Analysis: The Next Legal Threat For Game Makers

The video game industry has barely had time for the
hangovers after this year's Supreme Court victory celebration to wear
off, but its next big legal challenge is already gaining strength.

While June's high court ruling let developers rest easy about the
content they put in games, many attorneys at the time warned that
privacy issues, specifically as they relate to children, could be the
next thing to watch for. Late last week, the Federal Trade Commission
announced proposed changes to the Children's Online Privacy Protection
Act (COPPA) that could have a notable impact on many game makers.

The Commission wants to make several amendments to the decade-old privacy rules that are meant to protect kids under 13.

Among the changes is the expansion of the definition of "personal
information" to include a child’s location, along with any personal data
collected via tracking cookies that are used for behavioral
advertising. Facial recognition technology would be included as well.

Websites and apps that collect this information would need to prove they
are able to protect it, hold onto it "for only as long as is reasonably
necessary," and then safely delete it.

The agency says the updates are "intended to ensure that key information
will be presented to parents in a succinct 'just-in-time' notice, and
not just in a privacy policy."

The review of the law was fast-tracked last April, owing to what the FTC
calls "the rapid-fire pace of technological change," the number of
children using cell phones, the rise of social network sites and
increases in interactive gaming. The FTC noted that many children today
are "tech-savvy, but judgment-poor."

The goal, according to the FTC, is to find a balance between keeping
kids safe and not overly burdening companies in this era of rapid
technological changes.

The largest immediate impact, assuming these changes are passed, would
be on mobile and social game developers, who have already had run-ins
with the Feds.

In May, Disney-owned Playdom paid $3 million to settle charges it had
violated COPPA. The company was accused of illegally collecting and
disclosing personal information from hundreds of thousands of children
under age 13 without their parents' prior consent.

And just last month, developer Broken Thumbs Apps settled a similar case with the FTC over the child-targeted app Emily's Dress Up and Shop for a reported $50,000.

As traditional publishers expand their footprint into these areas, these changes will have an even wider impact.

It's risky legal territory, but the good news is it's a much less
controversial issue. Few developers are likely to argue that parental
notification and consent – and the importance of keeping children's
personal information secure – is an intrusion on their rights, even if
it might cost them a little money.

"It's less about the content in the online environment as it is in fair
warning and fees," adds Michael Zolandz, partner at SNR Denton. "I think
that's the big issue in the commission's context. It's not so much what
children are able to access. It's hidden fees or circumstances where
it's a free download that then smacks you with hundreds of dollars in
add-ons."

It's not the sort of thing that will keep a game off of shelves – or,
more precisely, off of Facebook and the App Store. It is the sort of
thing that can ding the bottom line noticeably if not followed
precisely, though – not to mention the negative stigma that comes with
violating child protection rules.

And given how nervous investors in the video game space can be, that's
something the executive suites of companies are going to be very wary
of.