November 22, 2011 · 3:45 pm

Digesting the Fall console game season, lack of critical perspective on the medium

This fall was a big season for console games – basically every major release of the year came in the last 2-3 months, and very few blockbusters debuted outside the fall season. All of the blockbuster sequels are on an annual, November release schedule at this point, and this past month or two saw heavyweights like Call of Duty, Uncharted, Assassin’s Creed, Elder Scrolls, Gears of War, Zelda, Marvel vs Capcom, and the Batman franchise release new entries. Fall has always been a popular release target, with the hopes of a small price cut for Christmas boosting sales after the real fans already jumped in, but this year has really been lopsided.

I’m the kind of fan who believes that games have the potential for art, even if they don’t all realize it, and as such I had reason to be skeptical of the fall schedule from the start – There is no original game in the entire schedule. Every single major release has been a sequel, if not the third or fourth or fifth entry in a series. That’s not necessarily terrible, and plenty of my favorite games have been sequels (MGS4, to name just one, is one of the greatest games of all time), but the trend of game developers cranking out sequels rather than working on new properties concerns me as a consumer looking for works with more artistic content. What’s even more concerning is how these games have been received.

So what did the reviewers have to say about this fall lineup? Here’s IGN’s article on the topic, with a spoileralert title of “Was Fall 2011 the Best Season in Gaming History“. I don’t have a huge problem with many of the games (I also haven’t played a majority of them, so I refrain from mentioning those), but some of the scores really don’t reflect the major flaws in the games, and the criticism reflects a lack of perspective on the season as a whole. Some of my biggest gripes: 8.5 for Assassin’s Creed: Part 4, a game which, in my experience, has the buggiest multiplayer of any game I’ve ever played (it wavers in and out of being completely unplayable, and often freezes to the point of needing a hard reset… a truly grave offense given that Part 3 had the same issues but less frequent). A 9.0 for Call of Duty: Modern Warfare 3: a sequel to a sequel that’s seen a spinoff, but it has added remarkably little to the multiplayer experience in two renditions, the campaign mode’s story reads even on paper as if it was written by an ADD seventh grader from a military family after a sugar binge, and the main addition to the franchise still isn’t even functional. Ultimate Marvel vs. Capcom 3 adds 12 characters to the game before it, nothing more, and got the same 8.5 as it’s predecessor. Battlefield 3 received a 9 despite the fact that the reviewer described the campaign as forgettable, and the multiplayer takes hours of grinding to achieve parity with your opponents, and was so buggy that hundreds of players were banned within weeks of release for exploiting glitches. Many of the other games on the list suffer from questionably high scores, but my gripes are less concrete, more along the lines of “how can adding almost nothing to a good game yield a higher score” sort of gripes.

Does this deserve a 9?

The problem of inflated reviews for entertainment on websites that make their money advertising for entertainment isn’t new or unique to console games, but there’s a disturbing trend in game criticism to actually berate critical reviews. IGN recently ran a piece where they got a psychologist professor of psychology psychology major to look at scores on Metacritic, and have him corroborate their complaints that too many users are giving Modern Warfare 3 a zero with some cold hard science. The student seems to understand the user complaints better than IGN –

reviews suggest that there is at least a significant minority of players who feel that the Call of Duty franchise is no longer delivering along those long-held gaming values of originality, innovation, what-have-you

Seems like a valid complaint to me, and when all anybody wants to do is give the game a 10, I feel like I’d give Call of Duty a 0 as well (Full disclosure: I have never reviewed anything on Metacritic. And I’d give call of duty a 7). When the media charged with critiquing games is minting every big-budget release as a 9 or a 10 just for being playable, can we really expect more discretion from anonymous users on Metacritic? And it isn’t just IGN, though I focus on them here.

The industry really has no critical perspective on games as a medium, as component pieces of a large entertainment medium that will keep pumping out derivative works if we pay for them and review them favorably, and it’s not doing much for the argument that the field can produce an experience with artistic merits. It definitely still can, but the November blockbusters aren’t heading in the right direction, and I’d appreciate it if at least one mainstream site would acknowledge that. End rant. I’m off to play Catherine for a third playthrough.

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October 27, 2011 · 1:51 pm

Groupon’s IPO will challenge the SecondMarket business plan, just as the company releases positive growth data

SecondMarket, the secondary market (it’s a well-named site, at least) for shares of private companies, is going to be tested by one of the major companies it provides liquidity to when that company goes public.

Two big events are going on right now for SecondMarket: First, they released their Q3 numbers, and they are growing significantly. The number of participants is up to over 75,000, a 333% growth from last year. The company has conducted $435 million worth of transactions this year, a 75% increase from last year. As they noted on their blog (first link above), the company is conducting “liquidity programs” for many companies at sizes that, in the past, would have likely necessitated an IPO. They also released some descriptive statistics on the people behind the transactions themselves – the sellers of the securities are overwhelmingly ex-employees (64.5%) or current employees (16.9%), and the buyers are overwhelmingly private individuals (63% of the cash spent). The top companies purchased were Facebook, Twitter, and Groupon, in that order.

Second, Groupon is looking like they will actually go ahead with their eternally-delayed IPO, and it’s being guesstimated at a price of $16-18 per share. Comparing it to the big IPOs of this summer (Pandora and LinkedIn) seem to sugest that’s a reasonable range, if you are a fan of young companies with unproven economics (no judgment intended there – many investors apparently are). Problem is, shares on SecondMarket (and SharesPost, a similar site) have traded at an implied valuation of $20-30 billion, whereas the IPO looks to value the company at far less. For reference, I’ve heard of Groupon stock selling on SecondMarket for as much as $60 a share. That’s a pretty big gap for holders of the stock on these secondary markets, who look like they stand to lose more than 70% of the value they paid for just weeks ago.

There are a ton of interesting issues raised by the existence of SecondMarket in the first place (isn’t it clear that SecondMarket supports a speculative bubble if the valuation of a major company traded on the market is inflated by as much as 70% per share? isn’t selling shares at a massively inflated rate to a majority consisting of private individuals the definition of subprime?), but this should challenge the business model as a whole. If we see the other 3 major companies on the exchange (Facebook, Twitter, and Zynga) go public to similarly deflated valuations (compared to the valuations on SecondMarket and SharesPost), then we may see individual investors losing and subsequently pulling back from the private company market entirely. I’d guess Zynga is the next to go, and maybe if investors on SecondMarket believe that Groupon’s IPO is a representative of how Zynga’s IPO might go, we may see shares fall in price as a result.

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Filed under Funding, Law

October 25, 2011 · 3:08 pm

Breaking my hiatus with a flurry of random thoughts

After a long hiatus for some personal reasons, I’m back! But, this means I have a store of ideas that I didn’t write about. Some of those ideas are now no longer worth covering because they’ve been beaten to death by other sites, but the ones that are still interesting I’m just gonna run through right now to get it out of my system, no rhyme or reason, and little theme besides being among the topics I frequently write about. Let’s get going:

Arkham City is great, but the initial user experience is flawed, and the game outlines a problem with comics-as-broad release media

Loved Arkham City. Played a LOT of it last weekend, probably only possible because my girlfriend is out of the country at the moment. Arkham City launched with a pretty bold, but increasingly common plan to increase sales and profits. Sales, by offering a ton of extra content for new game purchasers (as opposed to used game purchasers), and profits, by having a ton of extra downloadable content to squeeze a few extra bucks out of hardcore fans. It’s hard to fault Rocksteady, the studio behind the game (or any of the other members of the supply chain), for this approach – the used game market is a constant concern for studios, especially during a recession, and providing lots of bonus content both incentivizes new game purchases (by including the content for free with new games), and giving the studio a way to make money on the used games (through the customers then paying for downloadable content). I’ve ranted about terrible DRM as a system that only punishes good customers on my blog before, so I should be in favor of this setup, right?

The problem is, the customer is still the loser here. I bought the game (in fact, I pre-ordered it!), and my reward was that the first time I sat to play the game, I had to enter 3 separate 16 digit codes into the Playstation Network, wait for each of those 3 packages of content to download, and then wait for each of those packages to install. So I spent 15-20 minutes downloading and installing the content I paid for before I even got to fire up the game. Loading screens are obviously a problem for any game with downloadable content, and installation is unavoidable in some situations (PC games in particular) – but having your big blockbuster piece of work open with 20 minutes of downloading and installing is not exactly a killer introduction to the product. Is it better than a lot of DRM? Definitely, because at least it rewards the honest customer with more content rather than punishing them with potentially invasive bloatware. But it’s still a pain, and there must be a better way.

In another unrelated complaint, of the many reviews for Arkham City I saw this week, only one (Kotaku) mentioned a major gripe I had with the game – it doesn’t really push the Batman plot anywhere. This is a problem with any comic-based mainstream story at this point, in that the non-comic media is often limited to stories drawn from the official “canon” of the lore as told in the comics. Put another way, Batman can’t die unless he dies in the comic. Obviously nobody is going to kill Batman anyway, but this mostly holds true for every plot element – none of the villains can die unless they die in the comics. So they are stuck rehashing events that comic fans would already know, and they can’t deviate far from the story as outlined in the comics. This has basically been an issue for every single superhero movie in the recent wave of superhero movies, and while it hasn’t hurt box office numbers much, it might in the future as the limitation plays out over sequels. I’d love to see more companies take the JJ Abrams/Star Trek approach with their IP, giving full reign to a new retelling of an old story keeping just the characters and breaking canon.

Seed stage funding bubble, part II of my post on regulating securities of private companies rumored to come soon

Basically everybody reported on a WSJ article that claimed there was a dearth of funding out there for seed stage companies. It was vigorously responded to, mostly by people refuting the sentiment. My opinion is that while the data the WSJ looked at seems to match historical, quarterly variations in funding statistics, it still seems obvious that new technology has been making it easier to invest, while not making it quite as easy to gain liquidity and get out. Assuming there is a class of people who only want to invest in the seed stage (the angels), then those people have had an easy time of late finding companies to invest in, without finding an easy way to get liquidity from even successful early investments. Angel.co has made finding companies to invest in quite easy, but the time it takes to get money out of those investments hasn’t been quickened in any respect (in fact, given the many delayed IPOs and general malaise of the economy, it’s probably harder than it has been in the past). SecondMarket is definitely doing something to help liquidity for pre-IPO company stock, but it is probably being utilized by employees more than investors, and it’s still a relatively small group of companies compared to the number of companies on Angel.co. So, to me, it seems quite natural that there would be a slowdown in seed funding, and that companies who found plenty of seed investors would have trouble finding Series A and B money. Tech is also prone to bubbles, but that’s for my future, upcoming post on private company regulation.

Tale of two major branding efforts of social games, with very different results

Probably the two most anticipated social game releases on Facebook this year were by traditional console/PC powerhouses new to the Facebook platform. I’m talking about EA’s Sims Social, and Firaxis’s CivWorld. Both were closely watched, as they both were backed by major studios, utilizing the full force of their IP, hoping to break into the Facebook social game scene. Obviously there is a major difference between the studios in that Electronic Arts has 45 titles on Facebook right now, and they’ve spent hundreds of millions of dollars on acquisition like Popcap and Playfish to become a force in the social game market, whereas Firaxis has just the one title, CivWorld, and no experience on Facebook (parent company Take-Two also has no titles on the platform). Both games have been out for a while now (CivWorld in July, Sims Social in August), so it’s safe to make some conclusions about how the efforts went.

Who won? Sims Social by a landslide. Sims Social reached an all-time high of 65 million monthly users (though they took a 20 million hit when Facebook updated their user calculation algorithm), and they are currently cruising along with about 8 million daily users. CivWorld, on the other hand, completely crashed. The all-time high for CivWorld was only half a million monthly users, and they’ve since slid quickly to less than 100,000 monthly users and only 10,000 daily users. I haven’t played either game enough to know if there was some sort of specific disaster with CivWorld, but I played both and they were both solid efforts. Reviews were mixed for both (nobody knows how to review a social game yet, though), but obviously the results were dramatically different.

There are probably numerous takeaways here, but the big one is that having a strong IP, with lots of buzz, and even a strong game itself, isn’t enough on Facebook. The Firaxis team just simply doesn’t have the experience that the EA team has, and obviously those Playfish and Popcap acquisitions are paying off in some fashion. EA knows how to make social games now, and Firaxis doesn’t. Lots of factors go into that – the ability to effectively cross-promote with other games in the network is obviously a huge advantage for EA, but one would have thought that the amount of exposure CivWorld was getting could have made up for that. Now we know that no amount of exposure can make up for a huge installed user base and multiple games to draw experience from. Zynga has probably known that for years, but if there was any question, CivWorld’s flop may have settled it. People may look at EA’s success as a sign of weakness for Zynga, but that’s overlooking the fact that EA spent over a billion dollars to acquire two huge social game studios to reach a point where it could leverage it’s IP into fans on the platform. A billion dollar barrier to entry is pretty solid protection for Zynga’s business model.

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Filed under Copyright, Funding, Games, Social Games

September 29, 2011 · 1:30 pm

State of the Android market; is the patent fight going to encourage the move to Facebook as an operating system?

A bunch of things have happened recently that seem to be pointing to an inevitable conclusion in mobile devices – Android is going to die, and if HTML5 comes around soon enough and with enough developer support, the mobile operating system as we know it might die as well.

The most recent cluster of news in the space consists of Samsung agreeing to a patent licensing deal with Microsoft over Samsung’s Android devices, Samsung joining forces with Microsoft and Intel to work on a new mobile operating system based on Linux, Google buying Motorola to bolster it’s ability to mount a defense of Android (which should have the unpleasant effect of scaring away the other OEMs who push out Android phones), and Amazon launching an Android-based Kindle Fire which aims to be an ipad killer. Oh, and Spotify’s partnership with Facebook is coming to fruition, proving to be a rather genius way to ween people off of itunes (i’ve barely opened itunes since starting with spotify, and once I can open spotify through Facebook on my phone, I may never touch itunes again).

How does all this information fit together?

Amazon is going to get hit with a patent infringement suit from Apple really fast. Then Android is going to die.

Apple has been aggressive, to say the least, in attacking the Android ecosystem with patent suits. Microsoft has done the same. The combined effect? Companies will be wary of putting money behind a system that may get them sued into oblivion. If Amazon somehow evades the ire of the anti-Android coalition, maybe Android is saved as a potential OS to compete with Apple’s iOS. But given Apple’s aggressive attacks on Samsung in Europe over tablet competitors and their attacks on the Android ecosystem in general, I wouldn’t hold out hope that Amazon is going to get away with launching a major Android tablet without Apple taking action. Maybe there is hope beyond the Kindle Fire, but I’d also wager that if it fails, it’s going to be the last major Android tablet to come out. Android tablets have done absolutely horribly this year, to the point where retailers are having to discount them to almost half-price just to move them. Given the lukewarm reception and patent woes, it’s a bad investment for companies to keep cranking out Android tablets. If companies continue to be exposed to massive patent suits for using Android, it’s only a matter of time before the entire OS collapses.

Facebook is in a better position than ever to become the mobile company they plan to be.

Facebook has been vocal recently about wanting to be a mobile company, and if their Spotify partnership is any indication of where the company is going, I think it’s only a matter of time before they become the default starting location for all things on mobile phones. I was lukewarm on Spotify when it launched – my review of my initial experience concluded with a passing grade of “B” for the service, but that was on the first day it was available in the US. I said I wouldn’t still be paying for the service after a month, but 2 payments later and I’m still using it. I can’t stress how important Spotify’s partnership with Facebook is in my mind – this partnership puts Facebook in position to attack the core of iOS – iTunes. As I mentioned, iTunes is going to die in the face of this partnership – Spotify + Facebook nails the social element of sharing music unlike any prior service, and it just simply offers more than iTunes at this point. So Facebook has an iTunes killer now (only a matter of time before Spotify runs inside Facebook), they’ve got big dedicated app developers (Zynga, EA, Kabam, etc.), they’ve already had messaging and chat, we know they are working on an app market based in HTML5, and the newsfeed is an excellent homepage if you snap a basic web browser on the top. Plus users are comfortable navigating Facebook, so the transition to Facebook-as-operating-system would be seamless for most. Only a matter of time in my mind, and if Facebook approaches device-makers who are frustrated with Android and looking for an alternative, Facebook could make major in-roads into mobile almost overnight.

Google+ can’t transition to mobile like Facebook.

Why can’t Google do the same thing with Google+ that Facebook is going to do with… Facebook? They could, but they don’t have nearly what Facebook has in terms of critical user mass, nor do they have the partnerships in place to transition app developers to Google+. Developers don’t work directly with Google on Android apps like Facebook developers do with Facebook, and if Android dies anyway, the transition from Android to a different Google+ system would likely be more rocky than for Facebook to move developers from web to mobile (especially if web IS the mobile OS… it’s like the twilight zone). Also, Google is tied to Android now with it’s Motorola acquisition, making a transition away from the OS unlikely.

So I’m liking Facebook right now, I think Google is in a tough spot with Android because of the patent issues (forced to buy a company to acquire patents to defend an ecosystem that other device-makers don’t want to be a part of if Google owns a competitor), and Amazon has to really really hope that Apple doesn’t notice that they just launched an Android tablet.

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Filed under Misc, Patent, Social Games

September 29, 2011 · 1:10 pm

I could forgive the Milkens, but that doesn’t mean I want their money

Most of my blog posts are about random topics that I find interesting in IP law, startups, or whatever. This post is so that in the future, when somebody asks me how I felt about my law school accepting a gift from Lowell Milken, I can rest easy knowing that I publicly announced my disapproval.

UCLA Law recently accepted a gift from Lowell Milken for $10 million dollars, and it has caused a bit of a stir (though shockingly little is actually said about it on the campus itself). For the uninitiated (which I was until very recently), Milken’s brother Michael was the centerpiece of the junk bond scandal in the 80s that resulted in Michael serving 2 years in jail and paying $600 million in fines and restitution on 98 counts of racketeering and fraud. He also paid investors $500 million in a civil suit. Lowell, Michael’s brother, was Michael’s second-hand man in many regards, and he hardly escaped the scandal unscathed – Lowell was charged with securities, wire, and mail fraud, he was barred from practicing before the SEC, and barred from holding a position with any member firm of the NYSE. Lowell, however, was never convicted of anything, as his brother made it a condition of his own plea deal that charges against Lowell be dropped. Many critics seem to think that because Lowell was never convicted of anything, he should be absolved of all blame – that’s one opinion, but I think an equally valid one is that being barred from practicing before the SEC and the NYSE is a pretty bad thing for a securities lawyer.

I don’t object to Lowell Milken’s gift because he is a horrible person – honestly, he’s done some very philanthropic things with the money he made. That money might not have been made through the most ethical of means, but at least he and Michael have put it to some good use in a multi-decade campaign to improve their family’s name. Michael served his time and paid back a tremendous amount of the money he made, Lowell evaded more formal penalties and kept all of his money, so maybe it’s time to stop holding it against them that they were involved in a massive fraud scheme (I’m not saying we should stop holding it against them, but at least there is an argument to be made). Michael’s apparently been extremely generous in donating to cancer research, and Lowell to education, which they both deserve credit for despite their past. I’m definitely not saying that Lowell or Michael are terrible people who should go to jail.

I object to the money because UCLA doesn’t need $10 million badly enough to justify subjecting the professors and students at the law school to scrutiny about our ethics. I don’t want it made more clear to the world that Lowell Milken went to UCLA! He’s barred from practicing in the field he made all his money in because of ethical violations! What’s more, the school now wants to name the entire business law program after him. If I was a part of that program, I would quit immediately and demand it be removed from my transcript. The first thing prospective employers see when they google ‘UCLA business law program’ will now, and forever, be the name of an attorney infamous for being a centerpiece to securities scandal. And in this climate, post-massive-bailout, to name the business law program after this man? MAYBE his transgressions are forgivable as a person, and perhaps his money would be fitting as a general gift, but as an attorney I would not want my reputation tied to a business law program named after a man who was barred from practice before the SEC and NYSE.

Not that it should matter what the amount is, but furthermore, $10 million is nothing speaking longterm. Because we are part of the UC system, 40% of that goes back to the main campus. The rest goes to the now-tarnished business law program. So the law school takes a reputation hit, our business program is forever tied to this man who was barred from practice before the SEC and NYSE, we will likely lose out on professorial talent (both current and prospective), all for about $6 million bucks. Listen, I’m a law student, I KNOW what it’s like to be strapped for money – but I say no thanks to the Milken gift. I’m not even sure the benefits of the money outweigh the costs, and you don’t compromise your ethics as an institution because the economy is tight regardless, especially in the environment attorneys currently practice in where ethics surrounding securities transactions are a constant concern. UCLA is doing no favors to their graduates by naming anything at UCLA after this man, and I respectfully object to accepting the gift.

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Filed under Law

September 22, 2011 · 10:15 am

Oddities of the new patent act

If you read my blog often, you know I like patent law. It’s a fascinating, convoluted mess that’s become (fortunately or unfortunately) incredibly relevant for technology companies. Major areas of law rarely receive substantive overhauls, and even more rarely does an overhaul happen in an area of law that you have an intellectual interest in, so I feel lucky to be around studying Patent law at a major turning point. The zeitgeist of the patent world/blogosphere is rather unique right now – It’s like a new season in a sport or a television show; nobody knows exactly what to expect, there are lots of unanswered questions, and everybody has an opinion on how that last season went and what needs to change.

In my opinion, the last season of Patent Law:USA went just okay. Got a little out of hand there at the end, akin to a TV show that gets a bit away from the writers in the final few episodes – sort of like LOST season 2. Everything was going pretty well in the Patent law world until we got to the late 90s, when business methods patents and the internet sort of took us in directions we hadn’t contemplated originally in terms of intellectual property rights. “Prior patent + ‘on the internet’ = bad patent” was the rallying cry of a host of critics – but those critics likely don’t see much on the face of the new act to give them hope that the problem is solved. I for one am somewhere in the middle when it comes to opinions on the last season of Patent Law – I’m not an extremist who thinks we need to blow up the whole system, but there are definitely problems with patent trolls and with software patents in particular that I think need to be addressed, as they put an impossible burden on new companies and reduce the efficiency of capital flowing to useful ends.

Anyway, enough opining on our long lost Patent season (which, as it turns out, will have plenty of support in reruns… see below). We have a new patent act that takes effect in various stages anywhere from last friday to 18 months from now, and I want to cover some of the strange aspects of this reform:

There are now two different, substantive bodies of law on patents, and there will be for the next 25+ years

Every patent currently issued and every patent currently on file (except for those filed in the last 4ish days) is subject to the “old” patent law regime. Considering that the PTO takes quite a while to grant a patent, that there are provisional patents out there (many, many filed last thursday), and that you can file continuation patents and extensions, that “old” patent law we all know and love is far from dead – it will take 25 or more years for every patent issued and subject to the “old” laws to expire. That sounds like just a cute and potentially confusing nuance until you consider that major companies will likely hold patents under both regimes – and they will sue asserting patents from both regimes. Starting in 3-4 years once we see issued patents under the new regime, we may see litigation where completely different rules apply to different patents at issue in the same case. This could be extremely confusing for juries given some of the other substantive changes to the way things like prior art are handled, with some prior art able to invalidate earlier patents but not later patents, a result laypeople will find illogical.

Similarly, there are now four different types of reexam

I haven’t tracked the timing of various parts of the bill closely enough yet, so I’m not sure if there will every be a moment in time where all 4 types are potentially going on at the PTO, but in theory there are 4 types of reexam proceedings that can be initiated in the next year or so (the current ex parte and inter partes, and the new post grant review and new inter partes). Reexam is actually getting a huge substantive overhaul, the primary changes being that it now takes place like a mini-trial with discovery in front of a 3 judge panel with a one year timeframe. That timeframe might be a huge boon to defendants, who may be able to convince judges to stay a district court case more easily if they can guarantee that the PTO will finish the reexam in a year, when a district court is often just getting to the Markman hearing. Lot of “maybe” in there – the thrill of a new patent act – but it seems that reducing the timeframe for reexam should encourage defendants to explore that option more frequently, with courts likely more willing to stay a case in the meantime.

It’s hard to imagine anybody using the new Post-Grant Review form of reexam

The new reexam regime is split into two timeframes – if you apply for review within 9 months of issuance, you do the new Post-Grant Review process; otherwise, the new Inter Partes process. The standard is either lower or higher than the standard for inter partes depending on how you interpret the statute, and you have access to more prior art to invalidate the patent, but you also risk never being able to challenge the patent again – the loser of a PGR is estopped from asserting invalidity on effectively ANY ground. That’s a pretty big risk even for a challenger who has a slam dunk piece of prior art – even if you are 90% sure you’ll prevail in that review, why not wait and bring out the prior art in court? It will be interesting to track how firms and companies strategize around the new review process, but given the incredibly high stakes for losing a PGR and the relatively low stakes of a district court ruling, it seems unlikely that the PGR will become a popular choice. And remember, PGR is only available for 9 months following issuance of a patent, which is a rather narrow window considering the planning that needs to go into filing for the process.

That’s just a few of the interesting twists thrown into the system by the new Patent Act – haven’t even mentioned changes to the joinder rules, or the odd place obviousness may be in after switching to the first-to-file-or-publish system. Lot is still up in the air, there are lots of terms in the Act (which is pretty poorly drafted, actually) that will garner significant debate and eventually litigation, and the full scope of the changes probably won’t be appreciated for many years.

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Filed under Law, Patent

September 15, 2011 · 1:03 pm

SEC considers loosening regulations, how big would a “crowd-funding” market for startups actually be?

The SEC has formed a committee to analyze regulation around fast-growing companies, and today the House held a hearing on “crowd-funding” for small companies.

On the SEC side, looking to reform regulation around private companies and their ability to raise money is probably a good thing – the market is already doing it, perhaps most publicly exemplified by Facebook using Goldman Sachs and a special purpose vehicle to effectively beat the 500 shareholders of record limit – so, it’s about time that the SEC at least looked at the regulations and decided if they make sense in the context of successful, private companies. But considering those market shifts, I’m not sure regulation is needed to further open the floodgates to private, unsophisticated investors – The Groupons, Zyngas, and Facebooks of the world have no problem raising money until the time comes to file for an IPO, and smaller companies don’t feel pressure from the 500 shareholder limit, which is really the only regulatroy constraint on a company’s growth in that stage. If Facebook’s Goldman Sachs strategy becomes popular, I’m not sure there’s a good reason to loosen regulations on a segment of the capital market that seems to be working quite efficiently. That said, the makeup of the committee is largely representatives from the big private companies I just mentioned, and likely they will push for an abandonment of that 500 shareholder cap.

As for the notion of “crowd-funding”, that doesn’t make much sense to me either. Small companies as a whole have a tremendously low success rate, and I’m not sure it’s in the public’s best interest to have a private market with lower disclosure requirements for funding small companies with 90% failure rates. Even if you focus on the technology/energy/etc startups that tend to come out of startup-heavy regions like Silicon Valley, those startups still have a huge failure rate (at least 40%, my quick survey of blogs seems to suggest), and the startups already have pretty excellent access to capital through VCs, superangels, and angels on Angel.co. Maybe the costs of raising capital for some of those startups would go down, but probably not by much, and it might be better for the public if the risk of those companies failing was taken on by large institutional investors who can better calculate the odds. While I’ll admit that I’ve only considered the benefits of “crowd-funding” for about 15 minutes, it doesn’t strike me as something the startup world is dying to have – picking winners in the early stages of startups is hard enough for institutional investors, and I imagine after one or two rounds of losing money on short-term, low-value investments, most small-time investors would realize it isn’t as fun to invest in startups as it is to read about them. VCs aren’t even that great at picking winners: ten-year returns for VCs as a whole are reported at anywhere from 8.4 percent to a loss of .09 percent, depending on where you get your information, which isn’t necessarily a better return than investors get in the existing public market. If VCs can’t pick winners with all of their knowledge and all of the advantages they convey to the companies they invest in, why would anybody think the public could?

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Filed under Funding, Law

September 15, 2011 · 11:56 am

Nintendo seems to be in deep denial over mobile games, still thinks the iPhone is off limits, still thinks the 3DS is the future of mobile

Nintendo’s President is insisting that the company won’t get into the iphone development game, instead focusing on producing content for their own hardware platform. After saying that development for iphone was absolutely not under consideration, Iwata said:

“If we did this, Nintendo would cease to be Nintendo. Having a hardware development team in-house is a major strength. It’s the duty of management to make use of those strengths. It’s probably the correct decision in the sense that the moment we started to release games on smartphones we’d make profits. However, I believe my responsibility is not to short term profits, but to Nintendo’s mid and long term competitive strength.”

As some background, Nintendo recently released the 3DS, they’ve already had to drop the price once because of lackluster sales, and still the system is expected to miss sales targets. As more background, Nintendo has been very slow to get with the new world of games – whereas hardware makers like Microsoft and Sony are encouraging lower price point games on their Live Arcade and PSN networks respectively, and whereas game developers are increasingly tapping that low price point market (see Electronic Arts purchasing social game companies like Popcap and Zynga purchasing mobile companies like Newtoy), Nintendo is still running a business model that looks a lot like what they did in 2000, trying to push their own hardware with limited internet connectivity out, hoping their creativity in first-person development is enough to sell the systems.

And look at that middle sentence in the quote from Iwata – Nintendo knows they would make profits on games released for iphone. Apparently Itawa thinks that development for iphone would only boost short-term profits though, and not mid and long term strengths. This is ridiculous in my mind – maybe 3DS sales would be hurt if every game was released concurrently with an iphone version (ok, they would definitely be hurt if that happened), but sales of games on the rest of Nintendo’s hardware would only be helped. The Wii U is coming out next year, and being the only major hardware company with a huge first-party game development team that cranks out instant classics is a huge strength compared to the other hardware makers, but maximizing that strength depends on Nintendo getting into the iphone market now.

Here’s what I envision being the best case for Nintendo – 3DS sales are mediocre (yep, that’s the best case), and resources shift to Wii U at and around launch. Nintendo takes advantage of their in-house development strengths by releasing games for the Wii U concurrently with iphone games that extend the experience to mobile and impact the console versions, a direction many console developers are already moving in. Nintendo, because of the strengths Iwata notes, is uniquely positioned to take advantage of a market where a console game and a mobile game interact – they have the developer prowess and some of the best IP (Mario, Starfox, Kirby, Zelda, etc.) on the planet to make it happen. The Wii U already has a damn ipad/iphone for a controller – let your hardware geniuses figure out how to match the controller up to interact with the user similarly to how an iphone interacts with the user, and then release mini-games for the iphone that report back to the game (maybe even grab a hot patent on that, while they are at it! Or pay Intellectual Ventures if they already have one…).

Let me put it another way: If you were Nintendo’s President and Apple came to you and said “we really want to release a phone that looks exactly like your console’s controller – we are going to manufacture it, get the wireless providers onboard, sell it in our stores, and foster a huge game development community for it, and all we want from you is to put some of your mini-games on it for our millions of customers to buy, are you in?”, would you say no? So far Nintendo has said no. Because they want to support their own in-house hardware team, and don’t want to give up on mobile. Seems like a huge missed opportunity.

There’s some larger context here in terms of Sega’s transformation into a third-party developer, and Nintendo not wanting to go that route (being the only purely-gaming company left to make hardware). And I LOVE Nintendo, but they need to unchain their game development from their hardware development if they are going to make it past this next console cycle. If they don’t, I predict the Wii U to be the last console release for the company. I’ll be glad to eat those words if I’m wrong, because I’ve been waiting for the next Smash Bros for years.

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September 8, 2011 · 7:56 pm

Walmart makes lemonade in class action settlement, Twitter reveals user numbers, Patent reform to pass today

Random news from the day/week:

Walmart manages to settle a suit in a highly creative way that really hurts Netflix, if it goes through

Summary – Walmart is sued in a class action along with Netflix, with the suit claiming that the two conspired to split up the DVD market into retail and rental spaces. Maybe the settlement proposal would be good evidence in court that that ISN’T what Walmart had in mind – Walmart just acquired Vudu, a competitor to Netflix, and Walmart has recently proposed a settlement where Netflix customers will receive gift certificates for $40 at Walmart. Netflix has pointed out that this will incentivize people to switch to Walmart’s own streaming video service, using Netflix’s channels to market directly to the people most interested in streaming video! I don’t know a lot about the specific law behind class action settlements, but this would be a pretty amazing turn of events for Walmart if the settlement is approved early next year.

Twitter revealed their numbers today, strong user numbers, but is it really that impressive?

Numbers for Twitter: 100M monthly active users, 50M daily active users, 400M unique visitors per month. Some pretty crazy designer numbers too, such as every NFL team is on Twitter, 75% of NBA players, and 87% of the Billboard Top 100 artists. The bad news? 40% of those active users don’t tweet. Last I heard, this activity was generating roughly $150M in revenue for the year.

First off, I love Twitter and I defend it’s merits in the face of criticism all the time. But just for fun, look at CityVille’s stats. Zynga makes $600 million in revenue from Cityville, Empires & Allies, Texas Hold ’em and Farmville, which have a combined 186M monthly active users and 34M daily active users (Zynga actually makes $600M from all their games, but those 4 are the biggest). I’m not saying Zynga is analogous to Twitter – But Facebook gets 30% of Zynga’s revenue (haven’t checked the S-1 to see if that 600M is before or after Facebook takes the cut, but I imagine it’s after). These are definitely some back-of-the-napkin figures I’m spewing out, but even a conservative estimate would have Facebook collecting more just for hosting Zynga games than what Twitter makes on ads in a year.

I’ll admit that’s a little unfair and comparing Twitter to Facebook and Zynga is harsh – Facebook is a fully developed platform and the most popular social network in the country, Zynga a one-of-a-kind game company – but Twitter is probably approaching the climax of it’s growth and it can’t make more in revenue than Facebook gets from a social game company. It also has a ton of users that aren’t really active. Like I said, I love Twitter, it’s much more interesting to me than Facebook, but the monetization is lagging.

Patent “reform” passes today

A much-lauded and much-criticized (see conflicting reports in picture above) patent bill has passed Congress today, signaling the first significant shift in patent law in decades. Some say it does nothing, some might make comments about rearranging deck chairs on the Titanic, and both are right. The biggest change is the switch to a first-to-file from a first-to-invent system, which, while theoretically significant, probably won’t impact any of the major problems in patent law that industry criticizers frequently note. The next biggest changes are some dramatic adjustments in the way the USPTO can charge fees, opening the office up to raise a significantly larger amount of money by charging more. This might turn out to be the biggest practical change – an “activist” USPTO might consider raising fees for certain activities to discourage abuse. But one need not even pray that the USPTO turns activist to be optimistic that this change will trickle-down to improve other aspects of patent law – simply raising enough money to hire some more patent examiners might be enough to see an increase in the rate of rejected applications. There will be a deluge of articles in the next week detailing how much or how little this reform will change patent law, but until we see how the USPTO decides to utilize the fees they collect, we can’t really know.

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September 1, 2011 · 11:29 am

Slide’s Demise – How should a company treat social goods when it destroys their value?

Slide, bought by Google for roughly $228 million about a year ago, is being disbanded. Economically it’s a pretty interested case study for the lifecycle of a social game company (or any small tech startup, really) that gets acquired and then does poorly. One could argue that Slide actually got acquired when it was on the downswing already – it was valued at $500 million in 2008, reportedly. But seeing as the company is about to be abandoned, Google probably sees that $228 million as a high price for a year of access to talent and a half million monthly active users. Slide hasn’t released a hit game since SuperPoke Pets in 2008, but the game still has over 100,000 monthly active users, and they are more than a little upset about Google’s abandonment of the game.

Apparently Slide had great engagement numbers, because the protest has been quite vocal for a mid-sized game. One (relatively unheard of) news outlet ran a headline that it was upsetting people with disabilities because of how much that category of people enjoys the game. But reputable sources have picked up the story as well, and some note the possibility of a class action lawsuit against google, though I imagine that observation is simply from reading the comments in the Techcrunch article where the story first appeared.

Why is this interesting? Well, it’s the most vocal response to a game going under we have seen, and its also possibly the first time where a game is going completely defunct without (currently) any way for the players to move their stored value in the game to another game. Other companies have closed social games before, but usually that’s in the context of a dying game where the developer is moving resources to a new project – and with it, they hope to move the players by offering to give players who switch a heavy bonus for their loyalty. Slide, however, is being completely disbanded, and Google doesn’t seem to have an obvious solution for how to deal with the disgruntled players – they haven’t launched any sort of liquid credits system on their own game platform yet, so they can’t just give the players some bonus on those credits. Legally, I’m sure Slide/Google has no obligation to do anything – I haven’t read their terms of use, but I’m sure they state what most games state, which is that all goods remain the property of the company. But as the free market has noticed in this situation, it’s not always usually ever best to enforce your legal rights to the fullest extent against your valued customers.

What really caught my attention about this story was how the debate has been framed – All Things Digital starts their coverage of the news with the question of whether a virtual good is like a halloween costume, where the consumer has an understanding that the goods aren’t going to hold their value. Social game items are hardly the first virtual goods, but they may indeed be the least liquid and hardest to price – even if your halloween costume is topical, you still have it after halloween is over, and you still have that shot of selling your Sarah Palin costume to the person throwing a 2011 themed Halloween party in 10 years. Once you buy that gold gun in a social game, unless the game has a trading market (which few do at this point), you are stuck with it until the game closes. I say goods from social games are hard to price because, unlike virtual goods in other contexts, you don’t really know how long the status you are purchasing will last. For example, if I buy a virtual good over xbox live for a console game, I have a rough idea of the lifecycle I should expect – I know whether a new game has been announced, I know how long the game has been out and how many people are playing it, and I know the history of the developer to some extent. It’s basic free market price movement – But with a smaller social game company (Slide’s close was obviously more of a surprise, but one could imagine the same happening with a smaller dev) that sort of information just isn’t out there to base a pricing decision on.

Social games simply don’t have a history as an industry to see this kind of pricing, but they will get there. Slide’s failure is likely burned into the minds of the disgruntled SuperPoke players, who I imagine will be more skeptical of the companies they “invest” their money in. Everybody who has heard the story is likely to make a similar analysis and eventually the market for virtual goods in social games may see slower growth if consumers become wary of making a significant capital investment in a game that may go under at any moment. Companies could be more transparent upfront about the fact that the social goods are the sole property of the company, and that you are just leasing them, something typically buried in the terms of use anyway, but a better approach is probably just to make sure you have some method of transitioning users to other games – are you really telling me no company would be interested in offering SuperPoke players free in-game items to get them into their game? These sound like some pretty solid users to have on your game – hell, I’d be surprised if Google couldn’t make money by offering to sell an interstitial with a cross-promotion to a Zynga game at this point.

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