Videogame Industry Pegs Piracy Losses At $3 Billion

The video game industry lost more than $3 billion to piracy in 2005, not including losses attributed to the Internet, Chunnie Wright, senior anti-privacy council for the Entertainment Software Association, told attendees at the Electronic Entertainment Expo (E3) in Los Angeles.

Wright moderated a discussion on game piracy with a panel of experts from software companies and law enforcement agencies. All admitted that most video games either leak during production or find their way to the Internet or store shelves just prior to release.

"No matter what, a game will leak during production or a few days before it gets put on the shelf," said Phil Terzian, director for government and legislative affairs at Activision Inc. Laughing, Terzian said, "If it doesn't end up getting hacked, you have to wonder if anyone wants it."

To attack the problem, Terzian said companies must register trademarks with the United States and European Union. Insist partners sign a non-disclosure. Do background checks on potential employees. "Once something leaks," he said, "I can't stop it. I can try to make it a little more difficult by prosecuting the offenders, but you're really stuck mopping up the mess."

Jasper Smith, director of investigations at intellectual property consultant IPSA International Inc., said Canada's copyright laws are lax. In Vancouver, he said, many retail stores in high-end malls openly sell pirated games and modified game consoles. The dust jacket is photo copied. The consumer looks through a binder to purchase three titles for $40. Either the store has the titles in stock or the consumer comes back in 15 minutes while they burn the DVDs.For software game developer id Software Inc., the latest infiltration occurred in 2002, when someone at a hardware company leaked Doom III, and posted the company's latest video game on the Internet. An internal memorandum from John Carmack, the creator of the Doom game series, pointed the finger at ATI Technologies Inc.

"Every single game we've developed has been leaked prior to legitimate distribution," he said Todd Hollenshead, id Software's chief executive officer. Since then, id Software began using purple dongles about the size of a small flash drive to protect its games. The company installed layers of redundancy and security where data, media and source code for the games are stored. Asset management tools now control and manage access. Also in the works, online verification, Hollenshead said.

But some in the E3 audience believe it's a little too late to save an industry succumb to pirates. Mark Litvack, partner at Mitchell, Silberberg & Krupp, said "prevention is important" because by the time litigation gets underway, "the harm has been done."

Complicating matters, more companies are moving development into countries with thriving pirate markets, such as China and India, Hollenshead said. "Now with outsourcing there is economic incentive for these governments to protect the legitimate companies from pirates," Hollenshead said. "I would like to see companies step up and say I'm not going to outsource to your country unless we see a better enforcement of the laws."

Others panel members included Thomas Loeser, assistant U.S. Attorney, U.S. Attorney's Office for the Central District of California; and Andrew Myers, special agent at the federal Bureau of Investigation, San Francisco, California.0