Legal Considerations and Challenges

[Olantern]

Caught in a Web of Obligations: Contract Issues, Ours and Theirs

You've probably noticed over the past week that we haven't heard much from the developers in terms of the future, if any, of CoH.  This post examines why.

To understand what the devs can and, more importantly, can't do to help us, we need to look at some basic issues of employment and contract law.  Contracts are one of the foundational areas of Anglo-American law.  (For those of you old enough to remember The Paper Chase, Prof. Kingsfield taught Contracts.)  For our purposes, the most important thing to know about contracts is that two parties, like a potential employer and a potential employee, can make a contract to do (or not do) almost anything, all on their own initiative.  There are a few restrictions preventing contracts against public policy.  The two parties can't make a contract to commit a crime, for instance.  But for our purposes, the things the parties can do with a contract are practically unlimited.

Turning specifically to employment contracts, where a person makes a contract with an entity or another person to do some kind of work, the basic rule is "at-will employment."  The employee is free to quit at any time, for any reason (or no reason), and the employer is free to fire the employee at any time, for any reason (or no reason), again, so long as it doesn't violate some other law (such as laws against discrimination).
But the parties can tweak this basic rule in various ways, and most employers and employees do.  For example, the employee might seek a provision that if his position is eliminated, the employer will pay him an additional two months' wages.  The employer might seek a provision that allows it to take actions against the employee if the employee steals its property (whether things like desks or things like copyrights).  The parties might even agree to restrictions on these terms.

For an example that hits close to home for us, an employer can demand that an employee not disclose information, usually called "trade secrets," learned while working for the employer.  Someone hired to develop soft drinks for Coca-Cola will have, as a provision in his contract, a requirement that he not reveal the formula used to flavor Coke.  The company can even place a restriction like that that continues after the employee quits his position and no longer works for the employer.  Perhaps most surprising of all, the parties can even agree that the contract's terms themselves are a secret.  The precise contents of any employment agreement will vary based on what the parties negotiate.

If either party doesn't do what it agreed to do, that party has breached the contract.  If the employer doesn't pay the employee the agreed wage, the employer is in breach.  And if the employee discloses the IP that he agreed not to disclose, he's in breach.  A party in breach of a contract can be sued by the other party.
In our case, the developers of CoH signed contracts involving all kinds of restrictions when they agreed to their employment with Paragon Studios, a part of NCSoft.  It's difficult to know what those restrictions are because one of them appears to be a restriction on disclosing the terms of the contracts!  However, we can make educated guesses.  The devs undoubtedly agreed not to disclose any of their works in progress, except as permitted by NCSoft.  They undoubtedly agreed not to disclose what the process of creation entailed.  They undoubtedly agreed not to steal any of NCSoft's IP.  In practical terms that means that they can't go and develop new games using the material they created at Paragon Studios.

Their contracts may have even included something called a covenant not to compete.  This is a special provision in a contract saying, essentially, that the person being hired can't go to work for a competitor (usually only for a limited period of time after leaving the first employer).  I have no idea whether things like this are used in the gaming industry.  Honestly, I don't know much about the gaming industry at all.  (We need someone with industry experience to answer these kinds of questions!)  But if they are, it puts another restriction on the current devs' ability to create any kind of a successor project, whether financed by us or by another publisher.

That brings up another important question.  Say that NCSoft hires David as a concept artist.  If David draws a piece of concept art, why can't he take it home and do what he wants with it?  After all, he drew the picture, so it's his, right?  Wrong!  The picture is a work for hire.  David's job is to produce concept art, so under his employment contract, any such artwork he produces belongs to the party who hired him, NCSoft, not to David.  And keep in mind that "such artwork" doesn't just mean a picture of Statesman drawn on a piece of paper.  It also means the copyright in that drawing of Statesman.  NCSoft holds the sole right to make copies of the art, make derivative works based on the art (like turning it into a loading screen or giving it to Dink to render as an in-game NPC), or to prevent others from doing so.

This concept applies not just to "art," but to other things the devs made during their time at Paragon Studios ... like game code.   As I noted above, rebuilding a post-CoH game with CoH code infringes NCSoft's copyright in the code.  And for a former employee, it's also a contract violation, opening that employee up for lawsuits.  This puts a serious, legal cramp in developing a CoH2 in the absence of NCSoft.

Someone argued earlier that game code is not subject to copyright, since the rules of a game can't be copyrighted (according to the U.S. Copyright Office, anyway.  I'm not sure if a court would agree.).  But computer game code isn't the "rules of a game."  It's a rendering of the rules, and that can be copyrighted.  Let me give an example.  Say that I am the National Football League.  I cannot copyright the rules of football.  But if I write those rules down in a book and call it The Rules of Football, I certainly have a copyright in the book.  The difference is that the rules themselves are just ideas, while the rulebook exists in a fixed form.  Copyright protects the latter, but not the former.  Note that the existence of the rulebook doesn't prevent someone other than the NFL from playing a game of football according to the NFL rules because the rules themselves aren't copyrightable.

Analogizing to our game, one probably cannot copyright the idea of dodging an attack launched by an AI enemy.  But one certainly can enjoy a copyright in the system of Defense as it exists in CoH.  That system is embodied in a fixed form in the game code.  And unlike the football example, one cannot play a game of CoH without using the code.  This remains an insurmountable obstacle to any attempt to replicate the existing game without the IP rights in hand.

We have one final, further contract-related stumbling block: the terms of the EULA.  As I've pointed out many times on the official fora, the EULA is not law.  But it is a contract, and either party can try to enforce it like any other contract.  Most importantly for our purposes here, the EULA provides that NCSoft owns not only everything its employees used to make the game, but also everything we create within the game- characters, text, everything.  (Contrary to popular belief, this isn't because it's greedy to enjoy the fruits of your creativity for free, but because it's afraid of being sued.  It doesn't want someone suing it because a twitchtv transmission broadcast a picture of someone's costume over the internet, for example.  I can go into more detail on my thoughts on the EULA in another post if you all want.)  Additionally, because NCSoft claims a copyright in these things, it holds the right to make derivative works based on them ... such as another game featuring the same material.  (How far it's willing to enforce those rights is another issue.  It probably won't sue if you remake your character with the same name in another game, but it certainly will if you remake the entire game.)

In summary, there's very little we can do to get our hands on any of the existing aspects of CoH.  As discussed above, NCSoft holds the IP rights to everything the devs created.  The devs can't tell us anything about them without breaching their contracts with NCSoft, which would put their severance payments in jeopardy and open them up to lawsuits.  They can't even tell us what they can't tell us.  And even if they could, we couldn't use it, because NCSoft owns their work.  It's a tough situation all around.

There are really only three solutions.  First, we can get someone in the Legal department of NCSoft or Paragon (if that person hasn't been laid off) to disclose the relevant contracts to us.  That's unlikely.  There is, as yet, no "we" to do the negotiating, and even if there were, NCSoft can't disclose something confidential without permission from the devs in question.  Otherwise, NCSoft is in breach, and the whole breach rigmarole starts again.

Second, we can purchase the IP rights to the devs' work from NCSoft.  This is also unlikely.  Currently, for reasons I've already discussed, NCSoft has no incentive to sell.  Even if it did, for other reasons I've discussed, there is no "we" to sell to.

Third, we can work around the lack of IP rights by creating our own game.  This is Plan Z.  Yes, this is a possible option.  However, while I don't want to put a damper on everyone's optimism, it is an enormous undertaking.  Make no mistake; Plan Z is nothing less than creating a new game publisher and game development studio from scratch.  This requires business and technical expertise that may well be beyond our ability (or our ability to purchase; even Paragon Studios at its height couldn't afford the talents of someone like Arcanaville).  Even with that expertise and the best game in the world, there is no guarantee of success or even survival.

Further, we should not be under any illusions that Plan Z would be certain to come out resembling existing CoH in any significant way.  As Mantic noted above, each person to work on a project puts his own spin and glosses on it.  Just consider, as an example, what you, the reader, would have done if you'd been writing the last three years of CoH stories.  Those stories came out as they did partly because John "Protean" Hegner was interested in telling the kinds of stories we saw realized in Praetoria.  Would you have had an identical focus?  Probably not.  People, including developers, vary too much.  Development can take account of player preferences (witness things like the Retro Sci-Fi costume set), but it need not (and, I personally believe, shouldn't always).   Plan Z might be a spiritual successor to CoH, but by that standard, so was Champions Online.  People need to stop thinking of Plan Z as "the same CoH built out of new material" and more as "a totally new MMO created and funded by a bunch of people who liked CoH."

I'll see if I can find that mini-treatise of mine on copyright and trademark now ...

[Olantern]

More About IP, Freely: Copyright vs. Trademark vs. the EULA Contract

(The following is a post from the official CoH fora.  A player had had a character named after but otherwise dissimilar to a Marvel character generic'd and was asking why.  While the context of our current problem is different, the legal issues are still important.)

There are really two issues here, the EULA/culture of enforcement and why names of existing characters are generally off-limits. The EULA, as enforced by the GM's, is just an agreement between player and game provider. It could be written to require or prohibit almost anything. But for our purposes here, what's important is that it's written to provide that (1) players can't use the game to infringe other people's intellectual property rights and (2) to make sure they don't, GM's can generic characters that they think might do so, even if a court might make a different conclusion.

It's that second part that brings in the second issue, and it's one about which a lot of misinformation is flung, so let's consider it now.

Do Your Part To Keep Geekdom Popular Culture Accurate and distinguish between copyright and trademark. Most characters that get described as "copyrighted" are covered by both.

A "trademark" is the right to use a word, phrase, or more or less single image in connection with some specific use. For example, Taco Bell has a trademark on the name "Taco Bell" in connection with restaurants. If a bellmaker decides to market his bells as "Taco Bells," Taco-Bell-the-restaurant-company would probably either demand they pay him for the use of the name or sue him to get him to stop, despite the fact that their use is ostensibly limited to restaurants. If the case made it to court, the finder of fact would consider whether there is a "likelihood of confusion" between Taco-Bell-the-restaurant and Taco-Bell-the-bells such that a person might think the two were connected.

A "copyright" is a group of rights that cover a specific work of art, such as a comic book, movie, novel, or video game. The right in question here is probably the right to make derivative works. Say that, in a fit of total insanity, I want to make a movie called Ben-Hur Part II: Ramming Speed! I cannot do this without buying or otherwise getting the right to make a derivative work of whoever holds the right to the original work, Ben-Hur. (This is an especially interesting example because the original movie itself is an adaptation, another derivative work, from a novel.)

Now, finally, we can come around to the discussion of what these fora mean by "copyrighted character." As the discussion above should show, you can't really copyright "a character" in the abstract because copyrights apply only to specific works, not the elements of which they're composed. "But if that's true, Olantern," I hear you cry, "why can't I make Ap0calypse as an in-game character?" There are two reasons.

The first, simpler one is that you're potentially violating Marvel's trademark in a superpowered character named Apocalypse, even if your Ap0calypse has a zero in his name and looks nothing like the Marvel one. Would a reasonable, non-comic-maven person think your character and Marvel's were connected? It seems likely.

The second, subtler reason is that by taking a character who's appeared in a copyrighted story whose rights are owned by Marvel, you're potentially making an unauthorized derivative work of that copyrighted story. Note, too, that the fact that you're presumably not trying to take any of Marvel's business away doesn't enter into either of these considerations.

There are lots of exceptions and permutations to both these bodies of law, but those are the basics. One exception mentioned already in this thread is that works can fall into the public domain over time and thus lose copyright (though not trademark) protection. I'd just like to say here that popular culture tends to misunderstand and often overstate the scope of exceptions to those rules, so don't rely on them without consulting an attorney. (In fact, that last bit of advice goes for everything in this post.)

Now, let's bring this back to Thor, since he comes up so often in these discussions. We're dealing with three things. First, we have the "idea" of Thor, a Norse god of thunder with power over lightning and such. No one holds any enforceable rights in just that idea. (While there is a body of law called the "law of ideas" that theoretically covers this kind of thing, those laws are weak, and Thor the thunder god is presumably public domain or its equivalent for purposes of this discussion.) Second, we have Marvel's trademark on Thor, a blond-haired Asgardian superhuman quasi-deity who fights villains and appears in comic books and derivative media. Third, we have the zillion copyrights on every Thor-the-superhero story ever published in any medium. For instance, Marvel holds a copyright in the story contained in THOR #350, "Ragnarok and Roll!"

With all that in mind, imagine that a player makes a character named "Thor." This Thor has blue skin and is a villain earth/forcefield controller, and his biography states that he's an alien from the planet Zarx using his natural powers to steal all the gold on earth. Very different from any of the Thors mentioned in the last paragraph, right? So why does a GM generic the character when he spots it?

Hopefully, based on the rest of this post, you can see why. First, while the player could argue, perhaps successfully, to a court that no one would confuse villaintroller-Thor-from-Zarx with Marvel Thor, it's just as easy to argue that someone could. (Think about your non-comics friends, the kinds of people who say, "I don't go to those movies because they're so silly.") Second, even if the player wins that argument, villaintroller-Thor-from-Zarx might be derived from one of the copyrighted works about Marvel-Thor that are out there. (The argument might run something like, "Why else would someone call a supervillain 'Thor' except to reference the superhero Thor?" I'd call this a losing argument, but it isn't a frivolous one.) And, most importantly for the player, the mere possibility that those arguments could be raised are sufficient reasons for a GM, who probably doesn't even know this legal abstraction stuff anyway, to generic the character, because the EULA allows for exactly that. A concern is all the GM needs, not an airtight legal argument.

Those are the issues in a nutshell. Sorry for the long post; I didn't mean to write a treatise when I started. I hope people found that interesting, or at least helpful. (Disclaimer: Nothing contained in this post should be taken as legal advice. If you actually need legal advice, consult an attorney. I just read recently that there's one for every 256 people in the U.S., so there are plenty out there.)

(A follow-up post about registering trademarks:)

Trademarks do not need to be registered with the Patent and Trademark Office in order for the trademark to be protected, but registration is common and preferable to non-registration. Even in the present climate of IP nervousness that permeates the content-production world, many character names and similar designations are not registered trademarks. You can tell the difference between a registered trademark and a non-registered, or common law, trademark by the presence or absence of that "R" in a circle; the "R" stands for "registered."

Registration, however, is prima facie evidence of a mark's validity. Referring back to my Taco Bell example from my first post in this thread, imagine Taco Bell the restaurant sues Taco Bell the bellmaker for violating its "Taco Bell" trademark, but the trademark is not registered. In that case, the restaurant would have to present evidence in court that its mark was actually used and recognized to distinguish its restaurants before even reaching the issue of whether the bellmaker's use of the same name resulted in a likelihood of confusion. If the trademark were registered, that first step of presenting that evidence wouldn't be necessary.

Why, then, don't entities register every single potential trademark? First, as this thread has hopefully demonstrated already, a particular trademark is generally limited in scope. This can run into a lot of registrations if, say, Lucasfilm tried to register the name of every single one of its characters in ever possible medium of as a trademark. I should add that most content creators above a certain size tend to stick a "TM" (designating something as a non-registered trademark) after every distinctive name in their IP's. I'm not aware of any cases where someone tried to litigate the validity of such a trademark extensively, so the "TM" may ultimately establish more for the trademark asserter's peace of mind than for his actual, legal rights.

While I'm discussing registration, I should also mention registration of copyrights. When discussing a work, it's something of a misnomer to say it is "copyrightable." While geekdom likes to attack the more recent iterations of copyright protection (the ones with terms of "life plus X years"), one thing that they did for both large and small copyright holders was to make copyright protection inherent. Once a work is set in some fixed form, copyright protection attaches to it automatically, without any registration necessary. For these purposes, even a draft or a work in progress counts as "fixed," by the way; "unfixed" works are essentially just "ideas."

Registering a copyright with the Library of Congress (not the PTO) again provides prima facie evidence of the existence of the copyright. In some industries, such as publishing, it is accepted that works aren't registered upon creation by the author (early in the creative process) but upon publication by the publisher, in the author's name (late in the process); the inherent protection of copyright law is seen as sufficient. In fact, budding authors are often told NOT to register copyrights in their works because disreputable scam artists of various stripes may use the registration information to target them.

[Olantern]

Also I think we need to point out that even if you are a subscriber that doesn't entitle you to make business decisions or game decisions.  Whoever we get to be the actual developers and designers need to be the final authority about systems, content, etc.  Players often have skewed ideas about what should and shouldn't be done based on their personal experience and not hard numbers and important business decisions.  I think this is very, VERY important.  We need to let those designing design.  Can they take suggestions from the player base?  Hell ya, just like our awesome current (former  :-(   ) Devs.  Can players, just because they have a stake in the game, demand certain changes.  Hell no.  That'll be a great way to ruin what we are trying to save.

I strongly agree, and I think this is a critical point to keep in mind, regardless of the entity structure that ends up being used.  Those of you who've followed my career on the official fora (if all two of you are reading this) know that I've often argued that the players' emotional stake in CoH, while important, doesn't and shouldn't give them creative control over the game as a whole.  Players can have good insights.  On the other hand, players are not developers.  "Vision" is not a dirty word.  (The remedy where the vision is cloudy is to take your money elsewhere, not to demand a change.)

A few other points to concider-if the players have to enact Plan Z, then we need something very specific...we need the old Devs.  Not forever if they have new awesome jobs with new awesome game companies, but we need them at least to show whoever we get to replace them the ropes.  This would be -invaluable-.

It may be hard or impossible to get the original devs, for the reasons I discussed above.  It would sure be great if we could, though.  Heck, I'd just appreciate some industry insider advice at this point.

To that end, it might be helpful to put together a list of some experts or fields of expertise we might need.  I'll start:

-

• Someone with experience in game design and publishing.  This is necessary to find out the customs of the industry, as well as what works and what doesn't (in a business, as well as a game systems, sense).
• Someone with business experience.  This person can provide advice on setting up an entity, entity choice, how things should be structured, capitalization, and the like.
• An accountant, to handle things like tax returns and keeping track of funds.
• An attorney to handle legal issues related to the business in greater detail than we can do in this thread.
• Investors.  Ideally, we find an existing publisher for the existing game, relieving us of the need to found both our own publisher and our own development studio.

.
[/list]

Feel free to add more ...

[SithRose]

I am working on contacting people I know in the video game design industry. I do not expect that they will be able to offer a great deal of advice in any public forum on this subject, or are going to want to talk to people that they don't know about it. I also expect that it will be a week or two more before I can chat with them. They are rather busy at the moment. However, I've had a little experience with the world-building and story aspects of game design in general...which is why I'm offering to help with that part. ;)

The few guys I know in the accounting/business area are also going to be a week or so before I can talk to them, and frankly, they're more acquaintances than close friends. Again, I'm not expecting an enormous amount of help from them.

[johnnic1235]

I am an attorney as well, and heard about this effort a few days before I started reading about it.  My mind naturally turned to the legal aspects of such a transaction. Olantern has done a great job identifying the issues, but I did not see mention of what popped into my head as the most challenging issue (other than convincing NCSoft to actually sell off any rights - they've closed other games and I seem to recall similar efforts that failed).

The sticky wicket would be any transfer of account names, passwords, and billing information (both addresses and credit card numbers).  You could live without the billing information, but without account names, you cannot realistically reunite players with their current existing characters.  If you lacked the passwords, you create the additional problem of verifying identities in order to reunite players with their old accounts.  The alternative is a clean restart, but the history is part of the appeal to carrying on, and there will be the issue of name-stealing (or simply practical conflicts in that area - if you don't have the same number of servers that exist currently, you will have similar naming problems).

I feel certain there must be regulations governing the transfer of such information - but I have not researched them.  I'll remind everyone that such a transfer IS possible - Champions Online was bought outright by Atari and the transition was seamless, but I have forgotten the details (I played in beta but never was a subscriber).

Just something to consider for something down the road - someone should consider that potential hurdle.

[dwturducken]

Olantern and Sith, you should take a look at what is developing in City Sunset for more on Plan Z.  It's still as nebulous as you allude to as far as identifying organization, but a hierarchy is beginning to form.

[SithRose]

Olantern and Sith, you should take a look at what is developing in City Sunset for more on Plan Z.  It's still as nebulous as you allude to as far as identifying organization, but a hierarchy is beginning to form.

Uh, DW? *grins* You might have noticed my name sprinkled around in there a bit. ;)

[Olantern]

Thanks to dwturducken for pointing out the Sunset forum.  It looks like things are further along there than I'd expected, and if I'm reading the posts right, there may be some options for creating game code and systems that wouldn't infringe NCSoft IP.

I am an attorney as well, and heard about this effort a few days before I started reading about it.  My mind naturally turned to the legal aspects of such a transaction. Olantern has done a great job identifying the issues, but I did not see mention of what popped into my head as the most challenging issue (other than convincing NCSoft to actually sell off any rights - they've closed other games and I seem to recall similar efforts that failed).

The sticky wicket would be any transfer of account names, passwords, and billing information (both addresses and credit card numbers).  You could live without the billing information, but without account names, you cannot realistically reunite players with their current existing characters.  If you lacked the passwords, you create the additional problem of verifying identities in order to reunite players with their old accounts.  The alternative is a clean restart, but the history is part of the appeal to carrying on, and there will be the issue of name-stealing (or simply practical conflicts in that area - if you don't have the same number of servers that exist currently, you will have similar naming problems).

I feel certain there must be regulations governing the transfer of such information - but I have not researched them.  I'll remind everyone that such a transfer IS possible - Champions Online was bought outright by Atari and the transition was seamless, but I have forgotten the details (I played in beta but never was a subscriber).

Just something to consider for something down the road - someone should consider that potential hurdle.

I hadn't considered this at all.  I'd sort of been assuming all along that either the account information would move to whoever purchased the IP rights in a sale situation, as part of the sale, or the players would have to start over from scratch with new accounts in a "spiritual successor" situation.  You're right; it's a significant issue.  It might be worth asking someone on the CO fora (or just someone who knows that game well) for some anecdotal information on what happened there.

[NecrotechMaster]

olantern your posts have been extremely informative and it does somewhat show the massive undertaking we are doing regardless which option we will go with

such as the option the devs to acquire the rights to the game, they would need investors to back them, they would need lawyers to help formulate and make a deal with ncsoft, then there is all the paperwork of actually transferring the rights to the game over the devs which could potentially be numerous things since the game engine was on a license (although an indefinite license)

im mostly assuming thats why we have heard very little in terms of what the devs are discussing with ncsoft, partially due to the secrecy agreement in their contract and partially due to the slow rate of business dealings/finding investors/actually making the deal

i believe we are still heading in the proper direction though, with the media crusade starting to hit full swing ncsoft is gonna be pressured to either sell or make some form of public statement regarding the publicity, or both

ncsoft is probably taking its time atm, because they know this is publicity thats spreading outside the US as well (as per the foreign language news articles) and depending on what they say they will make everyone happy or create a massive negative public backlash that could hurt them further down the road

[Scott Jackson]

The Sentinel+ application may give us to tool to bypass a portion of the problem of account name / character list reconstruction, in case the account data is off limits to us due to a failure to acquire it in an otherwise successful deal with NCSoft, or if PlanZ is activated.  The person possessing a significant number of Sentinel saved character files is almost certainly the account owner, and named accounts with characters could be recreated on that basis alone, with some sort of arbitration if someone tried to cheat to acquire names.

Name conflicts based on server would still need to be resolved in a restarted CoH1, unless our hardware was powerful enough and the game's (apparent) virtualization would permit exact recreation of the exist "servers" as they appear to us.  Under PlanZ's forum section, I haven't seen a discussion of servers and naming.  CoH1 characters may not be cleanly importable to a PlanZ game, though names could be deemed "reserved" by a Sentinel savefile so long as the PlanZ design can build in a means of resolving name conflicts via a (hidden?) unique identifier involving a prefixed [CoHServerId].[CharName] or other scheme.


Side note:
The relevant EULA section pertaining to "who owns our characters" appears to be 6(b), which you can read at your leisure.  I'm a bit of an ethical stickler, so when I agree to something (even as oppressive as a EULA) I'll abide by it unless the other party cheats first.  However, it seems that I'm legally and ethically permitted to recreate my characters in another game.  It's a two-point question:
1) If I had no rights to the character IP, then my agreement to the EULA simply acknowledges that I had no such rights; NCSoft cannot acquire those rights though my signing the EULA.  Therefore NCSoft has no right to stop me...only the IP right holder could do so.
2) If I had rights to the character, the EULA only gives NCSoft a non-exclusive license to use my character.  So I can't stop them from using it, but they also have no right to stop me from using the character elsewhere.
Whew.  8)

[malonkey1]

The name "Providence" in the geekosphere has quite strong links to H.P. Lovecraft, which seems to have been one of the big reasons for setting Paragon City in the same area, as a lot of the original devs were big Lovecraft fans.
The fact that it's a reasonably well know real place might also take away a bit from fictioanl city vibe we should be aiming for as the spiritual succesor to Paragon City.

Funny. I just thought of Generator Rex.

[Zapping]

It would be a stretch for an MMO with a paying customer base to be granted a 501(c)(3). The accounting for that might be a nightmare even if it were. That is usually reserved for organizations like churches and The Red Cross, etc. 501(c)(4)s are for organizations like SuperPACs. 501(c)(7)s are for organizations like VFWs, etc. The tough part about trying for a non-profit would be where do the funds go and then who owns what they are spent on. Salaries would be paid, but paying people huge salaries in a 501 has come under fire over the last few years (Red Cross as an example). This is an ongoing debate right now too. If you don't pay senior leadership in a non-profit, wouldn't that talent just go somewhere outside of the 501 world to make the money they can for their abilities? What's left are potentially under qualified/educated/experienced people being put in charge of large budget organizations and not being properly capable to run that organization, so the organization in the end and the people it is trying to help, suffer. The argument is that if it's a non-profit organization, why are donated funds being used to pay seven-figure salaries for a charity? Then they reference the donation-to-distribution ratio chart. That's the total amount disbursed to direct aid divided by the amount donated in aggregate. So if a 501 received $100M in donations in a fiscal year and consumed $62M in direct aid, 62 cents of every dollar received was used for the purpose of the 501, and the other 38 cents on the dollar was used for administrative expenses, salaries, overhead, etc. People like to use that ratio as a basic assumption of efficiency.

I'm executive director of a 501(c)(3) when I'm not running around causing chaos in CoH.  I can confirm what Superhobo says.  Additionally the IRS has also really started to limit granting new nonprofit status because there were many getting the tax exempt status and then benefiting themselves not their communities. 

I am very familiar with (c)(3), and somewhat with (c)4 and (c)(6) organizations.  I don't know the rules of (c)(7) or (c)(8) but those may be more applicable.  However I am willing to offer whatever support and advice I can.  I would also say that despite their reputation,  the IRS has been extremely helpful to me when I have had questions.  They have a Exempt Organization group that are pretty good at getting answers.

Regardless, I think if Paragon Studios is to be saved, or a new entity is set up, a for profit organization is the best fit.  We want them making money and investing it into the game so they can survive.  it's better to do that if they can charge subscriptions (versus dues) and don't have to worry about their programmatic vs administrative ratios.

[JustJane]

Name conflicts based on server would still need to be resolved in a restarted CoH1, unless our hardware was powerful enough and the game's (apparent) virtualization would permit exact recreation of the exist "servers" as they appear to us.  Under PlanZ's forum section, I haven't seen a discussion of servers and naming.  CoH1 characters may not be cleanly importable to a PlanZ game, though names could be deemed "reserved" by a Sentinel savefile so long as the PlanZ design can build in a means of resolving name conflicts via a (hidden?) unique identifier involving a prefixed [CoHServerId].[CharName] or other scheme.

Don't want to get off topic much, but CO has no naming conflicts as all names are actually based on your global. I can't remember exactly how it goes, but something like [globalname] Character Name. So I can be [JustJane] Epic Hero, and you can be [ScottJackson] Epic Hero. IIRC, the global name portion only shows up if you are searching and multiple people have the same toon name. I'm not even entirely sure it shows up in chat. At any rate, it is a work around for that issue.

Regardless, I think if Paragon Studios is to be saved, or a new entity is set up, a for profit organization is the best fit.  We want them making money and investing it into the game so they can survive.  it's better to do that if they can charge subscriptions (versus dues) and don't have to worry about their programmatic vs administrative ratios.

I agree. I used to work for a very small non-profit, and it is far too easy for small (and large) ones to struggle. We cannot open ourselves up to that.

[Olantern]

Regardless, I think if Paragon Studios is to be saved, or a new entity is set up, a for profit organization is the best fit.  We want them making money and investing it into the game so they can survive.  it's better to do that if they can charge subscriptions (versus dues) and don't have to worry about their programmatic vs administrative ratios.

I tend to agree, too.  Maintaining nonprofit status simply requires too many additional obligations.  As I've said several times, becoming a publisher and/or development studio is an ENORMOUS undertaking.  Keeping the operation alive would be difficult enough without the additional compliance and recordkeeping requirements of a Section 501 organization.

I admit that I do still like the idea of being able to market the game as "the world's first subscriber-owned MMO," but that creates its own set of problems (separate from the Section 501 ones).  Does anyone out there have any experience with membership organizations, like Costco or supermarket co-ops?

[Ad_Astra]

I'm also glad to see this discussion.

I work on a daily basis with cooperative business entities - I work with credit unions, which provide financial services and are owned collectively by their members. I can attest that starting up a collective/cooperative is long and involved, although in ths case of a collectively-owned MMO, one of the initial hurdles involved in setting up a credit union (seeking approval of the start-up plan and initial capitalization from federal and state regulators) is eliminated, because I do not think that any governmental entity would need to be involved in a review other than the IRS, who would need to approve the tax status of the organization. I say this as if IRS approval would be an easy thing, which or course, it isn't, but still easier than getting approvals from federal/state financial regulators.

Regarding a timeline, the process of setting up a credit union takes literally years. It is not a quick process, due to requirements for raising capital and getting organizational aprovals. And this applies only to US credit unions, those in Canada, the UK, elsewhere in EU, Australia/NZ, etc., would have their own rules regarding setting up cooperatives. Introducing international organizations would require more people with knowledge of law in a wide variety of jurisdictions.

Perhaps the best alternative would be to keep the cooperative to one owned in a particular jurisdiction (probably the US because it seems that collectively we are a bit better versed in US corporation/tax/IP laws) but certainly could be set up elsewhere if the laws in that jurisdiction make the process easier.

As noted above, there are other forms of tax-exempts other than 501(c)(3)s. It would be highly unlikely that a game cooperative would qualify as educational, etc., under (c)(3) as charitable, but other forms of tax-exempt might be a possiblity. Federal credit unions fall under 501(c)(1) for example. Looking over the lists, nothing leaps out as the right answer, but a tax law expert might find something there that could be arguably correct.

But it may also be possible to organize a cooperative entity as something not exempt from federal tax. Again, we need to find a tax attorney to let us know options. Since tax-exempt organizations have such high IRS-scrutiny, avoiding that status might be easier anyway.

(Disclosure - I have a law degree from a U.S. Law School. While I passed the Bar exam in my state, I do not practice law, ad as others have said, anything I say here or elsewhere on the Titan Network should not be regarded as legal advice. In particular, US Tax Code is very specialized and complex, and I would never, never offer tax planning advice.)

Just a few thoughts out loud to continue the collective thought process.

[Olantern]

Thank you, Ad Astra.  That information is extremely illuminating.  As I said earlier, the additional obligations and recordkeeping issues for a tax exempt organization probably make that idea a nonstarter.

I am a tax attorney, but I am not a tax planning person.  Rather, when I was in practice, I handled tax controversies, i.e., disputes between taxpayers and the IRS, usually at the litigation stage.  That said, I am pretty familiar with reading the Internal Revenue Code, and nothing in Section 501 really jumps out at me as fitting running an MMO.  I'll see if I can take some time this week to call some people I know who deal with Section 501 a bit more and can give advice on this kind of thing.

As Ad Astra points out, it would still be possible to run a co-op, or any of the other entities we've already mentioned, as a standard, for-proft business.  This may be the easier route.

Of course, the easiest route of all is to get someone else, either another game publisher or a venture capitalist, to put up the money to buy the necessary IP rights from NCSoft outright.  I advise everyone reading this to take a look at some of Victoria Victrix's recent posts on this subject.  They allude to some of the hard numbers that would be needed in presenting a case for purchase to such a potential buyer.

[Olantern]

Here's a repost of something I said in the "Potential Arguments to Investors" thread.  Again, I recommend taking a look at the information Ms. Lackey has passed on to us for how (little) CoH matters in terms of NCSoft/Nexxon's ultimate bottom line.

***

Now that someone has done the hard work of digging up some of the numbers involved, Ms. Lackey is exactly right.  The next step is to get someone interested in purchasing this thing.  There's been interest in the Legal Considerations thread about forming some kind of player entity to do so, but that's also fraught with peril.  I suspect that a crowdfunding effort of some kind can raise one or two million dollars, but not the ten or twelve million that might be needed.  Further, we have neither the necessary expertise in online publishing nor, potentially, the time to gain it.  We are (for the most part) not business people.  I've done a fair amount of bankruptcy work (and taught Bankruptcy), and I've seen a lot of fledgeling businesses perish trying to accomplish something like this.  That's not to say it's impossible, but it is the greatest challenge most of us have likely faced in our financial lives.

The easier route is to interest either an existing games publisher or a venture capitalist in making the purchase.  The return on CoH as an investment, at least as it's currently operating, is excellent.  We need to get the information involved into the hands of people who might be interested in using it.  That means writing to business organizations, writing to game publishers, and using any personal connections any of us have.

It might be worthwhile to start gathering information on such contacts and pooling them in a central location.

Contrary to what one reads in the AE forum, we have plenty of excellent writers in this community.  It's time to put those skills to work.

***

Keep at it, everyone!

[dwturducken]

Uh, DW? *grins* You might have noticed my name sprinkled around in there a bit. ;)

To quote some famous last words, "Oops." :)

[dwturducken]

One thing that has been bothering me as the Sunset discussions have developed is the issue of look and feel.  The drive is to replicate the look and feel as much as possible, should the main efforts fail.  The tickle at the back of my brain has been the recent decision in the Apple v. Samsung case. While it remains to be seen whether it will survive the appeals process, or what the real implications are if it does, the idea that a look and feel, something one would otherwise consider subjective and a bit esoteric, can be intellectual property is more than a little scary. There is a lot of road between hear and there, but it's still there, nagging at me like I'm halfway into a long trip and can't shake the feeling I've forgotten something..

[Mantic]

The drive is to replicate the look and feel as much as possible...

The drive is to replicate a lot more than that. I don't know how anyone thinks that it would be legal to create such a straightforward knockoff commercially.