With the rising popularity of video and computer games, a new form of user generated content ("UGC") and a whole new set of intellectual property issues is emerging. Science fiction web series such as Red vs. Blue use copyrighted graphics and characters from the popular Xbox video game Halo to create new comedic content parodying first person shooter games. The web series has attracted nearly one million viewers, sold out the Lincoln Centre, and enabled its creators Rooster Teeth Productions to earn a living solely based on it . In light of such success, are parties like Rooster Teeth Productions legally allowed to use copyrighted content without providing compensation to video gaming companies? Should video game UGC be protected in any way?
The Retaliation of Gaming Companies
Legislation in Canada and the U.S. does not spell good news for UGC creators. Canada’s Copyright Act, S. 29.21 (1) addresses UGC specifically, stating that the UGC creators escape infringement only when their work: (1) is based on existing material that itself does not infringe copyright, (2) is used for non-commercial purposes, (3) gives credit to existing work, and (4) does not have a substantial adverse effect on existing work. The “substantial adverse effect” clause can be used to support two main arguments made by gaming companies against UGC creators. For example, companies can argue that UGC such as walkthroughs and guides deprive them of the profit they would have earned by selling their own versions . As well, video game creators may state that UGC misrepresents a game in such a way that the companies' reputation is affected; this situation could infringe the companies' morality rights . American Copyright Law is arguably more lenient, as it does not address UGC. This omission means that legal battles over contentious works primarily involve discerning whether the UGC constitutes an unauthorized "derivative work" based on a video game company's protectable expression. Under 17 USC § 103, UGC does not infringe copyright if the preexisting material was used with permission. As well, UGC creators can obtain copyright for parts of the work that do not contain video game companies' preexisting content.
Gaming companies often side-step doctrines that protect players who might create UGC, such as fair use or fair dealing, by turning consumers into licensees through standardized end user licensing agreements. The terms in those contracts are usually dictated by one side, and players are asked to “take it or leave it”: either adhere to the agreement's terms, or do not engage with the gaming content at all.  Most contracts are similar to the one in Rockstar Games, where the terms enable gaming companies to use any UGC made by players, but keeps the players in legal uncertainty when they use copyrighted content from games to create UGC.
Some Case Law Guidance
Of course, the central purpose of protecting gaming companies’ economic and morality rights against unauthorized UGC should be upheld. However, I do not recommend adopting an “all UGC is evil” mentality when analyzing such disputes. Fortunately, the U.S. Courts have recognized this, offering some guidance as to how to separate more innocent UGC from ones that are truly harmful.
In Micro Star v FormGen, a game developer wanted to encourage user creativity in his game, FormGen, creating a “Build Editor” in his game that allowed players to build their own levels by using the tools provided. Players were very enthusiastic, and many participated and posted their creations online. Micro Star, the defendant, downloaded 300 levels created by users, burned them on a CD, and sold them commercially. The Court ruled against Micro Star, stating that it created a derivative work without authorization. The CD made by Micro Star fulfilled the elements required of a derivative work: it existed in a concrete and permanent form and contained substantial amount of copyrighted material. Further, the defendant’s use did not fall under “fair dealing”, because it was used commercially and had an adverse effect on the original work, as FormGen retained exclusive right to perform sequels (Micro Star’s work was considered to be a sequel).
In contrast, in Sony Computer Entertainment America, Inc. v Bleem, LLC, the Court ruled in favor of UGC creators. Bleem created a software emulator that allowed users to play Sony’s console games on PC computers. In advertising its products, Bleem used copyrighted screen shots from Sony Console games in order to show the difference between those games played on console and those games played on computers. The Court ruled that Bleem's use fell under the fair dealing doctrine because it provided comparative advertising that ultimately benefitted consumers through the provision of important purchasing information and encouraged competition and innovation in the market. Moreover, the Court ruled that Bleem did not use any copyrighted materials in its work, but rather only in its advertising; thus, the UGC was considered fair dealing. The Court also stressed that in order to rule against derivative work in a fair dealing case, the adverse effect the UGC causes to the preexisting work must be substantial. In this case, it was permissible for Sony to suffer some financial loss as a result of comparative marketing.
Trying to Find Middle Ground: Limited Licenses?
While much existing UGC would not fall under fair dealing exceptions, the reality is that giving players more control and recognition over their UGC fosters creativity and often leads to enhanced gaming experiences. Consequently, gaming companies' attempts at stricter control have usually been met with serious player backlash, leading some developers to realize that it might be better to work with, rather than against, players. In response, video game creators such as Microsoft (maker of Xbox games) and Blizzard Entertainment have started offering limited licenses that grant players some protection over their UGC and the ability in certain cases for players to infringe copyrighted materials when making UGC. However, these licenses are still somewhat problematic. Firstly, each company offers players a specific set of rights that are often incompatible with those offered by other companies; this makes it difficult for players to use multiple games to create UGC. Secondly, the licenses often contain undecipherable legal jargon and leave a lot of room for interpretation, meaning UGC creators must stew in legal uncertainty. Frustratingly, the licenses can also be revoked at any time. Lastly, players still have no say over the licenses’ terms.
It seems unlikely that legislation or case law will give UGC creators more rights in the near future. However, out of fear of backlash, gaming companies often choose not to sue players who infringe copyright in their UGC. Microsoft even allowed Rooster Teeth Productions to continue producing Red vs. Blue without paying royalty fees to them. Thus, the smart thing for players to do may be to vote with their wallets and voice, and not support companies that do not accommodate UGC.
Sabrina Ding is an IPilogue Editor and a J.D. candidate at Osgoode Hall Law School.
 Christina Hayes, “Changing the Rules of the Game: How Video Game Publishers Are Embracing User-Generated Derivative Works” (2008) 21 Harv JL & Tech at 567-568.
 Dan Burk, “Copyright and Paratext in Computer Gaming” (2009) University of California, Irvine School of Law at 4.
 Supra note 2 at 17.
 Stephen McIntyre, “Game Over for First Sale” (2013) University of California at 15.