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Trade Continues Debate On Electronic Privacy; AMOA, AAMA To Recommend Security Policy

Posted On: 7/25/2001

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CHICAGO - For operators, it's the stuff of hi-tech nightmares. Would manufacturers of online games and jukeboxes ever use sensitive operator data to compete against their own customers? That is, would networked machine makers ever go directly to established, desirable locations'cut out the operator'and run their own wired equipment routes?

The answer is "no," if the Amusement and Music Operators Association and the American Amusement Machine Association have anything to say about it. By late July, the boards of AMOA and AAMA are expected to approve a comprehensive "Information, Privacy and Security Policy" that will offer suggested guidelines , and safeguards , for the use of data collected via online amusements. Activist operators on the grassroots level, who originally pushed for the adoption of such a policy, expressed great satisfaction with the proposed guidelines.

At the same time, business moves made by key industry members this summer seemed to ensure that controversy will continue to swirl over the issues of vertical integration and online security. Key executives of two different manufacturers of online video games are also partners in street routes. When this fact came to light, operators sharply questioned whether either route would unfairly benefit from competitors' data, stored in the factories' central computers.

It remains to be seen precisely how the prospective AMOA-AAMA online security policy will affect these two specific cases, or others like them that may arise in the future. As V/T goes to press, industry leaders seemed unanimous in feeling that adoption of the IPSP will mark an important step in the right direction.


According to several sources familiar with the draft policy, the IPSP is a two-part document. Part one covers the proper handling of information collected by networked machines. It limits collection and use of operator information [such as location addresses, individual machine revenues, etc.]; lays out procedures for manufacturers to follow in order to secure this information; limits collection, use and disclosure of player information [player age, name, address and phone, Social Security numbers, etc.]; and outlines a non-compete policy and an indemnification policy so that neither operators nor manufacturers will be held liable for each others' actions.

The second part of the IPSP is a collection of boilerplate legal language, sample provisions, and suggested clauses for possible use in individual operator-manufacturer agreements. Key paragraphs address such topics as permissible use; non-competition; warranty; indemnification; return of operator and player information; and a definition of trade secrets.

The IPSP will not be binding on manufacturers, distributors or operators. Thus, AMOA's and AAMA's adoption of these recommendations cannot, by itself, guarantee that U.S. operators' hi-tech nightmare will never come true. But operators are hopeful that the document's provisions will become common practice industry-wide. If so, the IPSP could raise a standard that activist ops say will help them sleep better at night.

"AAMA believes this (policy guideline) represents good business practice, so we paid to help underwrite its creation," said AAMA president Mike Rudowicz. "AAMA is not in a position to require compliance [with the IPSP] or to enforce it. But we endorse it, and we enthusiastically recommend and urge manufacturers, distributors and operators to abide by these policy guidelines and to use the associated clauses to give them protection they feel comfortable with.

"Most manufacturers have this [type of policy statement] in their contracts already," Rudowicz added, "but it could be spelled out more clearly in some cases. So, [the IPSP] is a really menu that industry members can use as they see best."

The voluntary nature of compliance with the IPSP was confirmed by AAMA attorney Don Barnes, who drafted the document on the associations' behalf. "Neither association can dictate policy to individual members," Barnes explained. "It's totally voluntary. All the association can do is make a recommendation. Members of each association individually have the absolute right to accept all or part of the recommendation. Obviously, however, both AMOA and AAMA believe it is in the best interests of their collective memberships to come up with a general policy statement to provide guidance and assistance in the collection, maintenance, and dissemination of operator and player information. They believe it's especially become more important to do that in this age of online gaming, where information may be harvested from particular machines in particular locations for totally legitimate purposes."

Sam Westgate of Williams Enterprises (Carmi, IL) kicked off the industry drive for greater online accountability last December. As chairman of the New Technology Committee of the Illinois Coin Machine Operators Association, Westgate issued an open letter on Dec. 20, 2000, voicing operator concerns about online security and fairness. Simply put, the ICMOA committee's position was that operators needed more and better protection against possible unfairness and legal exposure in the areas of factory-operator competition, advertising and tournament profit-sharing, and data collection from underage players.

Manufacturers of online machines were quick to respond that they had already addressed many, if not most, of these concerns , both via internal policies and, in many cases, via written agreements with operators. At the same time, executives from Incredible Technologies, TouchTunes, Merit, Ecast, uWink, and others expressed support for the ICMOA committee's agenda. In January of this year, AMOA and AAMA leaders agreed to address the problem, or at least promote further dialog about operator concerns. On Feb. 27, the two national associations hosted a "summit meeting" of ICMOA's activist operators and five online factory heads at joint association headquarters in Elk Grove Village, IL. It was agreed that ICMOA's New Technology committee would draw up a list of desired policy planks for study and possible adoption.

After that, progress was swift. According to AMOA executive director Jack Kelleher, "From there, it went through our joint Industry Standardization Committee for review and approval, then on to our Joint Industry Council, where it was voted to get a statement drafted. These two steps took place during the Amusement Showcase International back in late March. A draft was delivered at the end of [June]."


AMOA's board approved the first draft as a work in progress on June 18, reserving the right to make suggestions and request changes. At least one AAMA manufacturer board member did request that some of the IPSP's language be tightened. Attorney Barnes made the requested changes and submitted a revised version on July 18.

"A second draft with slight modifications will be presented to the boards of both organizations [in the latter half of July] for review and approval," said Kelleher. "The goal is to get a document distributed to our respective memberships by the end of [July] , or as close to that date as possible."

As Barnes put it, "The creation and adoption [of the IPSP] was really a collaborative effort and has been achieved through a great deal of cooperation amongst AMOA, AAMA, manufacturers and operators alike."

ICMOA's Westgate expressed great pleasure with AMOA and AAMA's speedy action, and with the IPSP itself. "Once this becomes an industry-wide agreement," he said, "it means our New Technology committee has accomplished a big part of its mission' I personally think the associations have done an outstanding job in addressing this issue as quickly as possible. Nobody knew what I was even talking about in January, but now we have a document that has been agreed upon in principle by both associations. It's amazing!"

Yet even Westgate acknowledged it can be a long step from theory to practice , or, in this case, from recommendation to action. "The next step [for our committee] will be to monitor compliance by manufacturers," Westgate told Vending Times. "They can either elect to adhere to those principles and guidelines, and incorporate the suggested clauses into their contracts, or not. My feeling is that operators will strongly question the idea of buying a game from a manufacturer who does not comply. Operators will vote with their checkbooks and that will be the strongest way of enforcing compliance."


In addition to pocketbook pressure, the IPSP may also have the force of law behind some of its provisions, some industry members suggest. In fact, the IPSP is viewed by some industry members as putting coin-op businesses on notice that certain federal and state laws may require operators, dealers, and factories alike to ensure the security of operator and player data.

For example, "Manufacturers are advised by this agreement that they have an obligation to police their own use of any player information they collect," Westgate explained. "We have to police ourselves before the Federal Trade Commission steps in [to enforce the Child Online Privacy & Protection Act, which limits the collection and use of information from minors]."

The federal COPPA law is just one of a number of state and national statutes that could give compliance with the IPSP a greater urgency than just another recommended industry standard. Westgate believes that the U.S. Economic Espionage Act and the U.S. Trade Secrets Act, both passed in 1996, provide statutory reasons for manufacturers to follow the IPSP's guidelines. "If any company violates that law, there is always the potential for the offended party to seek legal relief," Westgate reflected. (However, at least one AMOA past president believes any legal action in case of IPSP noncompliance is highly unlikely, due to the probable expense.)

Non-compete clauses , even if signed by both manufacturer and operator , are insufficient, by themselves, to prevent factories from deciding to run networked routes in competition against their operator customers, Westgate said. "We cannot rely on non-compete agreements to protect the operator, because judges have consistently ruled that no company can prevent an employee from making a living. That's why these agreements are not legal in California and many other states. Even in states that have non-compete laws, such as Wisconsin, those laws are not well enforced."

Attorney Barnes pointed to numerous state laws that may give the IPSP some statutory support. "A Uniform Trade Secrets Act has been passed by many states relating to theft and misappropriation of trade secrets," Barnes pointed out. "Some of the information that manufacturers do collect [from online equipment] may legitimately be classified as a trade secret. I have given both AMOA and AAMA some advice on this subject," Barnes said. He added that under attorney-client privilege, he was unable to disclose the precise nature or content of his advice.

For all the goodwill and satisfaction expressed by AMOA, AAMA, and ICMOA over the creation and adoption of the IPSP, controversy remains over the possible misuse of online data. Richard Ditton, co-founder and executive vice-president of Incredible Technologies, found himself at the center of that controversy as of June 7. On that date, Ditton announced that he had invested in part of a 35-year-old local operating route, Chicagoland Vending, and that former IT tournament director Meryl Houston now serves as president of the spun-off route, called New Frontier (Northbrook, IL). The route's 40 locations include truck-stops, hotels, bowling alleys, and bars.

Both Ditton and IT strongly asserted that Ditton's ownership interest in New Frontier is strictly his own, with no involvement by the factory, and that his role is largely a passive one. "I have access to the [route's] information but no official position," he told V/T. "I'm staying as hands-off as I can."


Operators who discussed New Frontier on a not-for-attribution basis expressed unhappiness with Ditton's involvement in route operations. These operators seemed skeptical of the distinction between IT and New Frontier. Ditton says as soon as the announcement was made about his involvement in New Frontier, operators complained heatedly to him that "Incredible Technologies should not be operating" and expressed fear that the factory's online tournament route data might be used to give New Frontier an unfair competitive advantage. Ditton stoutly denies any such possibility. "Obviously I would not and will not use any sensitive data from IT's operator customer list," he told V/T. "That would be unfair and unethical."

On the other hand, Ditton freely acknowledges that information he gains from his route could have an impact on IT's manufacturing strategies and policies. "I've been interested in getting involved in operating in order to gain better understanding of how operators make money and how IT can facilitate that," he explained. "Operating is tough and we need to create products that will help operators make more money. On our route we want to try a variety of networked games from IT, TouchTunes, Merit, and others; in the New Frontier office we want to try management computerization, automated systems, and other innovations to see if and how they work."

Clearly, the industry can expect continued dialog about the security and proper use of networked machine data. As technology evolves, as industry consolidation continues, and as vertical integration increases, the issues are likely to be defined more sharply and the stakes could increase significantly. Supporters of the Information, Privacy, and Security Policy hope that its endorsement by AMOA and AAMA will at least provide a common framework within which to conduct that discussion on a constructive basis. V/T will publish further details about the IPSP as soon as information is available.