The market for digital downloads increases year-on-year, yet there remains a healthy market for the boxed products. Why is this and should gaming companies continue to invest heavily in what is forecasted to become an obsolete format?  The answer may lie in the rise of key stripping. 

Boxed products often contain both a game disc and a download code or ‘key’ that enables the user to download and access the game from a digital platform. Key stripping happens because there are significant price variations for games between different territories due to tax, size of the market, distribution costs or simple economics. The price variation is exploited by third parties who buy boxed games in bulk from lower priced countries, such as India, remove the code from each box (i.e. ‘strip the key’), enter it on to a website for sale to consumers in the higher priced countries, and ditch the boxed game disc. The consumers then use the key to download the game, avoiding the higher price they would have been charged in their home territory. Obviously third party key strippers are on to a good thing, but this practice is not good for the UK industry and has dubious legality. 

INDUSTRY PERSPECTIVE

Key stripping recently hit the headlines because Ubisoft deactivated keys for Far Cry 4 bought via a key stripping website.  Gamers were incensed. However, it later emerged that those  keys had been obtained fraudulently using stolen credit cards - they were effectively ‘stolen goods’. Ubisoft was clearly doing the right thing.

Obviously gamers want to get the games as cheaply as possible but they also want developers to continue to create great games. Equally, publishers are keen not to agitate gamers but they are losing profits and obtaining inaccurate market data affecting future strategy. Authorised distributors who are ‘doing the right thing’ have expressed concerns that key stripping is hurting their sales.  

LEGAL PERSPECTIVE

Key stripping has a number of legal implications, not least VAT, national laws relating to the depiction of violence and breach of EULAs (end-user licence agreement). Publishers take these into account when marketing and pricing their products.  

From an IP perspective, the sale of game keys potentially enables infringement of the many copyrights held in the game, including the software but also musical, artistic and text, any in-game films and so on. We refer to this as the ‘game’s copyright’ but it is actually a bundle of copyrights in a single product.

Publishers cannot use their IP rights to stop individual copies of games that have been put on to the European market by them, or with their consent, from being freely traded across all EU states. In these circumstances, the IP rights were ‘exhausted’ at the first sale. However, can it really be said that the publisher authorised the use of the individual copy of the game, which was downloaded with the stripped key?   

This issue has been tested by the German courts on two separate occasions. They have consistently found that exhaustion does not apply to the sale of games via stripped keys and, consequently, there is infringement. It is likely that other European courts would follow suit. Indeed, it may well be that the courts would look favourably on arguments by the publishers that sales of the stripped keys breach European laws relating to the circumvention of protection measures, already successfully used by console-makers in relation to modchips, and Sky in relation to unauthorised decoder cards.

Key stripping is damaging the UK games industry. There is clearly a need for publishers to get together and tackle the issue, perhaps by way of a test case managed by an industry body. A good result is possible if the games industry is brave and collaborates effectively. 

This article was first published by MCV in March 2015.