FTC Hot Coffee ruling scalds, but doesn't burn Take-Two

[UPDATE 5] Feds and publisher "settle charges" of deceptive marketing; ruling would impose $11,000 fine "per violation"--which could potentially mean for each game sold.

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Earlier this week, Take-Two Interactive canceled development of Snow, a crime-simulation game that would cast players as an aspiring drug dealer. At the time, it was assumed that the publisher axed the project to stave off controversy akin to the "Hot Coffee" scandal, which plagued it for the latter half of 2005. The affair saw the uncovering of several hidden sex minigames in Grand Theft Auto: San Andreas, the bestseller from Take-Two subsidiary Rockstar Games.

Though accessible only via third-party PC modifications or game-cheat console accessories, the San Andreas sex minigames caused a furor among antigame activists and in the mainstream media. Politicians swiftly pounced on the outcry, sparking a series of state laws banning the sale of rated games to minors. It also sparked action on the federal level, with pressure from US senators Hillary Clinton (D-NY) and Joseph Lieberman (D-Conn.) demanding an investigation of Take-Two by the Federal Trade Commission.

As a result, the game was eventually rerated from M for Mature to AO for Adults Only and was pulled from most major retailers. Take-Two quickly released a patch that would excise the offending minigames from the PC version of the title, available at www.nomorehotcoffee.com. Later in the year, edited, M-rated versions of the PC, Xbox, and PlayStation 2 versions of the games shipped--and reentered the bestseller charts. However, Take-Two estimates the costs associated with the recall at around $24.5 million--not to mention the beating the company's stock took as a result.

Today, nearly a year after Hot Coffee boiled over, the FTC handed down its final ruling on the matter. While it could have been much worse for Take-Two--no fines were imposed--the carefully worded ruling does officially declare that the publisher "failed to disclose important information about the game's content to consumers." Initially, Take-Two had blamed postrelease third-party modifications for the sex minigames, even though first-edition copies of the PS2 game were found to contain them.

"Parents have the right to rely on the accuracy of the entertainment rating system," said Lydia Parnes, director of the FTC's Bureau of Consumer Protection, in a statement. "We allege that Take-Two and Rockstar's actions undermined the industry's own rating system and deceived consumers."

The FTC ruling warns Take-Two and Rockstar that they "cannot misrepresent the rating or content descriptors for an electronic game." It also requires them "to clearly and prominently disclose on product packaging and in any promotion or advertisement for electronic games, content relevant to the rating, unless that content had been disclosed sufficiently in prior submissions to the rating authority." Lastly, it orders them to "establish, implement, and maintain a comprehensive system reasonably designed to ensure that all content in an electronic game is considered and reviewed in preparing submissions to a rating authority."

"This is a matter of serious concern to the commission, and if they violate this order, they can be heavily fined," said Parnes. Indeed, the FTC ruling would levy a fine of "$11,000 per violation" on Take-Two.

[UPDATE 5] So just what constitutes a violation? "That depends," an FTC rep told GameSpot. "Different courts have ruled on different FTC rulings in different ways." The rep said that some courts have levied single fines for each general violation--which means that Take-Two would receive just a single $11,000 fine for each title that was deemed to violate the order. That would be little more than a slap on the wrist in the case of San Andreas, which has generated over $336 million in US sales as of April 2006, according to the NPD Group.

However, the FTC rep also said other judges have decided to levy fines for each instance a violation occurs. The example the FTC rep gave was a direct-mail operation who was fined for each letter sent. If that model was applied for each copy of San Andreas sold, it would mean catastrophic costs for Take-Two. According to NPD, San Andreas has sold over 7.27 million copies in the US on all platforms as of April 2006. Were the FTC to retroactively levy the fine on every copy of the game today, Take-Two would be penalized over $79 billion dollars.

However, today's ruling makes it clear the fine is for future infractions of today's ruling only, and San Andreas would not be affected. However, just last month, another multiplatinum Take-Two game, The Elder Scrolls IV: Oblivion, was rerated from T for Teen to M for Mature. At that point, the game had sold over 1.7 million copies--which could have resulted in $1.87 billion in penalties, if a per-game fine was levied.

Still another option previously taken by judges was to levy a fine for each day a company was in violation of an FTC order. That could potentially result in hundreds of thousands of dollars in fines for Take-Two, were it not to act quickly. Attempts to elicit comment from the publisher on the FTC ruling were unsuccessful as of press time.

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