What is the name of your state (only U.S. law)? CA
This question is more to help settle a debate that I am having about crowdfunding in relation to online gaming. Specifically Title III of the Jump start Our Business Startups Act.
Prior to Title III of the Jump start Our Business Startups Act, a trend started with the launch of sites like kick starter, where developers of a game would go to kick starter and ask for donations to fund the development of a game, promising in game virtual items for the donations. At the same time, these developers used other methods of collecting funds including sales of "Early Alpha access" which essentially meant that the developers had gotten the game to a state where players could log into it and help Alpha test the features that had been developed, another option they used is what is called in game cash shops this is basically a mechanism in the game that allows a person to buy with real world money, in game virtual items to be used after launch as a profit center. These three ways are how they obtained the capital required to develop the game.
To understand what i am talking about (unless i happen to get a gamer lawyer to answer), you need to understand that these games have thousands of players all interacting with each other in the game, so it becomes a sort of community. Second thing you need to understand is the stages of development of a online video game. Starts out with of course Concept, this is where the game is visuallized and the game design is detailed on paper. Next is Alpha testing, where the actual programming begins on both the client (software that the player uses to interact with the game) and the server where all the game calculations are done and player movements are tracked and the database is maintained, as alpha stage progresses features are added one by one and tested both client and server side to ensure they are at least somewhat working. Once all the features are added to both client and server the game then moves to what is known as beta testing, this is where every feature is tested to it's limits until almost all the bugs are worked out of the coding, the client is polished up so that it looks professional. When this is all done the database is wiped, which means all progress and characters are wiped so when they move to Launch and retail boxes are shipped to the store for people to purchase and play the game, everyone starts out with nothing. So essentially alpha and beta stages are building the prototype, launch is when it goes into production and is sold as a retail product.
Now my arguement started off that those companies that used sites like kickstarter and these other 2 methods to raise capital after April 2012 when Title III of the Jump start Our Business Startups Act was signed into law and stayed that way until the rules and regulations were adopted in May of 2016 by the SEC where actually breaking the law as crowdfunding was illegal during this period of time.
After showing my friends the difference between Kickstarter and Seed Invest (that is actually registered with the SEC as required under title III), they gave me the point that using kicks starter was Illegal, excpet they argued that it wasn't illegal till May 2016 when the rules were adopted.
I then brought up the legal definition of Crowdfunding, which from a search of the internet appears to be "Crowdfunding involves the use of the internet and social media to raise capital, typically from a large number of people and in
relatively small amounts from each. Crowdfunding seeks to enable small startup businesses that may not have easy access to traditional capital markets and methods of venture capital fundraising to raise capital."
It was with this definition that I argued the sale of "Early Alpha access" and the sale of virtual items in the In game cash shops, were also two different forms of crowdfunding being as they both involved the internet, small amounts and a lot of different people. And that those developers who even today use the correct type of crowdfunding websites were in fact violating the rules of Title III of the Jump start Our Business Startups Act by not using a single location for their crowdfunding activities as required by the rules. Also that because the Early alpha access and the cash shop produced funds when combined with the Crowdfunding website far exceeded the $1 million in 12 months (which i believe is any 12 consecutive months and not Jan-Dec.) was another violation. Plus, because these other two methods did not give the investor securities in exchange for the money was yet another violation. Possibly even more violations if an investor managed to exceed his yearly maximum as set in the rules by interacting with these other two methods.
Now my friends contended that the early alpha access was just purchasing the game in whatever state it was in when the early alpha access was bought. I countered with you cannot sell a prototype, incomplete product to a consumer, especially when they were essentially paying you to test your product and that this money was actually capital to continue investment and not profit from the sale of a product.
On the In game cash shop, these friends contended that the sales were sales of content not capital being invested as once the people that bought items in Alpha and Beta created their characters they would be able to retrieve the items they bought during the Alpha and Beta stages. My counter on this was that you can't sell content for a game that has not hit retail prior to actually being able to own the retail product for which it was content. Not to mention that if your selling it during the Alpha and Beta stages it can't be content if the game never makes it to launch and is sold on the retail market (some games dont make it that far).
Ok now thats the debate, who is the better armchair lawyer, me or my friends?
Thanks in advance.
This question is more to help settle a debate that I am having about crowdfunding in relation to online gaming. Specifically Title III of the Jump start Our Business Startups Act.
Prior to Title III of the Jump start Our Business Startups Act, a trend started with the launch of sites like kick starter, where developers of a game would go to kick starter and ask for donations to fund the development of a game, promising in game virtual items for the donations. At the same time, these developers used other methods of collecting funds including sales of "Early Alpha access" which essentially meant that the developers had gotten the game to a state where players could log into it and help Alpha test the features that had been developed, another option they used is what is called in game cash shops this is basically a mechanism in the game that allows a person to buy with real world money, in game virtual items to be used after launch as a profit center. These three ways are how they obtained the capital required to develop the game.
To understand what i am talking about (unless i happen to get a gamer lawyer to answer), you need to understand that these games have thousands of players all interacting with each other in the game, so it becomes a sort of community. Second thing you need to understand is the stages of development of a online video game. Starts out with of course Concept, this is where the game is visuallized and the game design is detailed on paper. Next is Alpha testing, where the actual programming begins on both the client (software that the player uses to interact with the game) and the server where all the game calculations are done and player movements are tracked and the database is maintained, as alpha stage progresses features are added one by one and tested both client and server side to ensure they are at least somewhat working. Once all the features are added to both client and server the game then moves to what is known as beta testing, this is where every feature is tested to it's limits until almost all the bugs are worked out of the coding, the client is polished up so that it looks professional. When this is all done the database is wiped, which means all progress and characters are wiped so when they move to Launch and retail boxes are shipped to the store for people to purchase and play the game, everyone starts out with nothing. So essentially alpha and beta stages are building the prototype, launch is when it goes into production and is sold as a retail product.
Now my arguement started off that those companies that used sites like kickstarter and these other 2 methods to raise capital after April 2012 when Title III of the Jump start Our Business Startups Act was signed into law and stayed that way until the rules and regulations were adopted in May of 2016 by the SEC where actually breaking the law as crowdfunding was illegal during this period of time.
After showing my friends the difference between Kickstarter and Seed Invest (that is actually registered with the SEC as required under title III), they gave me the point that using kicks starter was Illegal, excpet they argued that it wasn't illegal till May 2016 when the rules were adopted.
I then brought up the legal definition of Crowdfunding, which from a search of the internet appears to be "Crowdfunding involves the use of the internet and social media to raise capital, typically from a large number of people and in
relatively small amounts from each. Crowdfunding seeks to enable small startup businesses that may not have easy access to traditional capital markets and methods of venture capital fundraising to raise capital."
It was with this definition that I argued the sale of "Early Alpha access" and the sale of virtual items in the In game cash shops, were also two different forms of crowdfunding being as they both involved the internet, small amounts and a lot of different people. And that those developers who even today use the correct type of crowdfunding websites were in fact violating the rules of Title III of the Jump start Our Business Startups Act by not using a single location for their crowdfunding activities as required by the rules. Also that because the Early alpha access and the cash shop produced funds when combined with the Crowdfunding website far exceeded the $1 million in 12 months (which i believe is any 12 consecutive months and not Jan-Dec.) was another violation. Plus, because these other two methods did not give the investor securities in exchange for the money was yet another violation. Possibly even more violations if an investor managed to exceed his yearly maximum as set in the rules by interacting with these other two methods.
Now my friends contended that the early alpha access was just purchasing the game in whatever state it was in when the early alpha access was bought. I countered with you cannot sell a prototype, incomplete product to a consumer, especially when they were essentially paying you to test your product and that this money was actually capital to continue investment and not profit from the sale of a product.
On the In game cash shop, these friends contended that the sales were sales of content not capital being invested as once the people that bought items in Alpha and Beta created their characters they would be able to retrieve the items they bought during the Alpha and Beta stages. My counter on this was that you can't sell content for a game that has not hit retail prior to actually being able to own the retail product for which it was content. Not to mention that if your selling it during the Alpha and Beta stages it can't be content if the game never makes it to launch and is sold on the retail market (some games dont make it that far).
Ok now thats the debate, who is the better armchair lawyer, me or my friends?
Thanks in advance.
