Is Hasbro Making a Serious Intellectual Property Strategy Mistake by Fighting with Scrabulous?

Hearing the news that Hasbro succeeded today in shutting down Scrabulous for apparent infringement of its intellectual property rights, I found it necessary to weigh in on the debate. For those that don't know the saga of the dispute between Hasbro and two Indian national brothers who developed the wildly popular Facebook application, it is summarized here. In this ongoing legal dispute, Hasbro, the maker of Scrabble(r) and owner of the intellectual property rights for this iconic game, contends that the online Scrabbulous game on Facebook infringes its copyright and trademark rights.

While Hasbro is well within its rights to go after violators of its intellectual property, as an intellectual property strategist (more info here: http://www.jackiehutter.com/), it seems to me that Hasbro may be making a huge mistake by taking an aggressive intellectual property enforcement strategy. There are apparently as many as 1/2 million players of Scrabulous on Facebook in a single day. I would venture a guess that there are not this many players of the board game version of Scrabble in a single week. These players of the board game are likely not young--in my experience, the board game version of Scrabble is generally a game for older folks like my elderly mother-in-law. It thus appears that Scrabulous has opened up a huge new player base for this classic game.

Also, this huge new player base would seem to set up the opportunity for an ongoing revenue stream that does not traditionally exist for board games. Once someone buys the Scrabble board game, a user's transaction with Hasbro is finished. That user can play Scrabble to his heart's content, and Hasbro will not gain any financial benefit from that continued play. Continued online play of course provides an imense new opportunity to generate revenue on a continuous basis, and it does not seem sensible that Hasbro would not want to get on this "gravy train."

As an outsider (and who admittedly does not have deep knowledge of the respective strength of the party's arguments), it appears to me that this is a situation where Hasbro can "catch more flies with honey." That is, Hasbro might be better off in the long run by trying to realize some revenue from the advertising stream that flows to Scrabulous online. The players of Scrabulous on Facebook are not likely buyers of the board version of Scrabble and, as such, they are not losing any board game revenue from these online players. Any money obtained from the online game is effectively "money for nothing," which in this down economy Hasbro should be happy to receive.

I understand that Electronic Arts is the licensee of the online version of Scrabble, and Hasbro's action may be largely directed toward protecting EA's market for the non-board game versions of Scrabble. This may be true, but the EA version of Scrabble clearly isn't wowing users like Scrabulous. Like Hasbro, EA should look to obtaining some sort of revenue stream from Scrabulous.

It is worth noting that, from a legal standpoint, Hasbro and Scrabulous must "police" the Scrabble intellectual property rights to ensure that these rights are not lost due to inaction. But there is no requirement that the owners of intellectual property refuse to license their intellectual property rights to others. Licensing is not surrender.

Hopefully, today's action of shutting down Scrabulous is only the first serious action between Hasbro, EA and the designers of Scrabulous and that the parties are poised to quickly resolve this dispute. In this world of fickle on-line technology users, there may not be much time for the players to work out the legal issues before Scrabulous fans become fans of another online game. In this regard, Hasbro and other game companies need only look at the recent history of the now-moribund traditional music industry, where legal and business decision-makers thought that aggressive intellectual property enforcement would hold off the march of online music delivery technology. If I were an advisor of Hasbro or its licensee EA, I would definitely remind them of the destructive results of this strategy to the music industry as a cautionary tale.