A lawyer’s view of gaming’s AI and regulatory challenges | Sean Kane interview

All of the big changes that are sweeping through gaming with the rise of generative AI will likely be accompanied by lots legal implications.

Sean Kane, co-chair of the Interactive Entertainment Group at Frankfurt Kurnit, has been keeping up with those changes. He represents a variety of companies in the video game and social media industries, and those companies keep him on the cusp of media, gaming and technology creation. This is where innovation and tradition often clash, and the law has to be applied to new situations.

Kane has decades of experience negotiating video game licenses and developer and publisher agreements, and in protecting the intellectual property rights of video games and related social media applications, including trademark and copyright protection, clearance and enforcement.

I caught up with Kane at the recent Reboot Develop Blue event in Croatia. Here’s an edited transcript of our interview.

GamesBeat: The big [question] would seem to be all the discussions around AI and copyright. Who owns what when generative AI gets involved? What are your impressions there?

Sean Kane: It’s a question I think everyone is trying to figure out at the moment. We’re going to have an answer relatively soon, I think, but it’s still a little nebulous. The copyright office has come out and rejected some AI-created works, but accepted others where AI was considered more of a tool to be used. A lot of people like to look at it from the concept of photography. A camera is a tool to take an image. But to take a true work of art, there needs to be significant human control over that camera.

The copyright office right now is looking at it in a similar way. They say that if AI is really creating the work in and of itself, with very limited prompts, then it’s not going to be protectable. However, there is a world where human interaction with what the AI creates, whether it’s in writing or whether it’s a visual which builds upon it, adds upon it, turns it into something different, that’s going to be significant enough human interaction for it to potentially be protectable.

So much of the reason we’re talking about human interaction is that it is part of the copyright act. It needs to be done by a person. A couple of years ago there was a whole claim about a monkey taking a picture and whether or not that was copyrightable. The photographer said, “Well, it’s my camera. I own the copyright on it.” There were people saying, “No, the monkey should own the copyright.”

GamesBeat: But who owns the monkey?

Kane: That was kind of where the argument was going. The copyright office stepped in and said, “No, the monkey does not own the copyright.”

GamesBeat: Have there been some interesting game-related cases in this area lately?

Kane: The cases that we’ve looked at so far have not really been game-related. There was one related to a comic book, where the images were all AI-generated, but the words, the text of it, was written. Ultimately the copyright office said the text was protectable but the images were not. We are seeing a bunch of cases being brought by different artists claiming that the use of their art to train the AI violates their rights. Which is interesting, because part of the right of a copyright holder is the right to make copies or make derivative works. Their claim is that by training the AI on their material, it’s become a derivative work. That case really just began. There are a couple of similar cases like that, usually against–I think there was one against Midjourney, against Dall-E.

GamesBeat: There are a lot of interesting complexities to the area.

Kane: Especially on that, because when you look at it from the perspective of these AIs being trained on potentially millions of data points–what is the damage to the one artist?

GamesBeat: One millionth of the value of what’s created.

Kane: Maybe? I don’t know.

GamesBeat: That Solomonic notion, if the human has more control, that makes sense. Is there a similar sense that people might have around giving the previous artists a slice of the proceeds? If you determine that this image is 20% based on someone else’s NFT work–

Kane: It’s funny you said that. Some people are looking at using technologies like blockchain for those sorts of things. There is technology now where you can track these uses across various different things. When they’re monetized, money can flow to different individuals based on that. Again, I think we’re a ways away from all of that being decided. I don’t know whether it will be decided by the courts, or whether we could have regulation on these issues. Already people are concerned about the power of generative AI and looking to regulate it in some ways.

Italy, you may be aware, actually banned ChatGPT. They said it was for privacy concerns. I think we’ll see things like that, where different regulators, in some cases, have knee-jerk reactions to it instead of trying to–they never make surgical cuts. They tend to go all or nothing.

GamesBeat: The notion of the regulatory environment changing, maybe there are predictions you might have on that front as well. What’s going to affect games? I’ve heard the ToxMod people here say that all kinds of regulation is likely coming to deal with toxicity in games and who’s responsible for multiplayer games that are out of control.

Kane: That’s been a drum that people have been banging for years. I don’t think it’s wrong. It’s always been very easy to regulate when you’re arguing that you have to save the children. That’s the way that people look at it, even though toxicity in games does not just affect children. But that’s how it will get passed.

We have so many states making so many changes in their laws right now related to privacy and game design that we really don’t know the answers to them. We just know that they say, “You have to do these things to protect your players. Consider who your players might be in designing your games to make sure they’re appropriate.” Personally I think you could have an argument that a toxic system could violate those kinds of age-appropriate design requirements that we’re seeing.

GamesBeat: You could wake up to a gigantic fine, like Epic.

Kane: Again, there are–most of the companies that are in this industry are not engaging in anything nefarious. They’re trying to make fun games. They’re trying to make them playable by the groups that they’re focusing on. But it doesn’t mean–you and I both know this. Everybody plays games. It doesn’t matter what your age is. It doesn’t matter that you’re not 18 and you want to play a game that’s 18+. It happens.

There’s only so much that game companies can actually do to try to comply. I think a lot of times they’re trying their best, and when a regulator wakes up to some of these issues and tries to target somebody–what my clients like to do is be able to say, “Listen. Here’s everything we’ve done to try to comply.” In the end you may disagree if we’ve complied or not, but the fact is, it’s not a bright line. Here is compliance and here it is not. It’s very much a question of where we think we’re supposed to comply and where we think it’s supposed to go. Most regulations say you can’t do X, but they don’t say what you’re supposed to do.

GamesBeat: A lot of companies have been pleading that they want to know more about where the line is so that they can comply. But they don’t get that information. I don’t know, but the number one category of companies in that space might be the blockchain people. Some of them got stuck in the ICO absence of regulation. There are more issues with lack of regulation now. Some of that comes retroactively.

Kane: That’s exactly right. That’s what happens. There are regulations that are so broad that they cover a whole community of things. You don’t know whether or not they really intended or will be subjected to what you’re doing until it happens. We see that all the time with NFTs, where as lawyers we say, “Well, the definition of a security, compared to what an NFT is, it’s very similar.” Now, will a regulator ultimately say an NFT is a security? We don’t know until they do it. Sometimes they won’t do it until someone really does something nefarious with an NFT, and then they decide they have to go after that person in some way. Then they say this is a security so they can go after them. Then that also means that now all NFTs are securities, and now we have to try to comply with that.

In some cases it may be near impossible to do that, because those laws – whether for securities or other things, this is just an example – were never intended to cover something like an NFT. An NFT is almost designed to be something totally different.

GamesBeat: I used to have fun saying that in the blockchain gaming space, the big companies were going to be too afraid to act, and so they were just going to stall. Then the startups in the area would sweep in and own the market, but then end up having to operate their companies from prison.

Kane: It’s funny. You’re not wrong about certain of those things. There are larger companies that, for one, are not as nimble. But yeah, they have boards. They’re publicly traded. They have to be much more circumspect about what they’re doing. Not to say that they’re not moving in those directions as well. But I agree. It tends to be the smaller startups that are more nimble.

The problem with that is those are also the ones that may get hit initially with some of these regulations and not have the lawyers and the war chest to fight them. They may have to basically turn over, roll over, and all of a sudden you now have bad law, which is going to be applied to those larger companies. They set the precedent. That’s going to be the precedent for the industry. And sometimes regulators do that on purpose. Sometimes regulators don’t go after the whale. They go after the minnow because they know the minnow can’t fight. Then they use that against the whale later on.

GamesBeat: I know antitrust is not your specialty, but I see so many big things happening on that front. There’s Epic vs. Apple, another ruling today. There’s the decision with Microsoft and Activision Blizzard that’s still pending. What are you drawing from those big cases?

Kane: You said it from the beginning. Antitrust is not my area of expertise, and it’s an extremely complex area. But I think more generally, in any industry where you have a lot of M&A activity, especially when you have some megalithic players, regulators are looking at the potential for antitrust issues. Now, I find it difficult in this industry, because outside of–the Apple and Epic case is something different. I’m talking about things more like Microsoft and acquisitions and things. Really, truly, even if Microsoft and Activision or whoever else combines, there are still so many companies out there that are offering different types of games. Some of those companies aren’t really competing with each other, because you’re getting combinations of game companies that are on different platforms and covering different genres.

The concern is always that one company is going to control the whole market. But Microsoft, Activision, you can put Epic and some other companies in there–there’s still Sony out there. There are still companies that have nice pieces of the marketplace. To me it seems like there’s less of a chance of someone just being in complete control. Now, I can see a bit more of an issue when you talk about–if you own the platform, if all we have is the Xbox and you own the Xbox platform, you have control over what can be on the Xbox platform. To me that could seem a bit more like, now you have a level of control that we have to consider. But we’re not in that world. There are other platforms out there.

GamesBeat: Tim Sweeney was bringing up the notion that as long as this 30% tax is around, game developers are not going to prosper enough to be able to reinvest. Does that make you think of any particular legal arguments? Is there a case that the industry is being somehow held back?

Kane: It’s interesting. It’s called a tax. It’s not really a tax, but I get what–people understand what Tim is saying. I also think that 30% made sense years ago when Apple was starting the whole system and the investment–the amount they had to put into that system, it made a lot of sense. I don’t think it still does today. I think Apple could be wildly successful taking a much smaller percentage. The fact that other platforms have done that shows it’s a viable option. I also don’t think the 30% today is covering the marketing and development and all those things it was covering all those years ago.

I do think smaller companies can get a little bit strangled. Their games are not going to be as good, knowing that there’s a rather large percentage that they’re not going to be able to collect on it. That 30% could be the difference between profitability or not for them. I would like to see a different system, but I don’t think that right now it’s–whether it’s 30% or less is not a legal issue. It’s contractual. Even in the Apple and Epic case, it isn’t that 30% is illegal. It’s basically saying that you’re forcing me to use this type of payment system, but then you’re taking this away contractually. The forcing of it is more of the problem than exactly what the right number is.

GamesBeat: I’m kind of going backward here to the original AI question. But something that was also making the generative AI area more interesting and complex was all of the user-generated content that could come out of it. Where do you think that’s going to go? Users want to create their own content based on their favorite brands, and they’re basically going ahead and doing it. Those brands are watching this happen and asking where their cut comes from.

Kane: There are a lot of different things here. Obviously you have the modding community out there. I just gave a talk about user-generated content the other day. Where it meets generative AI, that gets to be very interesting. It’s funny, because we have conversations about some of these things. How do you try to avoid infringement, infringing uses of these sorts of things? Part of it is, if you tell Midjourney to create Master Chief shooting some other thing, you’re going to get a really infringing-looking list of options for images. But if you tell it to create an armored space marine, you’re going to get something that probably is not so infringing, because it’s not exactly going to be the same color and the same style.

UGC is not going anywhere. All the companies that want to do the metaverse are going to rely on it, because that’s the only way the metaverse gets built out in a reasonable fashion. It’s by people with creative tools. One of the tools that will be used, I think, is some form of generative AI. Even with that, to make things bigger, you’ll want to have these tools that allow people to prime the AI and create more content.

GamesBeat: Where do you think the idea of fair use winds up, then? Maybe as long as you’re not making money from it, you can do what you want. If you start making money, who gets the cut?

Kane: Fair use is not really a defense. It’s the right to get sued. You can’t just say, “It’s fair use,” and someone goes away. You then have to prove that you could do it in that way. It isn’t just a question of whether you’re making money out of it, although that is a big part of it. I think that’s why a lot of brand holders have allowed fan use and things like that, as long as people aren’t making money from it.

It was funny. For years, Lucas was really against anyone making Star Wars fan films and that sort of thing. They fought against anyone else playing in that universe. And then at one point, I think he just realized, “I can’t stop this.” And he went in the opposite direction and started having fan film contests and things. I think the brands that embrace their users like that and allow for some creativity are the ones that are going to continue to have their fan base. In the long run there are only so many things the brands themselves can build. I think they’ll appreciate what some of the fans can make of it, as long as they’re not—we could come up with a way where at some point those things could be monetize.

GamesBeat: Is there a brand strategy, not so much a legality but a strategy, where if you see something like Roblox and you see possible infringement all over the place related to your brand, do you automatically go to Roblox and say, “Pay me something”? Or do you see this as a good thing for your brand, that will spread awareness of your brand, knowing that ultimately people still know that it’s your brand?

Kane: I’ve seen both happen. I’ve seen some cases where those brands are saying, “Hey, you as the platform, the tool maker, you’re allowing this to happen. Either you need to buy a license from me or you need to take it all down.” There’s the DMCA, Digital Millennium Copyright Act, which provides copyright holders with some power to do that, but that system is very antiquated at this point. Really what it does is, one party says to take it down, the other party says to put it back up, and the platform says, “We’re not really involved now. You guys go fight this out amongst yourselves.” The fact is that most brands don’t really want to go sue their users, and even if they did, it’s not going to be a great outcome for anyone. It costs a lot of money. It’s bad PR. But I have seen that.

I’ve also seen some of the brand companies and platform makers take another approach and go the license route. They say, “We want to include these brands, or this music. We want to show the love to these brand holders and pay them some sort of licensing fee.” Which can be great, but depending on the nature of the brand, they also then want some control over how the brand is used. If the game is a totally open sandbox, then some brand holders will be very concerned. That means their brand can be used in ways they never anticipated. However, if the game has more limited tools to create, some brands might be more amenable to a broader license. They know there’s not too much that a user could do to their brand.

GamesBeat: These brands can play whack-a-mole with infringers, but it seems like we’re heading toward a world where we’ll have tens or hundreds of times more UGC thanks to generative AI.

Kane: That’s what companies have been doing for years. They’re playing whack-a-mole. The problem is that if you don’t do that, the next mole that comes up, it’s very difficult to say, “Well, I want to whack you in particular.” It’s funny. We all think of the metaverse from Ready Player One and all that sort of thing. The reason that kind of worked was, by that point there was one company that owned everything. You were the platform and the IP holder. You didn’t have to go to the studios to license these things because you were the studios as well. At that point you say, “I don’t care. I own all the brands, all the IP. I don’t care what the users do with it because it still benefits me in the end.”

GamesBeat: I didn’t catch your IP panel, or only part of it, but if there’s a renaissance of Hollywood and game IP, what are the usual agreements now that are leading to such big successes? The Mario movie finally happening, The Last of Us on HBO, Walking Dead and all that. There’s so much flow now between games and movies. It feels like something must have gotten easier on the legal front.

Kane: Well, yes and no. I’ve done a bunch of these deals, and I’ve done them both ways. In my experience, every time we were licensing big triple-A IP from the studios—I’ve pretty much licensed every one of the major ones over the years. Part of those license agreements say that what you create in your game becomes part of their universe and they own it. Not the underlying tools and software, but the way I put it is, what’s in front of the curtain. Anything the users can see. New characters, new universes, new outfits for superheroes. Whatever it is you create is part of their IP and they own it as the licensor.

Which, in some respects, makes a lot of sense. Those worlds are pretty big to begin with. They’re worried that the next movie they put out will have a costume that looks too close to the one you created in the game, and then there’s a dispute. They want to make that clear. The flip side, though, you would expect that they understand, when they’re licensing game IP to make a movie or a TV show—some of these game worlds are 30, 35 years old. The universes are big. There’s a lot of storyline and characters and everything existing there. In similar ways, we’re working on new games with new characters and new stories all the time. We go back to them and say, “That’s fine, but whatever you guys create in your new TV show or your movie, those new characters are owned by us as well.” And it’s usually like, “Absolutely not! Why would you even think that should be the case?” We thought, initially, it was going to be a lot easier.

GamesBeat: At least you get to use them?

Kane: Sometimes not. In fact, I’ve done deals where the studios tried to basically say, “Now we own the whole universe.” I will say, I’m not bashing the studios. They’re getting much better. But that was kind of the old-school way they used to work. The first couple of deals I did with studios—the license they sent to me was the same license they would send to someone making lunch boxes. It did not make any sense for a video game. They would fight you tooth and nail over changing things. You’re asking for 50 of the things that we’re creating? We’re creating an online game. Do you want a copy on a disc or something? It doesn’t make any sense. It’s free. Here’s the website.

GamesBeat: Is there anything different that happens when there’s a real canon involved? Like with Star Wars, where you can’t allow your licensees to create something that doesn’t make sense in the larger context.

Kane: Having a canon can also be good and bad. Most of those sorts of licensors have a bible. They give you a lot of information. “Here’s your road. Here’s where you need to stay.” Depending on the type of studio you are, that might great. “I know I have this space. I have between these two lanes to make my game.”

Other ones are so creative. The good games are the ones that break the rules sometimes. In fact, on one of the panels we had yesterday, someone made a comment from a publisher, saying that they don’t want to make a Spider-Man game. They don’t want to do what’s been done before. But they would love to make a game where you’re a photographer taking pictures of Spider-Man, something like that. You’re trying to follow Spider-Man around through this game and take pictures. That’s a great example of someone saying, “We don’t want to stay between the lanes. We want to do something different.”

The bigger ones, in a way, are good and bad about that. You know what you can do, but a lot of the time you’re limited in what you can do. Whereas some of the smaller IP, they don’t give you all those tools. They don’t tell you exactly what you’re supposed to make. But that means you have to work them a bit more as a partner through the development process to make sure they’re on board with what you want to do.

GamesBeat: I’ve noticed that with some of the sports leagues, the NBA in particular, that lane has changed so much. It used to be that you were the one basketball licensee for a given platform. Now I see 10 mobile games seemingly fighting it out with each other with the same brand on mobile. What happened there?

Kane: That’s not just sports. You’ve been in the business long enough. That was the case with so many things. When I first started in my career 20 years ago, a lot of these licenses said, “Yes, you have the video game rights to this thing.” But today it’s more carved up. You have the right to make a game for the Xbox, or in the fighting genre. Those rights are being carved up so much. Which is great for the brands, because they have multiple potential sources of revenue coming in. But that competition then becomes a problem for the developers. You have a lot of IP competing for the same fan base. Do you want to play this genre, this genre, or this genre? Whichever one you want, you’re probably going to play it. As a developer, though, you want all the eyes looking at your game, not just a subset of them.

It’s what’s going on today. The interesting thing is, because of the older licenses, some of these things get locked up. You don’t quite know who owns the rights to a handheld game. We both saw the Tetris movie. As a lawyer I was thinking, “This is amazing! They’re literally talking about the agreement. What’s the definition of ‘PC’ in this agreement?”

GamesBeat: Are there other forces that you see at work that are going to impact the regulatory environment? Things that everybody should be aware of?

Kane: Right now it’s privacy. It’s changing in the U.S. in so many different ways right now. Nobody is certain exactly where it’s going to go. Every state, because we don’t have a federal privacy system, is going to put their own thing in. They’re not all going to be consistent.

You had the concept in the U.K. where you have to design these games with children in mind. That was partially adopted by California. But some of that is even looking at—wait a minute, I don’t need to do this, because my game is for 18+. Then the regulators say, “We don’t care if you think your game is for 18+. We don’t care if you’re making your game for 18+. We think your game is going to be played by children. You need to design this game with them in mind.” Which, to me, seems ludicrous.

GamesBeat: It’s attached to this old idea that games are just for children.

Kane: Definitely. The regulators, for years, have said things like, “You have a cartoonish art style, so this must be targeted to children.”

GamesBeat: The interesting thing about privacy with IDFA, all the changes there—a lot of people did see it as Apple being the good guy cracking down on the likes of Facebook, who were the abusers. What I saw was just a conflict between different business models. One is free but ad-supported. One charges the customer as much as possible for the hardware because its brand is so attractive to everyone, and who cares if half the world can’t afford it? It’s just two different business models.

Kane: I agree. To be perfectly honest, we all know there are a lot of very highly-paid marketing and PR people that spin one of those business models to make it seem like someone is the good guy and someone is the bad guy. That’s never going to change. That’s always going to be there.

GamesBeat: But still, privacy is going to get in the middle of all this and change the world significantly.

Kane: It definitely will. We will see some other things—I think here in the U.S. at least, it seems like most of the loot box issues have died down. Other than Washington state, which has its own difference in their laws, most of the states have looked at that and said, “This is entertainment. You’re not forced to do this.” So long as you have games where you don’t have a progression tied to use of loot boxes, most of the states have looked at it and decided that it’s not gambling. At least in the U.S. we’re probably past that issue.

Biometrics are becoming something that’s being used more and more in different states. Illinois was one of the first ones to do it. Some of those things are so broad. I had a conversation with someone the other day and they were saying, “We want to be able to capture someone’s driver’s license to make sure they’re of age to play these games.” I said, “Well, then what are you going to do with that?” “Well, we’re probably going to keep them and do this, that, and the other with the information.” But they might have a biometric issue there under some of these laws. Now you have someone’s face image in your system. What are you going to do with it?

GamesBeat: Are you going to deep fake them?

Kane: You raise another question there. That’s one of the things about AI, the deep fakes thing. It’s not so much a video game issue right now, but that’s going to be an issue. We’re going to see more and more of that being regulated against. Even with some of the unions, like the Screen Actor’s Guild. They’re looking at these things and saying, “Wait a minute. You can’t use AI to re-create someone’s performance. That performance should be owned by the actor.” But years ago, some of the deals you did when you made a film would say that your image of that character could be used in things like video games. You’re going to have these competing questions. Some people will say, “You need to use the actual actor for this.” Others will say, “But we have the rights here to use your image in this game.”