this refusal excuse it in a negligent retention suit? In other words, does an employer have an affirmative duty to check for ongoing criminal activity? A court may look to the type of work the employee performs and the reasonableness of the monitoring, as is often done with negligent hiring cases, but the mere fact that the employee is required to submit to a criminal background check in the first place may indicate that it is the type of work worth monitoring.

One of the many questions the NGI system raises, then, is whether or not the rap-back program will result in a heightened duty for employers to monitor their employees’ brushes with the law. As the FBI continues with the design, development, and deployment of its new technology, other questions are sure to arise.

1 Press Release, Federal Bureau of Investigation, FBI Announces Contract Award for Next Generation Identification System (Feb. 12, 2008). [hereinafter FBI Press Release].
2 Federal Bureau of Investigation, Integrated Automated Fingerprint Identification System or IAFIS: What Is It? (last visited Feb. 13, 2008).
3 FBI Press Release, supra note 1.
4 Id.
5 See, e.g., Ellen Nakashima, FBI Prepares Vast Database of Biometrics, Washington Post, Dec. 22, 2007; Kelli Arena & Carol Cratty, FBI Wants Palm Prints, Eye Scans, Tattoo Mapping, CNN.com, Feb. 4, 2008.
6 FBI Press Release, supra note 1.
7 § 333.16174 (2006).
8 Mich. Comp. Laws § 338.1068 (2002).
9 Mich. Comp. Laws § 431.316 (2005).
10 Nakashima, supra note 5.
11 Department of Justice, Attorney General’s Report on Criminal History Background Checks 3 (2005) [hereinafter DOJ Report]. This report is also noteworthy because it recommends opening up the FBI’s database for use by all private and public employers.
12 Nakashima, supra note 5.
13 DOJ Report, supra note 11, at 14.
14 Under the Privacy Act of 1974, 5 USC 552(a), which protects the use and disclosure of a person’s criminal history, the employer will likely be required to get the employee’s consent. It is also important to note that the rap-back program will be subject to state privacy laws, which can vary widely. See Jennifer Leavitt, Walking a Tightrope: Balancing Competing Public Interests in the Employment of Criminal Offenders, 34 Conn. L. Rev. 1281, 1288-97 (2002) (providing an overview of different statutory approaches).
15 For one employer’s take, see namecritic, Big Brother FBI Database Expanding on Biometrics and Fingerprints, Things That Just Piss Me Off, Dec. 29, 2007.
16 27 Am. Jur. 2d Employment § 392 (1996).
17 Id.
18 See, e.g. Tallahassee Furniture Co. v. Harrison, 583 So. 2d 744, 750 (Fla. Dist. Ct. App. 1991) (“[C]entral to the task of judging the employer's responsibility to investigate an employee's background is consideration of the type of work to be done by the employee.”) (internal quotation marks omitted); Ponticas v. K.M.S. Invs., 331 N.W.2d 907, 913 (Minn. 1983) (finding that the scope of the employer’s investigation into an applicant’s background is “directly related to the severity of risk third parties are subjected to by an incompetent employee” and that “[l]iability of an employer is not to be predicated solely on failure to investigate criminal history of an applicant, but rather, in the totality of the circumstances surrounding the hiring, whether the employer exercised reasonable care.”). See alsoLeavitt, supra note 14, at 1301.
19 27 Am. Jur. 2d Employment § 396 (1996).
20 Id.

Saturday, February 16, 2008

Death and Taxes Not a Certainty in the Virtual World

by: Joydeep Dasmunshi, Associate Editor, MTTLR

Editor: This post is part of a short MTTLR Blog series on virtual worlds - Part one explores parallels between virtual property and real-world property. Part two (this post) examines the contract agreements that govern relationships between virtual world participants and creators. Part three (this post) considers taxation in virtual worlds.

Virtual worlds on the Internet have been getting a large amount of media attention over the past couple of years, due to the millions of users who have created "avatars" to interact with each other virtually. Many of these users are playing a type of large scale, interactive, computer game through their avatars, known as massively multiplayer online role-playing games, or "MMORPGs". World of Warcraft is one of the more popular MMORPGs, for example, in which "thousands of players adventure together in an enormous, persistent game world, forming friendships, slaying monsters, and engaging in epic quests that can span days or weeks."1 Other virtual worlds such as Second Life do not offer a gaming environment per se, but rather an interface in which users, through their avatars, can perform activities like going to concerts, attending lectures, creating and using objects, and even owning property. Second Life avatars are known as "residents" and the world even has its own currency, Linden Dollars, which can be exchanged for US Dollars at a fluctuating exchange rate 2

Image by Pathfinder Linden.
Used under a Creative Commons BY 2.0 license.
These virtual worlds are a big deal. In sheer numbers, there are millions of users in these virtual worlds: for example, World of Warcraft recently surpassed 10 million users 3, and Second Life has had over 20 million accounts registered (though many are inactive, duplicated, and not necessarily indicative of long-term consistent usage 4). Many of these users are doing things through their avatars that seem like they would be taxable activities in the real world, which raises the question: "Should there be taxes in virtual worlds?" This is a real issue, highlighted by the announcement that the Joint Economic Committee of Congress that it was looking into issues related to the economies of virtual realities. 5

While not many of us round up a group of friends to go slay a dragon in real life, one can make the case that discovering "loot" in an MMORPG is analogous to receiving a gift in real life. Or, more directly, receiving Linden Dollars (which are exchangeable for US Dollars) from another Resident in exchange for a virtual product seems awfully close to the definition of gross income in the Internal Revenue Code: "...all income from whatever source derived, including ... Gains derived from dealings in property"6.This isn't a unique question, it's just the first time that it has really been considered in the virtual world. When the IRS cracked down on "barter clubs" in the '70s, they ruled in 1980 that transactions involving "trade dollars" in virtual currency could be taxed, even though there was no actual money involved.7

In a recent article, Leandra Lederman considered many of these issues to reach differing conclusions depending on the type of virtual world, whether it was a MMORPG, World of Warcraft type world, or a Second Life type world8. One of the integral issues that this hinges on is whether or not the creations in these worlds are "property" or not. I won't go into that issue here, because the arguments on both sides have been presented in numerous forums, including, very recently, this blog9,10. But, in essence, Leandra argues, in the Second Life-type worlds, if Second Life residents are deemed to have property rights in their own creations, then sales of these items should be taxable11.

Personally, this makes sense to me on a basic level. It doesn't seem sensible that an individual should have to pay taxes just because of playing a game and killing orcs, but at some point, virtual world interactions go beyond the scope of games for fun, and start to look like real-world business transactions. When we've reached the stage where reputable companies like Microsoft and Verizon are hiring employees through "virtual interviews" in Second Life12, it seems perfectly natural that the government will want to get a cut of the action. As Dwight in the NBC show "The Office" responded when Jim asked him about his avatar, "Second Life is not a game."13

1 Blizzard Entertainment, World of Warcraft FAQ, (last visited Feb 4, 2008).
2 Linden Labs, Second Life LindeX Market Data, (last visited Feb 4, 2008).
3 Leigh Alexander, World Of Warcraft Hits 10 Million Subscribers, Gamasutra.com, Jan. 22, 2008.
4 Wikipedia.com, Second Life, (last visited Feb. 5, 2008).
5 J. Economic Comm., 109th Congress, Virtual Economies Need Clarification, Not More Taxes, Press Release #109-98 (Oct. 17, 2006).
6 I.R.C. § 61(a)(3) (2007).
7 Clay Risen, Taxing Virtual Economies, N.Y. Times, Dec. 10, 2006, §6 (Magazine), at 77.
8 Leandra Lederman, "Stranger than Fiction":Taxing Virtual Worlds, 82 N.Y.U.L. Rev. 1620 (2007).
9 Elizabeth Hertz, Virtual Property – Real-World Problem, The MTTLR Blog, Feb. 4 2008.
10 Erik Paulson, Virtual Property Protection: Continue the Experiment, The MTTLR Blog, Feb. 7, 2008.
11 Lederman, supra note 10, at 1658, 1670.
12 Hannah Seligson, Sight Unseen, New York Post Online Edition, (last visited Feb. 5, 2008).
13 The Office, Season 4: Local Ad (NBC television broadcast Oct. 25, 2007). Clip containing quote available at http://www.gametrailers.com/player/usermovies/149565.html (last visited Feb. 15, 2008).

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Wednesday, February 13, 2008

I Always Feel Like Somebody's Tracking Me...

by: Ronald Spinner, Associate Editor, MTTLR

Image "Ear" by Jeremy Richardson.
Used under a Creative Commons BY-NC-SA 2.0 license.
“I always feel like somebody's watching me / And I have no privacy…”1

When Rockwell wrote those lyrics back in 1984, many took it as a humorous account of a guy in serious need of therapy. The singer is worried about being spied upon by his neighbors, the mailman, and the Internal Revenue Service.2 The somewhat offbeat video for the song hints that Rockwell actually may not be that unusual. The VH1 clip is filled with little pop up “facts,” and in one such, the video claims that 74% of Americans “believe our government engages in clandestine operations.”3

While I hardly recommend relying on music videos for hard sociological data, maybe there is reason to be a little bit paranoid. For examples, just watch the news. In the past few days, we’ve heard that the administration has been pushing Congress to give it permanent permission for warrantless wiretaps.4 Congress has been hesitant, but recently agreed to a 15 day extension of the law while they sort things out.5 The request seems simple—the administration wants authority to do what Americans want it to do: keep us safe. But…can we trust government with this kind of power? I keep thinking of the phrase: “Power tends to corrupt; absolute power corrupts absolutely.”6 And, while I’d like to believe everything will work out as it should, I’d also like to think I’m not that naïve anymore. (It may have something to do with going to law school.)

I did some digging and was not terribly surprised to learn that there seems to be a lot of tracking going on. One type of tracking did raise my eyebrows a bit, though. Apparently, the government routinely seeks court permission to track citizen cell phones without demonstrating probable cause.7 OK, this was news to me. Sure, I know the government can engage in surveillance and I had suspected that cell phones were not off limits, but I had thought the Constitution put limits on such activities.8 At the very least, it seems there would need to be a statute or such granting the government authority. It turns out, there is. In a touch of Orwellian irony, the law allowing such surveillance is named the Electronic Communications Privacy Act of 1986.9 (Had it passed two years earlier, the comparisons to Big Brother would be unavoidable.10) The devices used to enable cell phone tracking are referred to as “pen registers”.11 Pen registers can record what numbers are dialed and where calls are routed. In the case of cell phones, they sometimes can yield the location of the phone itself, though exactly how close they can pinpoint the location varies depending on whether the phone has a GPS chip and on the number of cell towers nearby that can be used to triangulate the call.12

Ah, but in my pre-law-school days, I had assumed that one would need a warrant to do all this.13 (OK, before law school I didn’t know why you needed a warrant, but I had watched enough TV to guess it was necessary.) My research bolstered this; I learned that the Constitution is backed up by statutory protections. For example, even if the government has probable cause, if it can only convince a court to issue a warrant for a pen register and nothing more, the pen register may not be used to learn the physical location of the phone.14 It would seem I was just being paranoid after all. (Maybe Rockwell needs a backup singer?)

If this is all true, though, how does that square with the government’s attempts to track citizen movements without the probable cause needed for a warrant?15 That doesn’t seem to fit with the statutes or the Constitution. Now I was curious. Partly out of my privacy concerns, but also out of a sense of intellectual interest, I asked: how could this be so?

“Why do I always feel like I'm in the Twilight Zone?”16
The government has made arguments to get around the “probable cause” requirement, and sometimes they are successful in court.17 As I understand it, one such line of reasoning, the “hybrid” argument, uses the Stored Communications Act (SCA) to get around the restrictions.18 Under the SCA, the government may get a court order to access stored records if it provides “specific and articulable facts showing that there are reasonable grounds” that the information sought is “relevant and material to an ongoing criminal investigation.”19 This is a lower standard than “probable cause.” In simplified form, the argument seems to flow as follows:20
  • The statutory protection discussed earlier only comes into play when a cell phone location is sought “solely pursuant to the authority for pen registers and trap and trace devices” (emphasis mine).
  • If the government seeks stored record access and real-time tracking data, the statutory protection does not apply, since the government is not solely seeking authority for a pen register. Thus, the pen register should be allowed to record the physical location of the cell phone tracked.
  • Since there will be a stored record, the government can use the SCA to access the record later under the lower “reasonable grounds” standard.
  • Since the government can access the record later, why not provide the data in real time?
Of course, this argument does not mention that by the time a stored record is accessed, the suspect in question will be long gone. (Let’s face it: that’s a real difference between intercepting someone on the ground and, well, not doing so.) 21 In courts, it appears that the argument’s results have been mixed, with some courts accepting and others rejecting the view.22 Some courts are concerned that this feels like an end-run around protections Congress put in place; others appear less concerned about what Congress may have intended and focus on the pure statutory language alone.23 After my reading, I side with the former position. It seems to me that Congress said “Don’t record locations without express permission” and “You can only seek stored (not live) records with less than probable cause.” In that view, this “hybrid” interpretation feels like a twist of logic that smacks of Orwell’s doublespeak. Nonetheless, as long as courts agree with it, it remains a viable interpretation of law. Don’t get me wrong; I believe in law enforcement. I just happen to believe in process and the Fourth Amendment, also.

“Tell me, is it just a dream?”24

Rockwell may have been paranoid, but perhaps he had a point. And perhaps this is not the full story, since there are allegations that the executive branch sometimes bypasses the courts altogether.25 For me, once a happy-but-naïve person (in my pre-law days), it seems like an odd turn of events. The original goal of the technology was to save lives.26 (Indeed, just weeks ago, cell phone tracking probably saved the lives of two women in Eastpointe, Michigan.27 That’s an undeniably wonderful use for the technology.) Beyond that, the technology continues to find other useful applications.28 Yet, the technology has a dark side, enabling others to spy on us in spite of would-be legal protections.

So, what do we do? Perhaps nothing; maybe we don’t mind if the government can track us.29 But, perhaps you represent an unpopular cause and believe you have reason to be humming Rockwell’s little ditty quietly to yourself. In that case, if you don’t use your phone to access maps and navigation, perhaps you might want to turn off the GPS broadcast function as some phones allow. (My Motorola has a setting “911 only,” which, in theory, only broadcasts the exact location if I dial 911. I’ve chosen that setting, though I can’t vouch for its effectiveness. Also note, even if the setting stops the phone from broadcasting your location, you can still be tracked, just not quite as easily.) For the more active among us (read “less lazy”), it may worth trying to help the courts by filing amicus briefs. Electing officials who respect Constitutional rights is generally helpful, too. At the very least, it might be worth writing a letter to your elected representatives to ask, “Do we really know what we’re getting into with this surveillance and warrantless wiretapping stuff?”

In the meantime, perhaps Rockwell is right. Maybe we should start wondering, “Who’s playing tricks on me?”30

1 Rockwell, Somebody’s Watching Me, on Somebody’s watching me (Motown Records, 1984). Video available on vh1.com (last visited Feb. 11, 2008)(hereinafter, Rockwell, Video. Song lyrics available on Yahoo! Music (last visited Feb 11, 2008)(hereinafter Rockwell, Lyrics)
2 Rockwell, Lyrics, supra note 1.
3 Rockwell, Video supra note 1, (cited material at 2:32).
4 Bush May Veto Spy Measure Extension: Spokesman, Agence France-Presse, Jan. 29, 2008.
5 Dan Eggen, Surveillance Law Extended for 15 Days, WashingtonPost.com, Feb. 1, 2008; see also Anne Broache, Congress Approves Brief Extension of Wiretap Law, CNet.com, Jan. 29, 2008.
6 See Power Tends to Corrupt..., Bartleby.com, (last visited Feb. 13, 2008).
7 Ellen Nakashima, Cellphone Tracking Powers on Request: Secret Warrants Granted Without Probable Cause, WashingtonPost.com, Nov. 23, 2007. See also Kevin McLaughlin, Note, The Fourth Amendment and Cell Phone Location Tracking: Where Are We?, 29 Hastings Comm. & Ent. L.J. 421 (2007).
8 See U.S. Const. amend. IV (containing language on “Search and Seizure”); see generally, McLaughlin, supra note 7.
9 Electronic Communications Privacy Act of 1986, Pub. L. No. 99-508, 100 Stat. 1848 (1986). See also, McLaughlin, supra note 7, at 428.
10 See George Orwell, Nineteen Eighty-Four: A Novel (Secker & Warburg 1949) (1948). In the book, Orwell describes a totalitarian state obsessed with surveillance. His book coined the phrase “Big Brother is watching you.” While it is interesting to note that Rockwell’s album came out in 1984, I am not aware of any connection between Rockwell’s song and the book.
11 See 18 U.S.C. § 3127(3) (2000). See also, McLaughlin, supra note 7, at 428.
12 See Deborah F. Buckman, Annotation, Allowable Use of Federal Pen Register and Trap and Trace Device to Trace Cell Phones and Internet Use, 15 A.L.R. Fed. 2d 537 at § 2 (2006). See also, McLaughlin, supra note 7, at 426-27.
13 See U.S. Const. amend. IV. Indeed, the standard is “probable cause” under Rule 41 of the Federal Rules of Criminal Procedure. Fed. R. Crim. P. 41; See also Buckman, supra note 12, at § 2.
14 See e.g., 47 U.S.C. § 1002(2) (2000)(“[W]ith regard to information acquired solely pursuant to the authority for pen registers and trap and trace devices . . . such call-identifying information shall not include any information that may disclose the physical location of the subscriber”).
15 A simple search shows it has been going on at least since 2005, though. See Ryan Singel, U.S. Cell-Phone Tracking Clipped, Wired.com (Oct. 27, 2005).
16 Rockwell, Lyrics, supra note 1.
17 See Buckman, supra note 12, at § 4. Note that the courts in the cases cited in the annotation appear to still be concerned about the extent of the tracking allowed.
18 18 U.S.C. §§ 27012712 (2000).
19 See 18 U.S.C. § 2703(d).
20 See Buckman, supra note 12, at § 2; see also, McLaughlin, supra note 7, at 428-29.
21 See, e.g., McLaughlin, supra note 7, at 431-33.
22 See McLaughlin, supra note 7, at 422-24.
23 See generally Buckman, supra note 12; see also Gov't May Track Locations of Citizens That Have Cell Phones, ACSBlog (Nov. 30, 2007).
24 Rockwell, Lyrics, supra note 1.
25 See Nicole Ozer, ACLU Seeks Government Records on Use of Cell Phones as Tracking Devices, Bytes and Pieces Blog (Nov. 30, 2007). Theoretically, a party before a court can challenge evidence produced by such surveillance and the government must affirm or deny that the surveillance is lawful. See 18 U.S.C. § 3504 (2000). In practice, the government does not have to produce much to affirm that it acted lawfully; an affidavit often suffices. See George K. Chamberlain, Annotation, What Constitutes Adequate Response by Government, Pursuant to 18 U.S.C.A. §3504, Affirming or Denying Use of Unlawful Electronic Surveillance, 53 A.L.R. Fed. 378 (1981). Of course, if the argument is that the executive branch is bypassing courts to conduct surveillance illegally, then a logical extension is that the goal of accessing this information is something other than prosecution of suspects in the courts. The government’s possible response to a court challenge would be irrelevant to someone making this claim.
26 See e.g., Scott Hershberger, New Technology Can Locate Incoming 911 Calls From Cell Phones, MSNBC, Jan. 29, 2008. For basic background information, see, e.g., Enhanced 911, Wikipedia, (last visited Feb. 13, 2008).
27 GPS Technology Rescued Rape Victims, ClickOn Detroit, Jan. 23, 2008.
28 For example, Verizon offers a navigation service on some phones; see Verizon’s website (last visited Feb. 13, 2008). Google offers a similar service (last visited Feb. 13, 2008)
29 Or maybe this is just a matter of “ignorance is bliss.” See also McLaughlin, supra note 7, at 433, 442-44.
30 Rockwell, Lyrics, supra note 1. For cell-phone tracking joke, I’d recommend checking out http://www.sat-gps-locate.com/english/index.html. I leave the experience as an exercise for the reader.

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Thursday, February 7, 2008

Virtual Property Protection: Continue the Experiment

by: Erik Paulson, Associate Editor, MTTLR

Editor: This post is part of a short MTTLR Blog series on virtual worlds - Part one explores parallels between virtual property and real-world property. Part two (this post) examines the contract agreements that govern relationships between virtual world participants and creators. Part three (this post) considers taxation in virtual worlds.

How should intellectual property laws protect ownership in virtual property? Second Life, a virtual world, has grown explosively since 2003 attracting millions of members from around the globe.1 The creators of Second Life describe the online game as “a 3-D virtual world entirely created by its Residents” who retain rights to their digital creations.2 Residents of Second Life can use Linden Dollars to purchase virtual cars, nightclubs, and even islands. These virtual items are worth real money. Islands cost a whopping $1675 US each,3 and IBM recently purchased twelve.4 Second Life has an exchange where US dollars can be converted to Linden dollars and vice versa. Hundreds of thousands of US dollars worth of exchanges occurs every day.5 With this amount of money being invested in virtual worlds, property rights become very important. There has already been litigation, but the question remains, who actually owns this virtual property? More importantly, should legislatures step in to protect it?

EULAs govern

Currently, End User License Agreements (EULA) govern the legal relationship between most virtual world users and virtual world creators. EULAs are contracts users agree to be bound by before using computer software. Effectively, EULAs give virtual world creators the legal power to determine how virtual property will be protected. However, users are not left without remedy. Unlike the lawlessness of the Wild West, EULAs are governed by contract law principles, so they may not be “unconscionable” and are limited by “reasonableness” requirements. Additionally, consumer protection statutes in many states limit the enforceability of contracts. Most importantly, world creator power is limited by users’ ability to choose whether or not to enter a virtual world.

Virtual worlds are created for different reasons. Some, like World of Warcraft are video games, created to provide entertainment. In game-like virtual worlds, the real world sale of virtual property is often discouraged since the creators feel it detracts from the gaming experience. Other virtual worlds, such as Second Life, are intended as havens for virtual property, and as mentioned above, even set up real world monetary exchanges for virtual currency. The goals of virtual worlds are different and would not fit easily under a single virtual property protection regime.

Virtual world creators are not ignorant of the needs of their users. Users are the essence of any virtual world. Varying levels of virtual property protection may attract a certain user base, and given the ease with which users can join or leave a virtual world, if they are being treated unjustly they can quickly move to another venue with a few clicks of the mouse. Unlike the real world, virtual world costs to move from one world to another are relatively low. Virtual world creators competing for users will create virtual property protection that best suits their business model.

Competition between virtual worlds will ensure creators give adequate consideration to the type of property protection desired by users. The simultaneous successes of Second Life (with strong virtual property protection) and World of Warcraft (with weaker virtual property protection) provide strong support for this assertion – different users seem to be attracted to different levels of virtual property protection. Of course, factors other than virtual property protection affect a user's decision to join one virtual world or another. But only the individual can adequately weigh the importance of virtual property protection when choosing a world to join.

Alternatives to the EULA scheme

Consumer contracts can be criticized for binding users who neither read nor understand the contract. This same criticism can be leveled against EULAs and in favor of a legislatively-imposed standard virtual property regime. But a protective regime is unnecessary for several reasons. First, from a public policy standpoint, unlike contracts involving real-world property, most users are not significantly invested in virtual property. Second, users of virtual worlds are educated at higher levels than the general population – one study found 65% of Second Life users have attained a college degree6 as compared with 29% of the US population.7 Users of virtual worlds do not need the government’s protection, since the users are positioned to be more informed and better understand conditions imposed by a EULA compared to the average denizen of the real world. Third and most importantly, users have a general awareness of virtual property rights associated with the world they participate in from a variety of sources including blogs, news articles, and community members. In the real world, people rarely read long form contracts they are required to sign. Yet, people understand the general implications of agreeing to contracts. Without reading the EULA, the typical user of Second Life is likely aware they have more virtual property protection than a World of Warcraft user.

Virtual property rights should be allowed to vary depending on the goals of the world creators. Well-functioning standard contractual agreements have developed previously without legislative intervention. The GNU standard for software licenses embraced by the open-source software community is an example.8 GNU licenses provide different levels of protection depending on the desires of the software developer.9 Both developers and consumers know what to expect with a particular GNU license without needing to read the language of the contract. Virtual property rights are well suited to a tiered level of protection. An internal standardizing body could create different levels of protection. Once widely adopted, users could gravitate towards the virtual property protection regime they prefer. In addition, user rights groups will likely develop to lobby on behalf of virtual citizens. Legislative intervention is not a pre-requisite for virtual property protection. As noted by a recent commentator, many virtual world users may prefer legislatures stay out.10

Most importantly, virtual world citizens are not a captive group. They can leave their virtual worlds at any time, granted they must leave potentially valuable virtual property behind. But since users are the most important element in the virtual world business, creators have plenty of incentive to treat users fairly. In the future, we may see virtual world coalitions that create standards for transferring virtual property between virtual worlds. The optimal level of virtual property protection is unknown. But what is certain, an open market in virtual worlds and virtual citizens should be left to its own devices to coalesce around a virtual property protection regime of its own development. Courts do have a place in this: virtual property rights should be enforced in accordance to EULAs. However, legislative tampering or the creation of a one-size-fits all standard for virtual property rights will not benefit virtual worlds, or virtual citizens.

1 Second Life, What is Second Life?, (last visited Jan. 26, 2008).
2 Id.
3 Second Life, Land: Islands, (last visited Jan. 23, 2008).
4 John Bringardner, IP’s Brave New World, Law.Com (Feb. 1, 2007), (last visited Jan. 23, 2008).
5 Second Life, LindeX Market Data, (last visited Jan. 26, 2008).
6 New World Notes, Surveying Second Life, (last visited Jan. 26, 2008).
7 U.S. Census Bureau, One-Third of Young Women Have Bachelor’s Degree (Jan. 10, 2008), (last visited Jan. 26, 2008).
8 Gnu.org, The GNU Operating System, (last visited Jan. 26, 2008).
9 Gnu.org, Licenses, (last visited Jan. 26, 2008).
10 Kevin Deenihan, Leave Those Orcs Alone: Property Rights in Virtual Worlds, (last visited Jan. 26, 2008).

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Monday, February 4, 2008

Virtual Property - Real-World Problem.

by: Elizabeth Hertz, Associate Editor, MTTLR

Editor: This post is part of a short MTTLR Blog series on virtual worlds - Part one (this post) explores parallels between virtual property and real-world property. Part two examines the contract agreements that govern relationships between virtual world participants and creators. Part three (this post) considers taxation in virtual worlds.

As a society, we’ve long been comfortable declaring property rights in ideas. The explosion of immersive online games, however, has raised the question of whether there should be legal rights in what is essentially another person's idea translated into a conglomeration of ones and zeros that is only useful within the confines of a virtual world. To add to the legal confusion, people are exchanging real-world money for virtual property.

In a recent article entitled “Leave Those Orcs Alone: Property Rights in Virtual Worlds,”1 Kevin Deenihan argued that online games and the virtual property therein should continue to be governed by the End User License Agreement (EULA) scheme rather than real-world property law. In
arguing against the application of legal rights to virtual property, Deenihan relies on a distinction between virtual and traditional property. However, I found myself unconvinced. If virtual property is truly its own category, deserving of a special legal exemption, the distinction must rest on more than the “communal, social atmosphere of virtual worlds.” 2

Deenihan states that virtual property possesses no special value “except as a record of achievement” and “an aid to socializing.”3 Virtual property derives its value from the status it confers on its owners, showcasing the time and skill they have invested in its procurement.4 This may be true, but it is true of traditional property as well; I suspect it would be difficult to sell a five thousand dollar handbag if it conferred no status benefits on the buyer.

Deenihan supports his position on the distinctiveness of virtual property by citing the controversy over so-called gold farmers, players who perform repetitive tasks to earn items and virtual money, which they then sell for real money.5 Such players warp the ‘economy’ of the game and make it difficult for others to maintain their status; to keep up with the rising costs, people are forced into doing the ‘less playful’ tasks that earn virtual money. Sound familiar?

Even the player-lauded efforts of developers to shut down, kick out, and generally punish those who would upset the status system don’t prove the distinctiveness of virtual property. The heart of the regulation is keeping high-status items out of the hands of those without the requisite characteristics; in short, game developers are mimicking sumptuary laws.

Deenihan seems to operate on the implicit assumption that property law is meant solely to protect necessities and govern commercial exchange.6 Most property isn’t necessary, and few people outside of business and law are concerned with large contractual borrowing. The fact of the matter is that people have a lot of property that falls into neither of Deenihan’s categories but nonetheless enjoys the protection of the law. The mere fact that large portions of American property law wouldn’t apply to virtual property
doesn’t mean that the remaining law should be inapplicable as well.

Perhaps the only reason the one-sided EULA scheme has not been more critically scrutinized is that the value of most individual players’ virtual property is low. The Linden dollar, the currency of Second Life, is worth roughly 1/270th of an American dollar.7 All that the average player has invested in a game is a few dollars and a lot of hours that, presumably, he or she enjoyed. But in the aggregate, these investments do add up to significant amounts.

It’s all very nice to think of the virtual worlds as extralegal spheres of community and fun, but virtual worlds involve real money. As any reader of the news will know, Second Life has already produced a millionaire,8 and the plaintiff in a recent suit against Linden Labs claimed to have invested over eight thousand dollars in virtual real estate.9 With this kind of money at stake, there will come a point when a settled virtual property law becomes a necessity rather than a point of debate.

1 Kevin Deenihan, Leave Those Orcs Alone: Property Rights in Virtual Worlds, Virtually Blind, January 15, 2008.
2 Id. at 16.
3 Id.
4 Id.
5 Id. at 17-18.
6 Id. at 23-24.
7Stephen J. Dubner, Philip Rosedale Answers Your Second Life Questions, Freakonomics Blog, December 13, 2007.
8Rob Hof, Second Life’s First Millionaire, Business Week, November 26, 2006.
9 Declaration of Mark Bragg, Esq. ¶33, Bragg v. Linden Research, Inc., No. 06-CV-4925, 2007 WL 526313 (E.D.P.A. Jan. 25, 2007) (zipped file ("Bragg's Motion for Injunction, Brief and Exhibits 1/25/07") containing Declaration ("Exhibit 1") available from http://secondlife.typepad.com/second_life_lawsuit_bragg/second_life_lawsuit_pleadings_with_the_court/index.html.

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