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Tax Breaks Don’t Hurt Video Games, Intellectual Property Does

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Tags Legal SystemMedia and CultureMonopoly and Competition

This year’s Electronic Entertainment Expo is in full swing, allowing gamers to feast their eyes on the best the industry has to offer in the foreseeable (yet inevitably delayed) future. E3 usually features the biggest publishers hyping their flagship titles, but there’s always more on offer at the event than the usual annual updates to shooters and sports franchises.

Gaming is in a kind of golden age, with an imaginative indie scene flourishing alongside the AAA titles of the major publishers, and it’s encouraging to see so much creativity being poured into the medium. At the same time, gaming is sometimes likened to the movie industry in that it’s criticized for focusing too much on expanding the same tired, big-budget franchises year after year, and not enough on producing compelling original content.

Like many industries, however, we can often trace the troubles in gaming to regulatory policies. Gaming is often criticized for being “subsidized” by various tax breaks at federal and local levels. As I’ve explained before, these tax breaks aren’t actually subsidies at all, and are in fact a good thing for the industry. Instead, the real regulatory threat comes from intellectual property law.

The effects of IP on the gaming industry are growing more obvious. As technology improves, the cost of producing games has drastically fallen, and there’s been a surge in production by smaller developers. And as the market has grown, interest in acquiring IP—and litigating it—has too.

Litigation tends to work from the top down, with the biggest developers targeting smaller newcomers, who sometimes aren’t even interested in selling their content. Take the recent case of the Shadow Moses Project, which planned to update the PlayStation classic Metal Gear Solid. Shadow Moses was shut down in March, ostensibly due to copyright claims, but has since resurfaced as a virtual reality “museum” project. These kinds of fan ventures are routinely crushed by cease and desist orders from the IP owners, whether there are commercial interests involved or not.

In other words, we’re seeing major developers act just as we’d expect, given their legal protections: they spend time and resources fighting each other in court to maintain their privileges, while at the same time they avoid revolutionizing their offerings to consumers. Instead, they focus on maintaining already-popular brands and protecting increasingly simplistic ideas. Consider, for example, the dispute between EA and Ubisoft over EA’s attempt to trademark the word “ghost,” which it eventually abandoned. There have also been lawsuits over words like “candy” and “saga,” hardly rare labels in gaming.

Oftentimes game IP isn’t even owned by its creators, which helps undercut the usual “but don’t creators have a right to profit from their work?” defense of IP. This was the case for Warren Spector, best known for the brilliant Deus Ex, whose recent departure from Disney sparked discussion of how he could buy back his own ideas from the company, which owns his creative outputs as an employee.

In fact, the problems go far beyond developers fighting over similar content: some even enforce copyright claims on material talking about their content. For instance, thanks to its copyright claims, Nintendo pockets 40% of the ad revenue from YouTube videos featuring its content. Nintendo forces this arrangement on gamers, which it humorously describes as “partners.”

Worse still, if IP claims are taken seriously in gaming, they have the potential to inflict far more damage than they already have. As in other industries, basic, even universal knowledge and ideas can be protected and then used to suppress competition. Such was the case with Sega’s “138 patent”, which protects concepts like driving games with directional arrows for guidance, or in which cars don’t have to stick to a road or racetrack. Sega attempted to use this patent to sue Fox over its use of similar ideas in The Simpsons: Road Rage, though the case was settled out of court.

If developers continue to bring these kinds of cases against each other and against their customers, they will help bring the current gaming revolution to a standstill. Less creativity will narrow the appeal of gaming and will once again shrink its customer base, all while driving entrepreneurs into other industries, leaving behind only a few major players to dominate the big franchises.

If we want to encourage gaming to avoid this path and continue to develop as a vibrant community of original content creators, we must first and foremost reject protectionism in the world of ideas.

Matt McCaffrey, former Mises Research Fellow, is assistant professor of enterprise at the University of Manchester.

Image source:
Rich Polk/Getty Images for Sony Interactive Entertainment America

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