SAN FRANCISCO (03/28/2000) - Three rival games makers today 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 today 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 today. 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 this evening revealed around 70 of the so-called mod chips available for sale, some with games or consoles.
"We have not seen the suit yet and are not in a position to comment," said Yahoo spokeswoman Diane Hunt in a phone interview today.
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's inaction and refusal to address the matter forced the game makers to go to court, he added.
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 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.
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.
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.)