SAN FRANCISCO (03/29/2000) - Three rival games makers yesterday teamed up to file a joint lawsuit against Yahoo Inc., alleging that the Web portal company has knowingly aided the sale of illegal and counterfeit video games on its Internet auction site. The legal action is groundbreaking since it's the first time that the trio have filed a suit against an electronic retailer.
Nintendo of America Inc., Electronic Arts Inc. and Sega of America Inc. filed the lawsuit yesterday in the U.S. District Court for the Northern District of California, according to Jeff Brown, director of communications for Electronic Arts.
"The lawsuit seeks an injunction against Yahoo to prevent the auction or sale of counterfeit games and illegal devices designed to circumvent copyright protection," Brown said in a phone interview yesterday. He drew attention to one particular set of devices known as mod chips which are also singled out in the lawsuit. "Mod chips are for sale on Yahoo where they're blatantly promoted as a device to get around copyright protection," he said.
Mod chips are defined in the lawsuit as chips that are usually prewired, which can be added to a user's games console. Their primary function is to permit the use of counterfeit copies of games software by "circumventing the copyright protection mechanism in the game console that verifies legitimate games," according to the lawsuit.
A simple search on Yahoo Auctions yesterday evening revealed around 70 of the so-called mod chips available for sale, some with games or consoles.
"We still have not seen the suit and so are not yet in a position to comment," said Yahoo spokeswoman Helena Moss in a phone interview today.
Electronic Arts' Brown said there are a number of keywords that are synonymous with counterfeit games such as "mod chips," "backup copy," "compilation disk" and "never published." Such terms signal to would-be buyers that the merchandise is counterfeit, he added.
"Yahoo uses elaborate filtering techniques to identify who users are and those providing auction goods," Brown said. "All (Yahoo) auctions can be searched by keywords and you can get the site to alert you to specific keywords as buying opportunities emerge." This filtering goes to the heart of the game vendors' case, since they allege that Yahoo alerts buyers to keywords tied to counterfeit games.
"We've asked Yahoo to use their filtering to prevent piracy, not for profit," Brown said. "We tried to discuss it with Yahoo."
Electronic Arts sent two letters to the office of the general counsel at Yahoo in the summer of last year, following up the letters with a phone call, but all three of its requests were ignored, Brown said. Yahoo and games industry executives met in December of 1999; at that time Yahoo showed no interest in taking any action over the alleged sale of counterfeit games on its site.
"Yahoo has been advised on more than one occasion that this conduct is taking place on its Web site, and we have asked them to implement effective controls to prevent the posting of illegal goods," Perrin Kaplan, director of corporate affairs at Nintendo of America, wrote late yesterday in an e-mail response to questions. "Yet, although they have the responsibility and the capability, they have refused to do this. Regretfully, therefore, we feel that legal action is now our only remaining recourse."
The suit specifically charges Yahoo with "copyright and trademark infringement and offering illegal devices for sale to the public, and unfair competition."
The game makers are also seeking through the lawsuit to impose an injunction on Yahoo to stop the company from facilitating the auction and sale of counterfeit games and illegal devices. The suit describes Yahoo Auctions as "the electronic equivalent of a flea market."
The games vendors allege that Yahoo is aware of the illegal activity occurring on its site and contends that the portal company is legally liable since it is directly profiting from the sale of illegal goods. The suit notes Yahoo's provision of an automated bidding system where "Yahoo Auctions acts as the buyer's agent, placing bids on the buyer's behalf in accordance with the buyer's instructions." The suit also points out that in the Yahoo Auctions' sellers guide the company lists materials that may not be listed or sold, these include any "item that is illegal to sell under any applicable law, statute, ordinance, or regulation" and any "item that you do not have the legal right to sell."
Brown at Electronic Arts described Yahoo's actions as "unquestionably illegal."
As for the possibility of the games vendors taking other Internet auction houses to court over the same issue as Yahoo, Brown had a cryptic response -- "All I can tell you is wait and see," he said. Brown added that a number of other online auction houses have acknowledged their awareness of the problem and, in some cases, are taking steps to remedy the situation.
"Yahoo is the most notorious violator on the Web in terms of distributing illegal video game products," wrote Nintendo's Kaplan. "It is hoped that this legal action will alert other companies and individuals that such acts will not be tolerated."
The trio of games vendors are seeking damages from Yahoo in the lawsuit as compensation from the losses they've suffered due to illegal sales of their products. However, quantifying the amount of compensation is a tricky issue and the companies are still working on coming up with a figure, Brown said. He cited a statistic from the Interactive Digital Software Association (IDSA) which claims that the U.S. computer and video games industry lost an estimated US$3.2 billion globally due to the sale of counterfeit and pirated goods last year.
"This action is not motivated by money," wrote Nintendo's Kaplan. "It is about vindicating and protecting our rights and preventing the Internet from becoming a place where lawbreaking is accepted as inevitable."
Yahoo was effectively providing a new international marketplace for counterfeit and illegal goods, she added. "Where in the past counterfeiters operated out of back rooms on a small scale, Yahoo has provided them with an incredibly efficient mass market for their illegal goods. While Yahoo actively facilitates and profits from this illegal activity, the fact that it is a well-known company lends an air of legitimacy to illegal activity."
In their lawsuit, the game vendors are requesting a jury trial.
Yahoo, based in Santa Clara, California, can be reached at +1-408-731-3300 or via the Internet at http://www.yahoo.com/. Electronic Arts, based in Redwood City, California, can be reached via the Internet at http://www.ea.com/.
Nintendo of America, based in Redmond, Washington, is a division of Nintendo Co. Ltd. of Kyoto, Japan, which can be reached via the Internet at http://www.nintendo.com/. Sega of America is a unit of Tokyo, Japan-based Sega Enterprises Ltd. and can be reached via the Internet at http://www.sega.com/.
(Tokyo correspondent Martyn Williams contributed to this report.)