Government Affairs Update - 2011 Summary

The following summarizes key government affairs activities of the Entertainment Merchants Association during last month. Please contact Sean Bersell if you have any questions or need further information.

Brown v. EMA

On June 27, the United States Supreme Court handed EMA and the Entertainment Software Association a resounding victory in the associations’ challenge to a 2005 California video game restriction law. A majority of five justices, applying the traditional “strict scrutiny” analysis used speech restrictions, found that the law violated the First Amendment’s guarantee of freedom of expression. The majority opinion agreed with EMA and the Entertainment Software Association on practically every argument the associations put forth. Two other justices concluded that the law should be overturned because it is impermissibly vague.

The key points of the majority ruling were:

  1. 1. Video games are protected speech.
  2. 2. First Amendment protections do not depend on the nature of the medium.
  3. 3. Legislatures cannot create new categories of unprotected speech by concluding that the speech is “too harmful to be tolerated.”
  4. 4. Legislatures cannot treat depictions of violence as a form of obscenity. 
  5. 5. Minors have First Amendment rights (although those rights are not as expansive as the First Amendment rights of adults).
  6. 6. Since the California law imposed a restriction on the content of protected speech, it was subject to the highest level of judicial scrutiny (“strict scrutiny”), and the law could not meet that standard.
  7. 7. Because the statute failed to restrict depictions of violence in other media, such as books, television, and movies, the statute was “wildly underinclusive,” which was constitutionally fatal.
  8. 8. The statute was also underinclusive because it allowed parents, grandparents, aunts, and uncles to purchase the purportedly “dangerous, mind-altering” video games for minors.
  9. 9. The state could not demonstrate that its purported justification for the law – to assist parents – was warranted.
  10. 10. The ESRB video game ratings system and retailers’ voluntary enforcement of the ratings provide an effective alternative to state regulation. 
  11. 11. The statute was “vastly overinclusive” because many parents may not object to their children purchasing the covered games.

PROTECT IP Act

In September, EMA endorsed the “Preventing Real Online Threats to Economic Creativity and Theft of Intellectual Property Act of 2011” (PROTECT IP Act, S. 968), which would target foreign “rogue websites” that most egregiously facilitate infringement. The bill would establish a process to block these sites from accessing to the Internet and deny them the financial benefits of their infringing activity.

Rogue websites are online destinations that are designed to look like legitimate retail sites and may have names that sound like established businesses, but offer or facilitate access to products and services that infringe copyrights and/or trademarks.

The PROTECT IP Act would authorize the U.S. Attorney General to file a civil action against the registrant or owner of a domain name that accesses a foreign rogue website that conducts business directed to U.S. residents, or the foreign-registered domain name itself, and to seek a preliminary order from the court that the site is “dedicated to infringing activities.” If the court finds that the site indeed is dedicated to infringing activities, it would be authorized to issue a restraining order or injunction against the website. The Attorney General could then serve that order, with the permission of the court, on Internet service providers, search engines, payment processors, and online advertising network providers. These third parties would then be required to take “reasonable measures” to either prevent access to the rogue website (in the case of an Internet service provider or a search engine) or cease doing business with the Internet site (in the case of a payment processor or advertising network). 

In its letter to members of the U.S. Senate Committee on the Judiciary, EMA noted: “While not every movie, television show, or video game obtained through a rogue website would be purchased or rented if not stolen, a substantial portion are lost sales. Retailers and distributors, therefore, feel directly the effects of rogue websites.”

EMA concluded by noting that legitimate concerns have been raised about the bill and expressing its desire that any unintended impacts be mitigated.

The Motion Picture Association of America and several Hollywood guilds also support the measure.

The bill has been approved by the Senate Judiciary Committee and is awaiting action by the full Senate.

Unauthorized Streaming Bill

EMA in June endorsed a bill (S. 978) in the U.S. Congress to make certain unauthorized streaming activity a felony. Specifically, the bill would establish that infringement by an unauthorized public performance over the Internet of a “pre-release” version of a copyrighted motion picture, music, computer software, or other audio-visual work, or a copyrighted motion picture that has been released in theaters but not on home video, is a felony (subject to certain threshold levels of streaming activity).

EMA noted that retailers and distributors feel the effects of unauthorized streaming directly . 

The bill has been approved by the Senate Judiciary Committee and is awaiting action by the full Senate.

Debit Card Interchange Fees

EMA twice wrote to key U.S. Senators requesting that they not support S. 575, the Debit Interchange Fee Study Act of 2011. The legislation would have delayed and potentially killed debit card interchange fee reforms enacted in 2010 and scheduled to go into effect in July. [Debit card interchange fees are the fees credit card companies levy on retailers to process debit card transactions. Under last year’s law, the Federal Reserve was charged with issuing new regulations to ensure that debit card interchange rates are “reasonable and proportional to the cost incurred by the issuer with respect to the transaction.”]

EMA’s letters noted that “[d]ebit card fee rates and terms of acceptance are one of the fast-growing costs retailers face, and not just because the volume is going up, but also because the rates are rising, too, despite improvements in technology and economies of scale” and that the reforms enacted in 2010 would “provide[] relief from debit card fee price gouging and should not be delayed.”

In addition, EMA on to a coalition letter opposing the legislation that was sent to all Senators in advance of a Senate vote on the bill. 

The bill failed to clear a procedural vote in early June, and thus the attempt to delay the fee reforms was stopped.

EMA also signed on to a letter to Federal Reserve Chairman Ben Bernanke to express support for the Fed’s efforts to reduce debit card interchange fees and to oppose efforts by banks to delay the implementation of the reductions. 

In late June, the Federal Reserve issued its final rule on debit card interchange fees, which then averaged about 44 cents per transaction. Initially, the Federal Reserve had proposed capping the fees at 12 cents per transaction. In response to heavy lobbying by the banking industry, the final regulations capped debit card interchange fees at 24 cents per transaction (including a one cent charge for fraud prevention costs). The new rules were implemented in October.

FTC “Undercover Shopper” Results

In April, the Federal Trade Commission (FTC) released the results of its latest “undercover shop” of ratings enforcement. The FTC found that “video game retailers continue to enforce most vigorously the ratings governing age and content that were established by the entertainment media industry,” and that, while there is opportunity for additional improvement, “[r]etailers of R-rated and unrated DVDs demonstrated meaningful improvement in ratings enforcement.” The overall rate of ratings enforcement among video game retailers surveyed was 87% and among DVD retailers was 62% for R-rated DVDs and 53% for unrated DVDs.

Since 2000, the FTC has periodically conducted “undercover shopper” surveys to determine the level of enforcement by DVD, video game, and music retailers and movie theaters of the respective industry voluntary ratings. The 2011 enforcement level for video games was the highest ever found by the FTC for any entertainment product. The levels of DVD ratings enforcement were the highest to date for those products.

EMA responded to the FTC’s announcement of the latest “undercover shopper” results with the following statement:

“EMA is pleased with the leading performance of its members in enforcement of the video game ratings and the significant improvement in enforcement of the DVD ratings. The credit for these improvements goes to the individual retailers who have made ratings enforcement a part of their corporate culture, and in the case of video games, the ESRB and their ESRB Retail Council.

“These numbers demonstrate once again that industry self-regulation can and does work, and there is no need for punitive government regulation.”

Enforcement of Motion Picture Ratings

EMA contacted the Judiciary Committee of the Georgia House of Representatives to express its objection to House Bill 504. HB 504 would prohibit the sale, rental, or other distribution to anyone under the age of 18 of a motion picture video that is rated “R” (Restricted) or NC-17 (“No-One 17 and Under Admitted”) by the motion picture industry’s Classification and Rating Administration (CARA), or that is not rated by CARA. Additionally, the bill would require retailers to check the IDs of every individual who attempts to purchase or rent a motion picture video, rated “R” or “NC-17” or that is not rated.

EMA explained to the committee that the bill would result in a misapplication of the ratings and is unconstitutional.

The bill was not acted on this year, but remains available for consideration in the 2012 legislative session.

 “School Shooter” Video Game Resolutions

In May, EMA contacted the sponsor of Illinois House Resolution 361, a resolution that would have condemned the purported “School Shooter: North American Tour 2012” video game and called on retailers not to stock it. While expressing disgust with this alleged video game, EMA noted that the game currently does not exist and may never exist and, in any event, would not be carried by EMA members. In response to an admonition in the resolution for retailers to “better monitor and police sales of violent video games,” EMA noted the latest Federal Trade Commission findings on the vigorous enforcement of the Mature rating by video game retailers. EMA also noted that the Coalition of Entertainment Retail Trade Associations (of which EMA is a member) had declared June to be Entertainment Ratings & Labeling Awareness Month.

The sponsor subsequently withdrew the measure and replaced it with a new resolution acknowledging that many retailers voluntarily enforce the ESRB ratings, noting that the FTC recently found an 87% enforcement rate, and referencing Entertainment Ratings & Labeling Awareness Month. The primary messages of the revised resolution were that parents should check the ESRB ratings and developers should submit all games for rating. The revised resolution was subsequently adopted by the Illinois House of Representatives.

EMA also wrote to the sponsors of Pennsylvania House Resolution 214, which was essentially identical to the Illinois “School Shooter” resolution. EMA expressed the same concerns that it voiced about the Illinois measure. The Pennsylvania resolution was not enacted.

Secondhand Goods

Connecticut: Connecticut House Bill 5795, a comprehensive statewide secondhand goods regulatory scheme that was signed into law in June, included an amendment supported by EMA. The bill requires the identification of all shareholders of retailers engaged in the secondhand goods business, mandates the individual tagging of each item purchased, and prohibits that payment for sales of secondhand goods except by check or money order. EMA had contacted the legislature and explained that these provisions would effectively preclude its members from engaging in buy/sell/trade of DVDs and video games in Connecticut. EMA also expressed support for an amendment offered by the Connecticut Retail Association to exempt from the measure retailers for whom secondhand goods are not their primary business. The amendment was incorporated into the final version of the measure.

Madison, Wisconsin: EMA wrote to the Madison, WI Police Department expressing concerns about their proposed revisions to the city’s secondhand goods ordinance. The proposed revisions would have required that retailers photograph both secondhand goods sellers and the goods, list the title of each secondhand item purchased, label every secondhand good with information on how it was acquired, and pay the city a fee for every secondhand goods purchase. 

We also arranged for retail representatives to attend an October 4 meeting with the Madison Police Department to discuss the revisions.

In response to the input from EMA and others, the proposed revisions were amended. The final version that was approved by the Madison city council dropped the photographing and title listing requirements for DVDs and video games and eliminated the transaction fees.

Illinois: EMA wrote the committee of the Illinois Senate considering Senate Bill 2057 to voice its concerns with the bill. The measure would allow municipalities to prohibit secondhand goods establishments in their jurisdictions. EMA explained that, while it does not object to authorizing municipalities to license and reasonably regulate secondhand goods dealers, allowing municipalities to ban all secondhand goods trade would allow municipalities to deprive retailers and their customers of the opportunity to participate in this important market segment. The bill did not advance.


Copyright 2012, Entertainment Merchants Association
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