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A Touch of Class

Olswang's Jas Purewal explains what a class action suit is, following the recent Zynga issue

Class Actions and the Games Industry

Disputes are inevitable in any industry. They can be can be expensive, time-consuming and risky, but they are often caused by genuine differences between businesses - from time to time deals fall through and contracts are broken, which may lead to the innocent party feeling aggrieved and seeking compensation. But in other cases, disputes may form part of a useful business strategy - for example, a legal claim by a business against a competitor.

One well known type of legal claim is the class action. These kinds of actions have been brought in a range of industries, from tobacco to fast food to technology, often courting both publicity and controversy in the process. Now it seems that 2009 has been the year in which the class action made its presence felt firmly in the games industry.

What is a Class Action?

In a nutshell, a class action is a legal claim brought in a court against a defendant (or group of defendants) by a group of claimants who are said to represent the whole 'class' of persons who are in the same position (ie they have all in some way suffered due to the actions of the defendant). A well known example is the group of American smokers who sued tobacco companies on behalf of all American smokers regarding the harm caused to them by smoking tobacco.

The primary advantage of class actions is that they can make it relatively straightforward for a large group of persons to commence a single claim, often seeking large damages from a substantial company, and share the (often significant) cost of the action between them, rather than each person having to bring individual legal actions at his/her individual cost and risk. This is because, in class actions, by default all persons in the class are automatically bound the court's decision whether or not they were parties to the legal proceedings (unlike with standard legal actions, where claimants must expressly 'opt in' to the litigation and thereby incur a share of the legal costs and risk).

There are of course different models of class action in different countries. English law permits class action lawsuits in principle, but the requirements for commencing one are high (albeit the English judiciary is at present conducting a wide-ranging review which may propose making English class actions easier to commence in the future). However, by far the most well-known is the US class action. Class actions are popular in the US due to a range of factors, including in particular advantageous procedural rules (there is no 'loser pays legal costs' rule in the US) and jury trials of civil claims, which can often lead to substantial damages to claimants.

Class Action Lawsuits and the Games Industry

Class actions are not by any means entirely new to the games industry. For example, in 2008 a US class action was commenced against Rockstar Games and Take-Two Interactive over the "Hot Coffee" matter (it settled earlier this year with a USD 30 million payout to the claimants). But this year has seen not one or two but several well-publicised class actions (so far, all in the US) being commenced or threatened against developers or publishers in the games industry.

A first example is the class action commenced against Sony over alleged hardware failures in the PS3 caused by firmware updates. A second example is the claim commenced earlier last week against Facebook and social gaming company Zynga over allegations that players were made to pay unauthorised charges (eg recurring SMS subscriptions) in order to play games such as Mafia Wars and Farmville - this appears to be the first class action commenced against the social games industry. A third example is the recent threatened claim by certain Xbox 360 players against Microsoft over its recent banning of certain Xbox Live accounts whose holders were said to have modded their consoles.

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