wessman
July 3rd, 2003, 03:39 PM
Console Piracy: Poking Holes in Good Systems
A three-part look at the effects piracy has on the world of gaming.
By Steven L. Kent
July 1, 2003
http://www.gamespy.com/articles/july03/consolepiracy/
If you've been an active participant in the gaming space for any length of time, it's no doubt you know how easy it is to obtain pirated games. PC games have long been copied and distributed, back in the day via private bulletin boards, and now through popular file-sharing programs. In 2003, however, it's just as easy to download console games -- a rampant practice, one that most people have no trouble engaging in, because, after all, "free" is always the best price.
However, that price is not without its costs, for both you and gaming developers. In our three-part series we'll explore those costs, take a look at what's being done to circumvent piracy, and speak with Interactive Digital Software Association President Douglas Lowenstein about the matter.
Part I: The benefits of piracy.
In Gorbushka, on the outskirts of Moscow, a turd-spackled statue of Vladimir Lenin stands as a silent witness to one of the most impressive displays of capitalism in the known world. Gorbushka is home to a Russian electronics black market.
Along with the hardware, Gorbushka has movies on VHS, CD-ROM, and DVD. You can find the latest music CDs … and the latest video games.
When I toured Gorbushka, in October of 1999, I found brand-new games like Alpha Centauri: Alien Crossfire, Resident Evil Nemesis, Metal Gear Solid: VR Mission, Age of Empires II, Ready 2 Rumble (PlayStation), Crash Team Racing, and other new or soon to be released games selling for 70 rubles -- approximately $3 (U.S.).
Ready 2 Rumble was a big surprise -- the PlayStation version had not been released in stores in the United States. Midway had not even sent out review copies of the game.
I also found multi-game CDs. One disk, for instance, featured the PlayStation games MDK, Tenchu, Excalibur 2555 A.D., and Batman & Robin all on one disk for 70 rubles. The games were in Russian and all of the games used the Batman & Robin soundtrack, but the games were otherwise perfect. I also found a Pokemon cartridge for the Sega Mega Drive. (Genesis was sold as Mega Drive in Japan and Europe.)
Russia, of course, is not the only country in which illegal copies of video games are sold. Singapore, Hong Kong, and Korea have thriving counterfeit games markets. So does South America, especially Brazil. There's also a pretty good trade in the United States.
In the United States, many PlayStation 2 and Xbox owners have "modded" or modified their game consoles. The term "modding" refers to the process of adding special chips to game consoles that disable security mechanisms meant to limit the kinds of discs these systems can read. Companies such as Sony, Microsoft, and Nintendo build security chips into their game hardware. Security chips look for codes or other protections that game publishers build into their games. If they do not find these protections, they lock the software out and will not play it.
Adding security precautions to game systems is standard practice. Nintendo built a "lockout" chip into the original Nintendo Entertainment System (NES). Finding ways around security precautions is also well established. Companies like Paneision, Wisdom Tree, and even Atari published unauthorized NES cartridges with devices that disabled Nintendo's lockout chip.
Wisdom Tree and Paneision, who sold religious games and games with doodles of naked women, respectively, were small fish compared to what came later. Atari's Tengen games sold for full retail. Today's pirates sell games on the cheap. Some even give them away. The first challenge is get your console modified.
"You can pay somebody $150 to mod your PlayStation 2 or Xbox, or you can order the chips and do it yourself," says a retailer who used to modify his customers game consoles. "You're risking damage to your deck. I think the chips sell for $60 to $80."
While researching this article, I went to Google and ran a search for the term "mod chips." I got 274,000 listings. When I narrowed my search to "mod chips for sale," I found 36,000 listings. By narrowing further to "PlayStation" "mod chips for sale," I reduced the number to 11,400. Not all of these listings were sales outlets. Some were articles on the topic, others were sites that sold legal chips for modifying computers that also happened to sell PlayStation 2 game consoles.
Once you modify your console, buying games costs next to nothing. In fact, it can cost nothing at all. "If you have the right connection, you can download games for free," says this retailer. "Most people will go to somebody in the business who sells them for $5 or $10 per disc. We're talking about the latest games the moment they hit the market. A lot of the time, it's before they hit the market."
If you are looking for the best values in gaming, the mod makers have it.
"You can pay $150, which you calculate out as the same price as three retail games, and then you get games for $10 a piece," according to this retailer. "By the time I hit the $200 mark in spending, I have my system modified and I have five games. It's a push."
"It's flat out too easy. It's too cheap. If it cost $500 or $600 to mod, nobody would do it. But when you can get your Xbox modified for $150 … you can have a bigger hard drive put in. You can have 8,000 or 9,000 emulated games -- Super Nintendo, all the old Atari games, arcade games, all put on that hard drive, and still have the ability to take an original disc, put it in your machine, and copy it to the hard drive."
"Again, why would you not want to do it?"
This retailer, whose store is located in a suburb of a large city, estimates that thousands of people in his area have modded their game consoles. He also admits that his business was far more profitable when he offered bootlegged games.
"I could buy 100 blank CDs for $20, copy games on to them, and sell them for $10 to $15 each. You know what the markup is on retail games? I buy them for $42 and sell them for $49."
The argument has been made that game companies can easily afford to write off sales lost to piracy. Microsoft is, after all, the richest corporation on the face of the earth. Nintendo routinely boasts about having billion-dollar reserves in the bank and always operating profitably.
In fact, the game industry has shown phenomenal growth over the last 10 years. This, however, does not mean that the toll of piracy is not affecting the industry, says Douglas Lowenstein, president of the Interactive Digital Software Association, the organization that represents the video and computer games industry in the United States.
"Nobody is saying that the industry is crawling on its knees because of piracy. I am not out there saying that 'the world is coming to an end,' 'the industry will not grow,' or 'we cannot prosper.' Clearly companies are prospering. Some aren't, and those that are not are not necessarily struggling because of piracy. But the fact that the industry is healthy does not mean that piracy is harmless."
Everybody agrees that the benefits of bootlegged games are obvious. Consumers like them because they cost a fraction of legitimate games. Vendors like them because the markup is high. The real question seems to be, "What benefits would consumers see if they stopped buying counterfeit games?"
When asked this question, Lowenstein stumbled.
"That is a good question. We all know that the most exciting products in this industry are the ones that push the creative frontiers and innovate. At the same time we know that it is becoming more expensive to make games and a lot of games do not make money. So the reward ratio that publishers face today is dicey."
"Piracy is sucking money out of research and development. It is sucking up money that could be allocated toward creatively-oriented design teams and it is removing money that could form a cushion that enables the industry to continue to take risks."
Lowenstein says, however, the real measure of the piracy problem is in opportunities lost.
Part II: Victimless crime?
Console piracy is a worldwide industry, as multi-national as wireless telephones or McDonalds hamburgers. Interestingly, game bootleggers have crossed borders that the game makers have opted to avoid.
Sony, for instance, does not sell its PlayStation 2 in South America, so why should Sony Computer Electronics America executives care if there is a thriving market trading in pirated PlayStation 2 software?
"From my perspective, the bottom line in the analysis isn't whether it hurts Sony, the bottom line is that Sony owns the intellectual property and has the right to market and distribute it however it chooses," says Lowenstein.
"Sony likes to make money. It is reasonable to assume that were Sony to feel that the South American market was viable, it would certainly be in it. So there is an opportunity lost for Sony by the reality of the piracy on the ground making it completely impractical to enter the market with legitimate product. What Sony has lost is the opportunity to sell its extraordinarily popular product on the market. How much revenue is lost because of that is impossible to quantify.
Worldwide, console piracy is a very significant problem. It takes several different forms. Hard goods are an acute problem overseas -- counterfeit discs being available in scores of markets from Asia to South America to Eastern Europe to the Middle East.
We see games that are distributed by organized crime syndicates stamped out from illegal replicating facilities not just shipped into the country where the replicator is, but trans-shipped all over the world." Jeremy Horwitz, a lawyer specializing in intellectual property, says that one of the more fascinating aspects of game piracy is how multi-national it has become.
"You are seeing games that were produced in Asia being counterfeited by agents in Singapore who are shipping the counterfeited games in massive, massive quantities through the United States -- I think one case had them going through Miami, for example -- and then arriving in destinations in South America where there is a thriving market for pirated software.
You would be hard-pressed to find a major country, outside of the industrialized world, where there was not a huge level of piracy," adds Lowenstein. "In fact, you would be hard pressed to find a country in which the pirate market does not dwarf the legitimate market.
Whether you are talking about Thailand, Malaysia, Brazil, Mexico, Israel ... just go around the world and you are going to find a significant amount of piracy and a huge challenge breaking through the organized infrastructure that supports it."
According to Lowenstein, you cannot draw a dollar-to-dollar comparison between pirate game sales and dollars lost to legitimate game publishers. The Russian consumer who purchases a pirated copy of The Getaway for 70 rubles (approximately $3 in U.S. currency) in Gorbushka would not necessarily have purchased the game for 1,000 rubles had the pirated copy not been present.
"Our losses over the last year were $650 million due to piracy," says Jodi Daugherty, director of anti-piracy for Nintendo of America. "Our focus with anti-piracy has been shutting down the factories and the manufacturing facilities out of China. We have been quite aggressive over the last 18 months."
Nintendo's piracy problems are more localized than those of Sony and Microsoft. While GameCube piracy has not been a problem, Game Boy piracy, on the other hand, has proliferated. "Nobody has been able to crack the GameCube protection yet. They have been able to get certain game files up on the Internet, but nobody has been able to play them. We're doing fine with GameCube," says Daugherty.
"Our counterfeit games are still based on a semiconductor chip. We don't have the challenges that Sony, Microsoft, and the PC publishers have. It's easier that we don't have all of the burns to order-on-demand in the streets in Latin America and Russia. For us it continues to be more centralized in China."
Many gamers are familiar with the Game Boy and Game Boy Advance multi-cartridges that are manufactured in China. These are the products that contain dozens of games on a single cartridge that generally sell for less than standard Game Boy cartridges.
"I do not know their costs for assembly, but with the lesser quality of their components, compared to an authentic cartridge, one would think they are less expensive to make," says Daugherty, who also points out that multi-cartridges often only include abbreviated versions of games. "The PC boards are less quality, the plastic housing, the labels, the packaging, are significantly less quality than what Nintendo produces."
Multi-cartridges are not an especially big business in the United States. In this country, the bigger trade is selling bootlegged games to people who own modified PlayStation 2 and Xbox consoles.
"We have a very significant problem with the use of "mod" chips [in the United States]," says Lowenstein. "The two go hand-in-hand. The consoles are copy-protected, so you need to break that copy protection to play those games. There is quite a vibrant and robust market in counterfeit console games and counterfeit console circumvention devices."
"There are a lot of people out there who are taking advantage of the opportunity to buy pirated games. To suggest that that is somehow a victimless crime is naïve and delusional."
Active efforts by the Interactive Digital Software Association and several game companies have largely curbed mod chips sales as well.
"The game companies have done a very good job of preventing the vending of mod chips in the United States," says Horwitz. "They are patrolling the Internet pretty aggressively at this point, sending out cease and desist letters to virtually anybody who is offering the chips for sale.
As a result, the companies that people can order the mod chips from tend to be based outside of the United States, although there are smaller game shops around the country and places in California and New York City that will do the modifications and do act as resellers of the chips. But the primary vendors are all located outside of the country as far as I can tell."
International efforts are underway to root out and end console piracy. The most successful efforts, however, seem to go after the stem of the problem.
Part III: Piracy and the efforts made to combat it.
Console piracy is a worldwide industry, and the only way to fight it is with a global approach. When game company attorneys discuss the battle against piracy, they inevitably mention Korea, China, and Singapore. The consensus seems to be that local authorities are helpful in shutting down bootleggers, but that the industrialized nations have the best laws for protecting intellectual property.
"The mod chip penetration rate does not scale here the way it does in other countries," says Stevan Mitchell, Interactive Digital Software Association vice president of intellectual property policy. "We have seen new accounts that suggest in Hong Kong, for example, between 80 and 90 percent of the Xboxes that are made available in storefronts have been pre-modded for sale in those markets."
"It's an academic issue relegated to copyright office proceedings in this country, but it is a very real economic issue in Asia, and it's a growing issue in Latin America as well."
One of the key tools for battling that academic issue in the United States is the Digital Millennium Copyright Act (DMCA). The DMCA was a highly detailed piece of legislation designed to protect intellectual property in the digital age. (The entire 94-page document can be found at http://www.copyright.gov/legislation/hr2281.pdf.)
One side affect of the DMCA is that it empowers game companies to protect their property through a side door. In the past, companies needed to hunt down manufacturers and retailers to combat piracy. Through the DMCA, alternative methods have been opened.
"The person making the software available could be considered an infringer according to the DMCA," says Mitchell. "Also, the ISP that he is using to facilitate the connection could potentially be held liable as a violator of copyright.
"What the DMCA did at the end of 1998 was strike a compromise that would allow the ISPs to reduce their own potential liability exposure for the actions of their subscribers, but obligated them to cooperate with copyright holders by expeditiously removing stuff brought to their attention."
In drug dealing terms, the DMCA opened the door so that the police no longer needed to find pushers and manufacturers, they could now go after landlords as well.
The Interactive Digital Software Association aggressively searches the Internet for postings in which mod chips are offered. When these sites are found, legal notice is sent to the ISP hosting the sites. In the industry, the practice is called "notice and takedown." According to IDSA president Douglas Lowenstein, the IDSA has notified and taken down 30,000 to 40,000 sites over the last couple of years. This may sound like pulling the weeds and leaving the roots; but with distribution channels disappearing, pirates are looking toward other venues.
"We are encouraging the DMCA notice-and-takedown compromise as a model for other countries," says Mitchell. "It's part of an effective enforcement regime, but it's not the full thing. It tends to be more of an inconvenience for those recidivists than anything else, but it gives us something to go on." Until other countries implement statutes similar to the DMCA, enforcement efforts have been centered around existing statutes.
"Copyright and trademark are our enforcement weapons," says Interactive Digital Software Association Senior Vice President of Intellectual Property Enforcement, Ric Hirsch. "Invariably, people who pirate games copy a trademarked name or logo.
The trick with these laws is that every country seems to place its own spin on trademark and copyright laws.
"Hong Kong, Singapore, and Brazil are where we have our three foreign enforcement programs," says Hirsch. "In Hong Kong we use copyright extensively as there are more serious penalties imposed for copyright infringement than for trademark infringement. As part of our purpose is to obtain the more severe and obviously more deterrent penalties, using copyright in Hong Kong has been beneficial."
"In Singapore, we have used a combination of copyright and trademark. We have been involved in some 'private actions' in Singapore. These are not quiet civil claims, they are criminal claims. We have particularly used that against piracy of Nintendo Game Boy products. Generally those are brought on the basis of trademark."
"In Brazil, it has been mostly copyright."
Using copyright laws is effective. This week, Nintendo won a summary judgment against a Hong Kong manufacturer in which the judge required the defendant to pay Nintendo 5 million HK dollars (approximately $641,000 in U.S. currency). The problem is that litigation is a slow and thorough process.
"Notice and takedown is a logical approach," says Lowenstein. "Filing 40,000 lawsuits is simply not practical."
© 1996-2002 GameSpy Industries.
A three-part look at the effects piracy has on the world of gaming.
By Steven L. Kent
July 1, 2003
http://www.gamespy.com/articles/july03/consolepiracy/
If you've been an active participant in the gaming space for any length of time, it's no doubt you know how easy it is to obtain pirated games. PC games have long been copied and distributed, back in the day via private bulletin boards, and now through popular file-sharing programs. In 2003, however, it's just as easy to download console games -- a rampant practice, one that most people have no trouble engaging in, because, after all, "free" is always the best price.
However, that price is not without its costs, for both you and gaming developers. In our three-part series we'll explore those costs, take a look at what's being done to circumvent piracy, and speak with Interactive Digital Software Association President Douglas Lowenstein about the matter.
Part I: The benefits of piracy.
In Gorbushka, on the outskirts of Moscow, a turd-spackled statue of Vladimir Lenin stands as a silent witness to one of the most impressive displays of capitalism in the known world. Gorbushka is home to a Russian electronics black market.
Along with the hardware, Gorbushka has movies on VHS, CD-ROM, and DVD. You can find the latest music CDs … and the latest video games.
When I toured Gorbushka, in October of 1999, I found brand-new games like Alpha Centauri: Alien Crossfire, Resident Evil Nemesis, Metal Gear Solid: VR Mission, Age of Empires II, Ready 2 Rumble (PlayStation), Crash Team Racing, and other new or soon to be released games selling for 70 rubles -- approximately $3 (U.S.).
Ready 2 Rumble was a big surprise -- the PlayStation version had not been released in stores in the United States. Midway had not even sent out review copies of the game.
I also found multi-game CDs. One disk, for instance, featured the PlayStation games MDK, Tenchu, Excalibur 2555 A.D., and Batman & Robin all on one disk for 70 rubles. The games were in Russian and all of the games used the Batman & Robin soundtrack, but the games were otherwise perfect. I also found a Pokemon cartridge for the Sega Mega Drive. (Genesis was sold as Mega Drive in Japan and Europe.)
Russia, of course, is not the only country in which illegal copies of video games are sold. Singapore, Hong Kong, and Korea have thriving counterfeit games markets. So does South America, especially Brazil. There's also a pretty good trade in the United States.
In the United States, many PlayStation 2 and Xbox owners have "modded" or modified their game consoles. The term "modding" refers to the process of adding special chips to game consoles that disable security mechanisms meant to limit the kinds of discs these systems can read. Companies such as Sony, Microsoft, and Nintendo build security chips into their game hardware. Security chips look for codes or other protections that game publishers build into their games. If they do not find these protections, they lock the software out and will not play it.
Adding security precautions to game systems is standard practice. Nintendo built a "lockout" chip into the original Nintendo Entertainment System (NES). Finding ways around security precautions is also well established. Companies like Paneision, Wisdom Tree, and even Atari published unauthorized NES cartridges with devices that disabled Nintendo's lockout chip.
Wisdom Tree and Paneision, who sold religious games and games with doodles of naked women, respectively, were small fish compared to what came later. Atari's Tengen games sold for full retail. Today's pirates sell games on the cheap. Some even give them away. The first challenge is get your console modified.
"You can pay somebody $150 to mod your PlayStation 2 or Xbox, or you can order the chips and do it yourself," says a retailer who used to modify his customers game consoles. "You're risking damage to your deck. I think the chips sell for $60 to $80."
While researching this article, I went to Google and ran a search for the term "mod chips." I got 274,000 listings. When I narrowed my search to "mod chips for sale," I found 36,000 listings. By narrowing further to "PlayStation" "mod chips for sale," I reduced the number to 11,400. Not all of these listings were sales outlets. Some were articles on the topic, others were sites that sold legal chips for modifying computers that also happened to sell PlayStation 2 game consoles.
Once you modify your console, buying games costs next to nothing. In fact, it can cost nothing at all. "If you have the right connection, you can download games for free," says this retailer. "Most people will go to somebody in the business who sells them for $5 or $10 per disc. We're talking about the latest games the moment they hit the market. A lot of the time, it's before they hit the market."
If you are looking for the best values in gaming, the mod makers have it.
"You can pay $150, which you calculate out as the same price as three retail games, and then you get games for $10 a piece," according to this retailer. "By the time I hit the $200 mark in spending, I have my system modified and I have five games. It's a push."
"It's flat out too easy. It's too cheap. If it cost $500 or $600 to mod, nobody would do it. But when you can get your Xbox modified for $150 … you can have a bigger hard drive put in. You can have 8,000 or 9,000 emulated games -- Super Nintendo, all the old Atari games, arcade games, all put on that hard drive, and still have the ability to take an original disc, put it in your machine, and copy it to the hard drive."
"Again, why would you not want to do it?"
This retailer, whose store is located in a suburb of a large city, estimates that thousands of people in his area have modded their game consoles. He also admits that his business was far more profitable when he offered bootlegged games.
"I could buy 100 blank CDs for $20, copy games on to them, and sell them for $10 to $15 each. You know what the markup is on retail games? I buy them for $42 and sell them for $49."
The argument has been made that game companies can easily afford to write off sales lost to piracy. Microsoft is, after all, the richest corporation on the face of the earth. Nintendo routinely boasts about having billion-dollar reserves in the bank and always operating profitably.
In fact, the game industry has shown phenomenal growth over the last 10 years. This, however, does not mean that the toll of piracy is not affecting the industry, says Douglas Lowenstein, president of the Interactive Digital Software Association, the organization that represents the video and computer games industry in the United States.
"Nobody is saying that the industry is crawling on its knees because of piracy. I am not out there saying that 'the world is coming to an end,' 'the industry will not grow,' or 'we cannot prosper.' Clearly companies are prospering. Some aren't, and those that are not are not necessarily struggling because of piracy. But the fact that the industry is healthy does not mean that piracy is harmless."
Everybody agrees that the benefits of bootlegged games are obvious. Consumers like them because they cost a fraction of legitimate games. Vendors like them because the markup is high. The real question seems to be, "What benefits would consumers see if they stopped buying counterfeit games?"
When asked this question, Lowenstein stumbled.
"That is a good question. We all know that the most exciting products in this industry are the ones that push the creative frontiers and innovate. At the same time we know that it is becoming more expensive to make games and a lot of games do not make money. So the reward ratio that publishers face today is dicey."
"Piracy is sucking money out of research and development. It is sucking up money that could be allocated toward creatively-oriented design teams and it is removing money that could form a cushion that enables the industry to continue to take risks."
Lowenstein says, however, the real measure of the piracy problem is in opportunities lost.
Part II: Victimless crime?
Console piracy is a worldwide industry, as multi-national as wireless telephones or McDonalds hamburgers. Interestingly, game bootleggers have crossed borders that the game makers have opted to avoid.
Sony, for instance, does not sell its PlayStation 2 in South America, so why should Sony Computer Electronics America executives care if there is a thriving market trading in pirated PlayStation 2 software?
"From my perspective, the bottom line in the analysis isn't whether it hurts Sony, the bottom line is that Sony owns the intellectual property and has the right to market and distribute it however it chooses," says Lowenstein.
"Sony likes to make money. It is reasonable to assume that were Sony to feel that the South American market was viable, it would certainly be in it. So there is an opportunity lost for Sony by the reality of the piracy on the ground making it completely impractical to enter the market with legitimate product. What Sony has lost is the opportunity to sell its extraordinarily popular product on the market. How much revenue is lost because of that is impossible to quantify.
Worldwide, console piracy is a very significant problem. It takes several different forms. Hard goods are an acute problem overseas -- counterfeit discs being available in scores of markets from Asia to South America to Eastern Europe to the Middle East.
We see games that are distributed by organized crime syndicates stamped out from illegal replicating facilities not just shipped into the country where the replicator is, but trans-shipped all over the world." Jeremy Horwitz, a lawyer specializing in intellectual property, says that one of the more fascinating aspects of game piracy is how multi-national it has become.
"You are seeing games that were produced in Asia being counterfeited by agents in Singapore who are shipping the counterfeited games in massive, massive quantities through the United States -- I think one case had them going through Miami, for example -- and then arriving in destinations in South America where there is a thriving market for pirated software.
You would be hard-pressed to find a major country, outside of the industrialized world, where there was not a huge level of piracy," adds Lowenstein. "In fact, you would be hard pressed to find a country in which the pirate market does not dwarf the legitimate market.
Whether you are talking about Thailand, Malaysia, Brazil, Mexico, Israel ... just go around the world and you are going to find a significant amount of piracy and a huge challenge breaking through the organized infrastructure that supports it."
According to Lowenstein, you cannot draw a dollar-to-dollar comparison between pirate game sales and dollars lost to legitimate game publishers. The Russian consumer who purchases a pirated copy of The Getaway for 70 rubles (approximately $3 in U.S. currency) in Gorbushka would not necessarily have purchased the game for 1,000 rubles had the pirated copy not been present.
"Our losses over the last year were $650 million due to piracy," says Jodi Daugherty, director of anti-piracy for Nintendo of America. "Our focus with anti-piracy has been shutting down the factories and the manufacturing facilities out of China. We have been quite aggressive over the last 18 months."
Nintendo's piracy problems are more localized than those of Sony and Microsoft. While GameCube piracy has not been a problem, Game Boy piracy, on the other hand, has proliferated. "Nobody has been able to crack the GameCube protection yet. They have been able to get certain game files up on the Internet, but nobody has been able to play them. We're doing fine with GameCube," says Daugherty.
"Our counterfeit games are still based on a semiconductor chip. We don't have the challenges that Sony, Microsoft, and the PC publishers have. It's easier that we don't have all of the burns to order-on-demand in the streets in Latin America and Russia. For us it continues to be more centralized in China."
Many gamers are familiar with the Game Boy and Game Boy Advance multi-cartridges that are manufactured in China. These are the products that contain dozens of games on a single cartridge that generally sell for less than standard Game Boy cartridges.
"I do not know their costs for assembly, but with the lesser quality of their components, compared to an authentic cartridge, one would think they are less expensive to make," says Daugherty, who also points out that multi-cartridges often only include abbreviated versions of games. "The PC boards are less quality, the plastic housing, the labels, the packaging, are significantly less quality than what Nintendo produces."
Multi-cartridges are not an especially big business in the United States. In this country, the bigger trade is selling bootlegged games to people who own modified PlayStation 2 and Xbox consoles.
"We have a very significant problem with the use of "mod" chips [in the United States]," says Lowenstein. "The two go hand-in-hand. The consoles are copy-protected, so you need to break that copy protection to play those games. There is quite a vibrant and robust market in counterfeit console games and counterfeit console circumvention devices."
"There are a lot of people out there who are taking advantage of the opportunity to buy pirated games. To suggest that that is somehow a victimless crime is naïve and delusional."
Active efforts by the Interactive Digital Software Association and several game companies have largely curbed mod chips sales as well.
"The game companies have done a very good job of preventing the vending of mod chips in the United States," says Horwitz. "They are patrolling the Internet pretty aggressively at this point, sending out cease and desist letters to virtually anybody who is offering the chips for sale.
As a result, the companies that people can order the mod chips from tend to be based outside of the United States, although there are smaller game shops around the country and places in California and New York City that will do the modifications and do act as resellers of the chips. But the primary vendors are all located outside of the country as far as I can tell."
International efforts are underway to root out and end console piracy. The most successful efforts, however, seem to go after the stem of the problem.
Part III: Piracy and the efforts made to combat it.
Console piracy is a worldwide industry, and the only way to fight it is with a global approach. When game company attorneys discuss the battle against piracy, they inevitably mention Korea, China, and Singapore. The consensus seems to be that local authorities are helpful in shutting down bootleggers, but that the industrialized nations have the best laws for protecting intellectual property.
"The mod chip penetration rate does not scale here the way it does in other countries," says Stevan Mitchell, Interactive Digital Software Association vice president of intellectual property policy. "We have seen new accounts that suggest in Hong Kong, for example, between 80 and 90 percent of the Xboxes that are made available in storefronts have been pre-modded for sale in those markets."
"It's an academic issue relegated to copyright office proceedings in this country, but it is a very real economic issue in Asia, and it's a growing issue in Latin America as well."
One of the key tools for battling that academic issue in the United States is the Digital Millennium Copyright Act (DMCA). The DMCA was a highly detailed piece of legislation designed to protect intellectual property in the digital age. (The entire 94-page document can be found at http://www.copyright.gov/legislation/hr2281.pdf.)
One side affect of the DMCA is that it empowers game companies to protect their property through a side door. In the past, companies needed to hunt down manufacturers and retailers to combat piracy. Through the DMCA, alternative methods have been opened.
"The person making the software available could be considered an infringer according to the DMCA," says Mitchell. "Also, the ISP that he is using to facilitate the connection could potentially be held liable as a violator of copyright.
"What the DMCA did at the end of 1998 was strike a compromise that would allow the ISPs to reduce their own potential liability exposure for the actions of their subscribers, but obligated them to cooperate with copyright holders by expeditiously removing stuff brought to their attention."
In drug dealing terms, the DMCA opened the door so that the police no longer needed to find pushers and manufacturers, they could now go after landlords as well.
The Interactive Digital Software Association aggressively searches the Internet for postings in which mod chips are offered. When these sites are found, legal notice is sent to the ISP hosting the sites. In the industry, the practice is called "notice and takedown." According to IDSA president Douglas Lowenstein, the IDSA has notified and taken down 30,000 to 40,000 sites over the last couple of years. This may sound like pulling the weeds and leaving the roots; but with distribution channels disappearing, pirates are looking toward other venues.
"We are encouraging the DMCA notice-and-takedown compromise as a model for other countries," says Mitchell. "It's part of an effective enforcement regime, but it's not the full thing. It tends to be more of an inconvenience for those recidivists than anything else, but it gives us something to go on." Until other countries implement statutes similar to the DMCA, enforcement efforts have been centered around existing statutes.
"Copyright and trademark are our enforcement weapons," says Interactive Digital Software Association Senior Vice President of Intellectual Property Enforcement, Ric Hirsch. "Invariably, people who pirate games copy a trademarked name or logo.
The trick with these laws is that every country seems to place its own spin on trademark and copyright laws.
"Hong Kong, Singapore, and Brazil are where we have our three foreign enforcement programs," says Hirsch. "In Hong Kong we use copyright extensively as there are more serious penalties imposed for copyright infringement than for trademark infringement. As part of our purpose is to obtain the more severe and obviously more deterrent penalties, using copyright in Hong Kong has been beneficial."
"In Singapore, we have used a combination of copyright and trademark. We have been involved in some 'private actions' in Singapore. These are not quiet civil claims, they are criminal claims. We have particularly used that against piracy of Nintendo Game Boy products. Generally those are brought on the basis of trademark."
"In Brazil, it has been mostly copyright."
Using copyright laws is effective. This week, Nintendo won a summary judgment against a Hong Kong manufacturer in which the judge required the defendant to pay Nintendo 5 million HK dollars (approximately $641,000 in U.S. currency). The problem is that litigation is a slow and thorough process.
"Notice and takedown is a logical approach," says Lowenstein. "Filing 40,000 lawsuits is simply not practical."
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