LGJ: Here comes the FTC

Each week Mark Methenitis contributes Law of the Game on Joystiq ("LGJ"), a column on legal issues as they relate to video games:

GamePolitics is reporting that the Federal Trade Commission is ready to look into "consumer protection" related to digital rights management tools. To many people, this may seem like a great idea. In general, it's not. It would be nice to give consumers some protection from some of the most draconian or horribly flawed DRM systems that have been put into use. On the other hand, those of us who have been around the "government regulation" block know that these protections rarely solve the problem they set out to resolve, and in turn, generally put more hurdles in the way of those who want to get a product into the marketplace, which raises the cost of production and usually the consumer price, too.

Consumer protection regulations do just what they sound like: they protect consumers. There are hundreds of these regulations at both the state and federal level in the U.S., and most are targeted at an industry level. There are consumer protections related to everything from debt collecting to auto repair to purchasing a franchised business. Many of these laws were enacted in response to a perceived or actual abuse by producers toward consumers. So, the government set out to level the playing field and to give consumers a way to deal with their grievances. All in all, the intent was good.
Most forms of consumer protection fall more or less in line with the intent. However, other consumer protections take on lives of their own and evolve into monsters that have to be tamed by compliance experts and lawyers. A good example of this is franchising. While the newly passed franchise rules are certainly better than prior ones, the whole concept has been a huge hurdle for anyone who has wanted to sell a franchise in the U.S. for decades. It requires, among other things, the creation of a very long, very detailed disclosure document that outlines every aspect of the business. It requires filings with certain states. And it requires annual renewals with the possibility of quarterly updates.

Because of the diversity of mechanisms for consumer protection, the potential here is really across the board. Obviously, there's always the possibility that the FTC will choose to do nothing, but since the organization is holding an event to specifically discuss the issue, it seems relatively likely that something will occur. On the shallow end of the regulatory pool, the FTC may simply be the new group responsible for fielding DRM related complaints and investigating extreme cases. Think of it as an alternative to litigation in something like the rootkit case. In short, the consumer, rather than suing the producer, files a complaint with the FTC. The FTC then is in charge of remedying the issue, rather than the consumer. It's free, and it can help spot nationwide patterns that may uncover illegal behavior. How much that may help a consumer who has already been injured in some way depends on the regulation.

However, I don't believe this will be the limit of the DRM issue, based on a statement in the FTC notice: "the workshop will address the need to improve disclosures to consumers about DRM limitations." To someone who's done a significant amount of regulatory work (please, hold your applause) this indicates potentially complex compliance requirements and new legal expenses for producers. In a practical sense, it could mean anything from requiring a new packaging sticker related to DRM to complex statements on the box explaining the exact limits of DRM. More than likely, this will also require some sort of approval process, or it could be on the honor system -- but with much larger fines in play.

Think of something like the ESRB for DRM. If a company wants to put out a product, it now has to identify the "DRM Level" on the box, like a game rating. Then, on the back of the box, that "DRM Level" has to be detailed more closely, like those content descriptors the ESRB uses. It might be something like "DRM Level Low: CD Key" or "DRM Level High: CD Key, Online Authentication, Limited Installs."

Until the FTC publishes more and holds the actual meeting, it's hard to foresee which direction this will go. Should it become overly restrictive, it only seems likely that game companies will either cut back on other costs or pass the new legal fees on to the consumer. That's not to say all regulatory schemes are negative and result in higher prices. This, like so many other things, is about finding a balance.


Mark Methenitis is the Editor in Chief of the Law of the Game blog, which discusses legal issues in video games. Mr. Methenitis is also a licensed attorney in the state of Texas with The Vernon Law Group, PLLC and a member of the Texas Bar Assoc., American Bar Assoc., and the International Game Developers Assoc., where he is a board member of the Dallas chapter. Opinions expressed in this column are his own. Reach him at: lawofthegame [AAT] gmail [DAWT] com.

The content of this blog article is not legal advice. It only constitutes commentary on legal issues, and is for educational and informational purposes only. Reading this blog, replying to its posts, or any other interaction on this site does not create an attorney-client privilege between you and the author. The opinions expressed on this site are not the opinions of AOL LLC., Weblogs, Inc., Joystiq.com, or The Vernon Law Group, PLLC. As with any legal issue that may confront you in a particular situation, you should always consult a qualified attorney familiar with the laws in your state.

This article was originally published on Joystiq.