On August 24, 2022, the court in Kyle Hanagami v. Epic Games (2:22-cv-02063-SVW-MRW) granted Epic’s motion to dismiss the plaintiff’s claims for copyright infringement and unfair competition. This ruling further solidifies the notion that copyright law does not protect social dances or simple dance routines.

the setup

On November 11, 2017, Kyle Hanagami, a professional choreographer and dance instructor in Los Angeles published a YouTube video of himself and others dancing to the song “How Long” by Charlie Puth. The five-minute long video includes five different groups of dancers performing the same choreography.

On February 20, 2021, Mr. Hanagami registered the video as a choreographic work with the US Copyright Office.

Epic Games created a Fortnite emote called “It’s Complicated” that allegedly contains “the most recognizable portion” of Mr. Hanagami’s choreography, i.e., “the portion for the hook at the beginning of the chorus of the song.” The court compared side-by-side still images of the dances and concluded that ten of the poses in the video and the emote are the same:

Order on Motion to Dismiss

Epic brought a motion to dismiss the complaint and the court applied the Ninth Circuit’s test for substantial similarity which contains both an “extrinsic” and an “intrinsic” component. The extrinsic component — which courts examine as a matter of law — compares specific criteria which can be listed and analyzed to determine whether the works are substantially similar. The intrinsic component — which is often decided by a jury — examines an ordinary person’s subjective impressions of the similarities between the two works.

On the extrinsic component, courts first attempt to “filter out” the unprotectable elements of the plaintiff’s work such as ideas, concepts, public domain material, and scène à faire (stock or standard features commonly associated with the treatment of a given subject).

Here, the court began by defining choreography as “the composition and arrangement of a related series of dance movements and patterns organized into a coherent whole” and refers to the guidance from the U.S. Copyright Office recognizing the continuum between copyrightable choreography and uncopyrightable dance. Although the court finds that “[t]o a degree, Plaintiff’s Steps here involve more creativity than the basic waltz step, the hustle step, and the second position of classical ballet” it nevertheless finds them similar to “the Floss, the Carlton, or other examples in the Copyright Compendium” of unprotectable dance steps. As a result, the court concluded that Mr. Hanagami was only entitled to protection for the way the dance steps were expressed in his registered choreography.

With that in mind, the court found that Epic’s emote was not substantially similar because “other than…four identical counts of poses—which are unprotected alone—Plaintiff and Defendant’s works do not share any creative elements.” The court listed a number of differences in the two works and how the dance steps are performed:

Plaintiff’s dance is performed by humans in the physical world, and Defendant’s Emote by animated characters in a virtual world. The works are performed for different audiences, as Plaintiff’s video was performed at Plaintiff’s dance studio and published for a YouTube audience. Defendant’s Emote is performed by Fortnite players in-game for an in-game audience. Beyond the Steps, Plaintiff identifies no other similar creative elements in Plaintiff and Defendant’s choreographic works.

As a result, the court dismissed the copyright claim. It also dismissed an unfair competition claim as preempted (which is entirely unexciting and completely expected).

Thoughts

While some people may feel that this case was further on the “continuum” towards choreography than the “Floss” or “Carlton,” it still seems logically consistent with the earlier decisions. It also further establishes a bright line of what is permissible copying of dance steps for things like dance emotes in games. Now, if only the remaining tattoo cases (e.g., Hayden, Alexandria, etc.) can fall in line with Solid Oak Sketches decision….

Last week, I gave an “Exploring the Metaverse: a Legal Primer” talk to the Los Angeles Copyright Society in which I discussed some of the early Second Life cases. One of those cases involved a plaintiff’s attempt to obtain a temporary restraining order (TRO) from a district court forcing the defendant to withdraw DMCA take-down notices that the defendant had sent to the game publisher (Linden Lab). Amaretto Ranch Breedables, LLC v. Ozimals, Inc., 790 F.Supp.2d 1024 (N.D. Cal. 2011). That tactic — as well as the fact that you can find an expert with impeccable credentials to testify to anything you want — as this ongoing dispute shows, remains alive and well. This current copyright clone dispute involves DMCA takedown notices sent to both a game distributor (Valve) and server host (Tencent Cloud), as well as motions for a TRO and preliminary injunction, respectively, both of which were denied by the district court. An appeal is pending.

The Parties

Plaintiff (and counter-defendant): Suzhou Angela Online Game Technology Co., Ltd. and Imperium Interactive Entertainment Ltd.
Plaintiff’s Firm: Hughes Hubbard & Reed, LLP
Defendant (and counter-plaintiff): Snail Games USA Inc. and Wildcard Properties LLC d/b/a Studio Wildcard
Defendant’s Firm: Quinn Emanuel Urquhart & Sullivan, LLP

Third Party Defendant: Tencent Cloud, LLC

The Games

Ark: Survival Evolved - an action-adventure survival game “inspired by real-world paleontology”

Myth of Empires - the alleged knock-off

The Complaint

On December 9, 2021, Angela Games, the developer of Myth of Empires, sued Snail Games and Studio Wild Card for three things:

1. a declaratory judgment of non-liability for copyright infringement;

2. a declaratory judgment of non-liability for trade secret misappropriation; and

3. violation of 17 U.S.C. § 512(f).

Angela Games alleges that on December 1, 2021, Snail Games and Wildcard, the developer and publisher (respectively) of Ark: Survival Evolved, sent a cease-and-desist (C&D) letter to Valve — the operator of the Steam platform where Myth of Empires is distributed to players. In the letter, Snail Games and Studio Wildcard (collectively, “SWC”) allege that Myth of Empires purportedly “was built by: (1) stealing the Ark Survival Evolved source code and (2) using the stolen source code as the gameplay foundation for Myth of Empires.”

On December 7, 2021, Valve complied with the C&D letter and removed Myth of Empires from the Steam Platform. Angela Games filed suit two days later.

The Cease-and-Desist Letter

In their C&D letter to Valve, SWC alleges that in 2020, at least one employee of SWC’s parent company (Snail Games China) who previously had access to source code for Ark: Survival Evolved left to form Angela Games. When Myth of Empires was released, SWC was concerned about some identical gameplay mechanics not found in other games. To investigate, SWC compared code “headers” found in the executable files of both games. SWC alleges that Angela Games copied hundreds of “class,” “variable” and “function” names, such as variable names: “bOnlyUseExpireTimeMultipliersIfActivated” and “SpawnInventoryOnDestructionLifeSpan.” The letter attaches an exhibit which explains how anyone can recreate the results of the analysis and contains numerous comparison images, like this one:

Ex Parte Application for TRO, an answer and counterclaims

On December 17, 2021, Angela Games filed an ex parte application for a temporary restraining order forcing SWC to retract its DMCA take-down notice contained in the cease-and-desist letter and its separate DMCA take-down notice sent to Tencent Cloud, LLC (“Tencent”).

On December 20, 2021, SWC filed an Answer to the Complaint. In addition, in classic Quinn Emanuel style, SWC filed not one, but two sets of counterclaims: (1) one set against Angela Games and Imperium; and (2) another set against a third party defendant, Tencent.

In its Answer, similar to what it said in its C&D letter to Valve, SWC provides more details about how a former employee who worked at Snail China quit and allegedly took source code with him to Angela. In addition to straight-up calling Angela and Imperium “pirates” and “thieves,” SWC alleges:

In Angela’s haste to profit from its larceny, Angela also neglected to remove non-functional portions of Wildcard’s code. These portions include distinctly identifiable log messages or comments, as well as other Wildcard code that does not appear to be running within Myth of Empires but nevertheless remains in its executable code. Wildcard has located those stranded “relics” in the Myth Of Empires code. Absent Angela’s copying, there is no way to explain their presence in Angela’s game code.

Equally appalling, a Wildcard vendor who wrote unique code modules specifically for Ark: Survival Evolved has told Wildcard that its same code modules appear in Angela’s pirated game—verbatim. The only place to find that code is in the Wildcard source code. Here, too, it would be impossible for Angela to have independently written the identical code, line-for-line, over and over again.

For its counter-claims against Angela and Imperium, SWC claims that Angela and Imperium infringed SWC’s copyright interest in Ark by creating an unauthorized derivative work, distributing it, etc., and that they misappropriated SWC’s trade secrets (i.e., its source code).

For its counter-claims against Tencent Cloud, SWC alleges that, in addition to the DMCA take-down notice it sent to Valve, the distributor, it also sent a DMCA take-down notice to Tencent Cloud, the owner of the servers that host Myth of Empires. SWC claims that “each time that Tencent runs the Infringing Game on a server, Tencent is publicly performing the game and creating yet another copy of the Infringing Game….” SWC additionally claims that Tencent is secondarily and vicariously liable for copyright infringement because it refused to comply with SWC’s DMCA take-down notice and continues to host the allegedly infringing game despite that notice.

The Court’s Order on the Ex Parte Application

On December 23, 2021, the court issued its order on Angela Games’ ex parte application for a temporary restraining order and for an order to show cause (OSC) regarding preliminary injunction against the defendants. The court concluded that “based on the current record, plaintiffs have not made a showing that they are entitled to a temporary restraining order requiring withdrawal of defendants’ DMCA takedown notices.” On the likelihood of success on the merits factor, the court pointed to the “plethora of circumstantial evidence” offered by SWC in support of its counterclaims “sufficient to defeat plaintiffs application for a TRO,” including:

(1) evidence that of the 82 Angela Games employees who worked on Myth of Empires, 60 are ex-employees of Snail Games who quit to join Angela Games in 2019;

(2) evidence that at least one of those employees, Yang Li Ping, was given access to the Ark: Survival Evolved code base;

(3) a December 12, 2021, preliminary code analysis which shows that the gameplay codes for Myth of Empires and Ark: Survival Evolved include hundreds of near-identical function names such as “bOnlyUseExpireTimeMultiplierslfActivated” and “SpawninventoryOnDestructionLifeSpan”; and

(4) the declaration of a third-party expert, who found on a limited record that “[t]he extent of similarities already identified . . . raises serious concerns that computer source code for [Myth of Empires] was copied from [defendants’] computer source code”

Angela and Imperium responded by presenting a declaration from Yang stating that he never transferred the source code to anyone, but the court didn’t buy it — at least when considered against the other evidence in the record. Thus, the court denied the request for a TRO, set a hearing for January 31, 2022 on the request for a preliminary injunction and ordered supplemenetal briefing.

The Court’s Order on the OSC re Preliminary Injunction

The court starts its January 31, 2022 Order with a recitation of the facts, including the various expert witness declarations submitted by Angela and Imperium on the one hand, and by SWC, on the other. Angela and Imperium’s expert argued that with respect to the allegedly copied function and variable names, SWC “manually selected, artificially re-ordered, and presented [them] side-by-side in an apparent attempt to create a false impression of similarity.” SWC, of course, disputed this and offered not only their own expert testimony, but also testimony from their anti-cheat vendor who testified that the anti-cheat vendor’s code, as integrated in the Ark code, was also copied by Angela, complete with typos.

In evaluating the four prongs of the Winter test (applicable to requests for preliminary injunctions), the district court basically concluded that the first factor favored SWC and then repeatedly pointed back to this fact in the analysis of the other factors:

• Likelihood of success on the merits: the court repeated its earlier findings from the TRO order, and reiterated that Angela and Imperium’s “limited evidence,” particularly when evaluated in conjunction with SWC’s evidence, was not sufficient to establish either a probability of success on the merits or a serious question as to whether the law and facts “clearly favor” Angela and Imperium’s position.

• Irreparable harm: the court found that Angela failed to identify any immediate, irreparable harm. The court concluded that while “reputational harm and being forced out of business absent an injunction can be sufficient to establish irreparable injury,” Angela nevertheless failed to submit “any evidence to support its claims besides its own employee’s conclusory testimony.” This doesn’t seem entirely true, however, since the court later analyzes other submitted evidence that isn’t employee testimony; namely, a PC gamer article that talks about the lawsuit and some negative comments directed towards Angela Games. Still, the court finds all of this insufficient to demonstrate irreparable harm “especially given plaintiffs’ inability to show a likelihood of success on the merits.”

• Balance of hardships: the court found that this factor favored neither party since both parties’ injuries are likely compensable by money damages that may be demonstrated at trial.

• Public interest: the court found that the public interest didn’t favor issuance of a mandatory preliminary injunction and points back, yet again, to plaintiff’s failure to show likelihood of success on the merits.

What’s Next?

After denying Angela Games and Imperium’s request for a preliminary injunction, the court ordered the parties to meet and confer regarding source code comparison and to select a mutually agreeable independent expert. If the parties can’t decide by the end of February, the court will help them decide pursuant to FRE 706. In the meantime, Angela Games and Imperium have immediately appealed the district court’s order denying their request for a preliminary injunction.

Plaintiff: Ironburg Inventions Ltd.

Plaintiff’s Firm: Manatt, Phelps, & Phillips

Defendant: Valve Corporation

Defendant’s Firm: Shook, Hardy & Bacon

THE BIG PICTURE

IPRs are powerful tools in combatting patent infringement, but they can negatively impact your litigation strategy. Here, Valve was unable to effectively argue invalidity at trial due to IPR estoppel.

BACKGROUND

Ironburg Inventions Ltd. sued Valve for infringing Ironburg’s game controller patent family in December 2015 (initially Ironburg only asserted 2 patents but it amended its complaint as 2 other related patents were issued). At issue was the Steam Controller, which was introduced in November 2015 and discontinued in November 2019.

The Ironburg patents are directed towards additional buttons on the back of a conventional game controller (exemplary image of the buttons is below).

After a 5-day trial, a jury found that Valve had willfully infringed 2 of Ironburg’s patents (U.S. Patent No. 8,641,525 and 9,089,770) and awarded $4,029,533.93 in damages. (The 2 remaining patents, U.S. Patent No. 9,289,688 and 9,352,229 were not included in the trial because judgment of those claims was and still is stayed pending resolution of the IPRs). The court entered partial judgment to that effect on July 19, 2021. Valve is appealing the decision, but there are a couple of interesting notes about this case related to inter partes reviews.

Inter Partes Review

Valve filed IPRs on all four patents, but at different times and with different art presumably due to the addition of the two newer patents while the district court case was pending and the new patents having slightly different scope.

IPR Estoppel

The PTAB instituted IPRs on the first two patents (the ’525 and ’770 patents), but not based on all of the asserted prior art. Ultimately, the PTAB canceled several of the patents’ claims, but some claims remained. This hamstrung Valve in the district court case. The court estopped Valve from asserting that the patents were invalid due to prior art that (1) was presented to the PTAB but the PTAB rejected; and (2) was not previously presented to the PTO. Effectively, Valve was left arguing non-infringement to the jury and lost that argument. This is the main risk of IPRs: losing there severely limits your ability to argue anticipation/obviousness at trial.

Pending IPRs

As for the still-pending IPRs, the Federal Circuit recently reviewed a determination by the PTAB that canceled some claims of the ’688 and ’229 patents, and left some standing. Part of the issue was that Valve submitted an exhibit as prior art that was a printout of an Xbox 360 controller review. Valve asserted that the printout was a version of the same document that was submitted in the prosecution histories of the ’525, ’688, and ’229 patents. The PTAB ultimately didn’t consider the printout because it held that Valve had not established that the printout was identical to the version that was previously submitted during patent prosecution (i.e. Valve failed to authenticate the document). The Federal Circuit didn’t seem to think much of the PTAB’s reasoning since “a simple comparison of the [two] confirms their near identity” and:

A comparison of the ’525 Burns article with the Exhibit is not burdensome. The ’525 Burns article is nine pages long, and the Exhibit is ten pages long. The article in each document is twelve paragraphs long, and has 23 images. The Board had an obligation to make the comparison

While there were some minor differences between the versions, they didn’t affect the information disclosed by the exhibit and the differences were explained by the way they were produced. The Federal Circuit found that the exhibit was substantially the same as the document produced in the patents’ prosecution histories and vacated and remanded the decision so that the PTAB could properly consider the exhibit. In the future, understanding the PTAB’s formality, it would probably be best to submit the exact version of prior art from a patent’s prosecution history rather than a re-downloaded version, if possible.

[Special Thanks to Docket Navigator for access to the various dockets]

Four new copyright cases of interest have been filed so far in June that involve video games. The topics include: (1) allegedly extensive copying of a photographer’s work in Capcom’s Resident Evil games; (2) unauthorized use of copyrighted music in files uploaded by players in Roblox; (3) cheating software for Bungie’s Destiny games; and (4) a cash-prize gaming platform that’s definitely-not-gambling, suing a competitor for ripping off its platform interface that’s also definitely-not-gambling and advertising materials.

The Complaints

1. Juracek v. Capcom Co., Ltd. and Capcom USA, Inc., 3-21-cv-00775 (D. Conn., Complaint filed 2021-06-04)

Judy Juracek, a Connecticut resident, has been a professional scenic artist, scene designer and photographer for much of her career, working on numerous well known film and TV productions. As part of her work, she traveled around the world photographing unique decorative surfaces and features as part of her research related to set design. She grouped these photographs into a book and CD-ROM called “SURFACES.” She then licensed high resolution copies of various photographs to architects, designers and others for commercial use.

In her complaint against Capcom, Juracek alleges that Capcom used her photographs extensively in Resident Evil, including on the cover of the game itself:

Juracek gives lots of examples, including in-game environment shots allegedly copied from her photographs of real-world surfaces, e.g., a unique door design and a stained glass window:

While this may look like salacious copying, it raises a tough question for the plaintiff: What part of these allegedly copied works are original to her. In other words, did Capcom’s designers copy her constituent original elements or did they instead reproduce works that others originated, e.g., the door design, the stained glass window design, etc. If you want to go through this thought exercise, check out the lengthy exhibit to the complaint here with all the images and side-by-sides.

Most likely, Capcom will want to file a motion to dismiss or MSJ on the grounds that, even if their designers copied everything that’s allegedly copied, there still wouldn’t be a claim for copyright infringement because the plaintiff didn’t originate any of the original elements that were copied. I haven’t looked at all the images in detail yet, but at first blush, this sort of motion looks like it might be well taken.

2. ABKCO Music et al v. Roblox Corp., 2-21-cv-04705 (CDCA 2021-06-09 Complaint)

The National Music Publishers’ Association has sued Roblox, seeking $200 million in damages, alleging that Roblox built its platform “on the backs of unpaid music creators.” The complaint uses some vituperative language, alleging that “Roblox actively preys on its impressionable user base and their desire for popular music, teaching children that pirating music is perfectly acceptable.” The plaintiffs further allege that Roblox “engages in copyright infringement on a massive scale” by deliberately creating a centralized sync library of unlicensed songs to be used in the game.

To defeat the anticipated DMCA safe-harbor defense that Roblox will presumably assert, the complaint alleges that “it is Roblox—not users—that consciously selects what content appears on its platform” and that Roblox employs “over a thousand human moderators to extensively pre-screen and review each and every audio file uploaded.” As an aside, the complaint alleges that Roblox has even failed to register an agent with the Copyright Office (a statutory requirement for claiming DMCA safe-harbor).

Roblox has already publicly responded that they “do not tolerate copyright infringement” and were “surprised and disappointed by this lawsuit.” However, if it’s true that they haven’t registered an agent with the copyright office and that they’re actively reviewing/moderating the content, Roblox is going to have a very tough time relying on the safe harbor provision of the DMCA, which among other things, requires that the platform be passive and not a curator of content. It looks like Roblox may have a real problem with that.

3. Bungie, Inc. v. Aimjunkies.com et al, 2-21-cv-00811 (WDWA 2021-06-15, Complaint)

After its recent success against GatorCheats, Bungie has now turned its sights on another cheat developer, AimJunkies. The complaint itself is pretty standard stuff, but it’s interesting (and good) to see game developers take a continued, strong stance against cheating.

4. Big Run Studios Inc. and Skillz Platform Inc. v. AviaGames Inc., 5-21-cv-04656 (NDCA 2021-06-16 Complaint)

Big Run Studios describes itself as a studio that makes “cutting edge mobile games for traditionally underserved audiences.” It developed Blackout Bingo (f/k/a Blackout Blitz), which became a top 25 game in the iOS App Store within 4 months. The game features “real world rewards and cash prizes (where available)” powered by Skillz, a platform for competitive mobile games. The complaint alleges that defendant AviaGames “slavishly copied original and distinctive elements” of Big Run’s Blackout Bingo game to build an infringing copycat game called Bingo Clash:

The complaint assiduously attempts to depict the Skillz platform as a legitimate business and, to that end, contains numerous allegations about how Skillz is revolutionizing “eSports” with its platform and is helping to bring “eSports into the maintsteam.” Skillz further boasts that it offers over “$100 million in prizes each month” and that “Skillz accounted for 46% of all eSports prizes awarded.” While Skillz claims that its games are legal in 38 states (it even has an FAQ section called “Why it’s legal”) since it features games of skill and therefore aren’t gambling, it isn’t without critics. Last year, two users of the platform sued Skillz under several fraud theories and complained that they lost tens of thousands of dollars, struggled with gambling addiction because of games they played on the platform, etc., and that “Skillz’s advertisements fraudulently concealed the possibility that users would lose money playing its games.” Ball v. Skillz Inc., No. 220CV00888JADBNW, 2020 WL 6685514, at *1 (D. Nev. Nov. 12, 2020). In November, that case was ordered to arbitration and an appeal of that order is pending.

Additional Notes

Two additional notes of interest from this month include:

1. The “G.I. Bro” (Huffman v. Activision) case is going to trial this month in Texas; and

2. A Northern District of California judge transferred the “Soul Ja Boi” dance emote case to the Northern District of Georgia after finding that venue was improper because the cease and desist letters sent to Take-Two did not constitute purposeful direction of activity toward California. Take-Two Interactive Software, Inc. et al v. Sims, 4-20-cv-04441 (NDCA 2021-06-14, Order) (Jeffrey S. White).

[Thanks to Docket Navigator for access to the pleadings.]

In February 2019, former WWE wrestler, Booker T. Huffman sued Activision and Major League Gaming, alleging that the defendants copied one of his ring-name personas, “G.I. Bro,” to create the character “Prophet” in Call of Duty: Black Ops 4. Huffman v. Activision Publishing, Inc., Activision Blizzard, Inc., and Major League Gaming Corp., 2019 WL 577529 (E.D.Tex.).

Background

Last year, we wrote about this case a couple of times — once, when Activision won a motion to compel discovery in May 2020, and again, in our year-in-review post, where we observed: “Huffman survived Activision’s attempts this year to dismiss the case because the district court failed to apply a fundamental rule of copyright law: i.e., that copying is only legally actionable if the defendant took original constituent elements from the plaintiff’s work.” For more detail on this case, and another, similar look-a-like case, check out this excellent analysis at Copyright Lately. And, as an easy, visual recap, this silly case is solely about a claim that Huffman made a comic book image of himself (pictured below, left) and that Activision made a single image (below right) that allegedly copied it and used that in marketing materials for a CoD title.

THE DISTRICT COURT’S MAY 26, 2021 MSJ ORDER

On May 26, 2021, the Texas district court (Judge Schroeder) finally ruled on three motions for summary judgment filed by the Activision defendants seeking rulings of:

1. no standing and no copyright infringement; (denied)

2. no violation of 17 U.S.C. § 1202; (granted in part, denied in part) and

3. lack of nexus. (denied)

More specifically, the court was reviewing, de novo, a magistrate judge’s 30+ page report and recommendation on the motions issued back in December. After considering Activision’s four main objections to it, the court adopted the magistrate’s report entirely, making all the same mistakes as the magistrate, anew.

1. “ONE LOOK”

First, on the standing question, Activision had argued that Huffman already transferred copyright ownership of the G.I. Bro character to WWE as part of his contract with WWE. (You know, the standard kind of contract you’d expect someone to sign when they become a pro wrestler and adopt a persona, like, “Hulk Hogan,” “The Undertaker,” or, in this case, “G.I. Bro.”) Activision argued that the magistrate judge erred in deferring interpretation of this contract language to the jury, contending that the contract language wasn’t ambiguous. Huffman, for his part, argued that his G.I. Bro wrestling persona is distinct from his G.I. Bro comic book character, and therefore wasn’t covered by the agreement’s definition of IP:

4. INTELLECTUAL PROPERTY:

(a) All service marks, trademarks and other distinctive and identifying indicia used by Contractor prior to the Effective Date in connection with the business of professional wrestling, including but not limited to Contractor’s legal name, nickname, ring name, likeness, personality, character, caricatures, signature, costumes, props, gimmicks, gestures, routines and themes, which are owned by Contractor or in which Contractor has any rights anywhere in the world (collectively, the “Contractor Intellectual Property”)

(Emphasis added by the magistrate judge.)

As soon as I read this back in December, I immediately thought of Will Ferrell’s fashionista “Mugatu” character in Zoolander shouting the obvious to an audience at a fashion show that Ben Stiller’s character, Derek Zoolander, only has “one look.” Mugatu screams about Zoolander only being able to produce one modeling look: “Blue Steel, Ferrari, La Tigra?! They’re the same face! Doesn’t anyone notice this? I feel like I’m taking crazy pills!“ Huffman’s argument is equally ridiculous because the G.I. Bro comic book persona looks exactly the same as the G.I. Bro wrestling persona. It’s the exact same guy doing the exact same look! The court, however, seems to have taken the same crazy pills as the magistrate judge and agreed that the “contract is ambiguous” and that the jury should decide what it meant.

2. ACCESS AND SIMILARITY

Second, Activision argued that the magistrate judge erred in finding a genuine dispute of fact as to access. Here, the district court simply affirmed the magistrate’s finding that there was a dispute of fact as to whether the poster was copied and a fact dispute as to “access to the [poster] and, in the alternative, a fact dispute as to whether the two posters were strikingly similar.”

Here, I can actually understand the court’s stated view on the first point that access was disputed and that the plaintiff’s claim that the poster was displayed at Comic Con could have been a basis for it being seen by employees of Activision. However, on the issue of similarity, the district court then egregiously redoubles the magistrate’s error of misunderstanding a fundamental precept of copyright law, by simply saying that the posters might be similar without addressing originality; i.e., that copying is only legally actionable if the defendant took original constituent elements from the plaintiff’s work. This is clear error.

3. 17 U.S.C. § 1202

Third, on the claim that Activision improperly removed copyright management information (CMI) from Huffman’s G.I. Bro image, the magistrate had held that “liability for section 1202(a) could exist merely by affixing CMI to a defendants’ own work.” It acknowledged that while Huffman hadn’t “provided enough evidence to support his section 1202(b) claim,” i.e., that Activision had removed CMI from plaintiff’s work, it found that Activision’s distribution of the look-a-like image with Activision’s CMI in or around the image could be viewed by a jury as the act of Activision adding CMI to an image owned by the plaintiff. Activision made some good arguments about the statutory language, but the court dismissed them.

4. LACK OF NEXUS

Fourth, Activision argued that the magistrate judge erred in finding a nexus between all sales of Black Ops 4 and the single, little used marketing image alleged to be infringing. The district court rejected this argument also, noting that despite Activision’s claim that the magistrate ignored the cases Activision cited in its brief about the “nexus” requirement, Activision did acknowledge in a footnote that the magistrate at least addressed the cases despite not engaging with the “substance of the cases.” The court disagreed and found that the magistrate judge “addressed and correctly distinguished Defendants’ cited caselaw.” Of course, the court engaged in no analysis of its own and again provided only this perfunctory rubber stamp.

WHAT’S NEXT?

This ruling affirming the magistrate’s report doesn’t come as a surprise and means that the trial must go on as scheduled. A ridiculous waste of time and resources for what’s clearly an erroneous decision.

A couple of weeks ago, I wrote about a district court in California dismissing Wargaming.net’s lawsuit against competitor Blitzteam for lack of personal jurisdiction. Earlier this week, Wargaming filed a new lawsuit regarding the same infringing content, but this time sued Apple for “marketing, hosting, and distributing” BlitzTeam’s game Battle Prime which allegedly “copies and uses Wargaming’s copyrighted source code” without authorization.

ALLEGATIONS AGAINST APPLE

After reciting the same allegations from the previous complaint against Blitzteam, Wargaming alleges that it sent a notice of claimed infringement to Apple on September 15, 2020 with all of the standard DMCA notice requirements. About a week later, Apple responded with its usual message that it “cannot serve as arbiter for disputes among third parties” and told Wargaming to “work directly with [Blitzteam] to resolve any concerns you have.” Wargaming claims that Apple’s failure to disable Battle Prime in response to a valid DMCA take-down notice makes Apple directly liable for copyright infringement.

QUICK THOUGHTS

Game developers don’t sue Apple or Google directly very often. Ubisoft did so last May, but the case quickly settled. It will be interesting to see if this case quickly settles also, continuing the pattern, or if Wargaming will fight this out, perhaps even setting a new precedent. We’ll provide more updates as the case progresses.

An MSJ ruling in Atari’s latest lawsuit against Redbubble (funded by Legalist) presents some useful things for an IP owner to consider when it encounters infringement on an online platform.

BACKGROUND

Atari was originally founded in 1972 in in Sunnyvale, California by Nolan Bushnell and Ted Dabney. These days, it is partnering with a litigation finance firm, “Legalist,” to fund litigation against online retailers like Redbubble and Target (as well as against Nestle). Atari seeks to capitalize on its “retro” video game brand by licensing official merchandise, often featuring classic Atari game IP.

Redbubble provides a “global online marketplace where independent artists upload their designs and creative works for sale on a range of products.” In other words, “personalized on-demand retail.” When customers buy products on the Redbubble platform, Redbubble processes the payment and informs the customer with an estimated delivery date. It then sends the order to a third-party manufacturer called a “fulfiller” who creates the final product based on the customer’s order. Redbubble claims that it doesn’t actually have any express agreements with these fulfillers, although it chooses them based on quality standards, proximity to the customer and product type.

After the fulfiller creates the product that the customer ordered, Redbubble tracks the order for the customer. The product arrives in Redbubble packaging, with a Redbubble tag and with a return address of “An Artist on Redbubble.” Redbubble handles customer service, including issues with replacement for damaged good and it handles all returns and refunds.

In short, Redbubble: (1) manages the order; (2) coordinates the creation of the goods; (3) arranges for delivery; and (4) handles all customer service issues, returns, and refunds. The only thing it doesn’t do is provide the art to be used on the product — that is supplied by the “artist.”

THE DISPUTE

Atari located 114 Atari trademarks, 18 Pong trademarks, and 61 copyrighted Atari designs on Redbubble’s platform. Atari did not notify Redbubble of these infringing products before filing a complaint. Both parties filed motions for summary judgment on Atari’s trademark and copyright infringement claims. Redbubble also sought to preclude Atari from offering a damages case.

DIRECT TRADEMARK INFRINGEMENT

Atari claimed that Redbubble “uses” the Atari trademarks in commerce by selling merch displaying those marks. Redbubble disputed this claim, instead arguing that the artists — not Redbubble — perform the actual sales. Redbubble relied on a 2019 district court decision from Ohio that found Redbubble was not a “seller.” Ohio State University v. Redbubble, Inc., 369 F. Supp. 3d 840 (S.D. Ohio 2019) (analogizing Redbubble to Amazon Marketplace, which courts have found to be a facilitator of sales between other parties rather than a seller itself). The reasoning here is that Amazon doesn’t hold legal title to goods sold through its website and shipped through its warehouses and a sale requires a transfer of legal title from the seller to the buyer. Amazon also doesn’t control what information or pictures get put on the product-detail page or the price for which a product is sold.

The district court disagreed with Redbubble’s position for three reasons.

First, the court found that the evidence before the court did not show that the artists who upload their designs to Redbubble own the goods being sold. It pointed to Redbubble’s user agreement which says artists “may offer their art for sale on a physical product,” but that doesn’t mean the artist owns the physical product bearing the art. Even though the user agreement states that “title and risk of loss” pass from the artist to the customer “without passing through Redbubble” the court saw no evidence that the “artists exercise any indicia of ownership over the physical products.”

Second, the court explained how the law of sales works. Since the products don’t exist at the time the customer places an order, there is no “sale” yet under the Uniform Commercial Code, but rather, a “contract to sell.” Atari’s evidence showed that customers contract to purchase from Redbubble — not the artists. Redbubble itself advertises that the products are “designed by” the artist, not “sold by” the artist and Redbubble’s software accepts orders and forms a contract without any input from the artist. Redbubble confirms the order and describes the artist as a “mere beneficiary” that receives “kudos” and a portion of the proceeds. And, of course, the products arrive in Redbubble packaging with Redbubble tags, reinforcing the notion that they are Redbubble’s products.

Third, the court found Redbubble’s practices similar to those involving a case where Harley Davidson successfully sued a print-on-demand vendor for using Harley Davidson marks on merch. H-D U.S.A., LLC v. SunFrog, LLC, 311 F. Supp. 3d 1000 (E.D. Wis. 2018) (granting summary judgment against a print-on-demand business that made goods based on customer-uploaded designs). While there were some distinctions, such as the platform’s employees operating the printers that placed the designers onto the physical product and shipping the finished products to customers, the similarities outweighed such distinctions.

On this basis, the court denied Redbubble’s motion for summary judgment on Atari’s trademark infringement claim.

However, the court nevertheless concluded that a “reasonable jury could conclude that Redbubble is merely a ‘transactional intermediary’ and not a seller.” It denied Atari’s motion for summary judgment because while there was something much more than “no evidence” that Redbubble acts as a seller, Atari hadn’t yet established that Redbubble is a seller as a matter of law.

Next, the court looked at “use in commerce” from both an “offers to sell” perspective and an advertising perspective. As to the former, the court concluded that a jury could conclude “that either Redbubble or the artist was the offeror for the same reasons that they could conclude that either was the seller.” As to the latter, the court found that Atari hadn’t produced sufficient evidence for summary judgment to show that Atari had a “protectable interest” in the marks that appeared in Redbubble advertisements on advertising platforms like Google.

INDIRECT TRADEMARK INFRINGEMENT

Vicarious liability occurs where the defendant and the infringer (1) have an actual or apparent partnership; (2) have authority to bind one another in transactions with third parties (i.e. agency); or (3) exercise joint ownership or control over the infringing product.

To my surprise, Atari introduced no direct evidence of a relationship between Redbubble and its fulfillers. (Having litigated this issue in preparation for MSJs, previously, I would have expected at least deposition testimony on this issue.) On the other hand, the court recognized that Redbubble failed to establish that a reasonably jury couldn’t find it vicariously liable based on Atari’s circumstantial evidence, so hope for this claim at trial remains alive.

Atari’s contributory liability trademark infringement claim is also interesting. Atari alleged “that Redbubble fails to take any action to prevent infringement until after it receives notice from a rights holder, even though it has reason to know that widespread trademark infringement is occurring on its website.” However, the court pointed to Redbubble’s evidence of its “Marketplace Integrity Team” proactively screening for infringing content based on information it receives from content owners. The takeaway here is obvious: If you want to establish contributory liability, you should let the platform know of the infringement that’s occurring. Finally, Atari introduced evidence of repeat infringers, but the court punted and sent this question to the jury also, with little explanation as to the insufficiency of Atari’s evidence.

DIRECT COPYRIGHT INFRINGEMENT CLAIMS

On Atari’s direct copyright infringement claim, the court accepted that Atari had met the first two requirements, i.e., (1) that Atari owned the allegedly infringed material; and (2) Redbubble violated at least one of the exclusive rights in the Copyright Act. However, on the third requirement of causation (also referred to as “volitional conduct”) the court drew a distinction between display and distribution rights. On the former, it found that Redbubble “does not ‘exercise control (other than by general operation of its website)’ for display rights.” (Emphasis added.) The court found that Redbubble doesn’t “select any material for upload, download, transmission, or storage,” but rather, those acts are performed by the website’s users. On the latter, though, the court found that “since Redbubble actively instigates and exercises control over the sales on its website, a reasonable jury could find that Redbubble is liable for direct infringement of Atari’s copyright distribution rights.” (Emphasis added.)

Redbubble offered DMCA safe-harbor as a defense. The court rejected this defense on the grounds that Redbubble doesn’t just passively store images on its platform at the direction of useers, but rather, it “actively participates in modifying the files uploaded by users to display the designs on Redbubble-selected physical products.”

INDIRECT COPYRIGHT INFRINGEMENT CLAIMS

The court rejected Atari’s claims for vicarious and contributory trademark infringement. Here again, we have the same obvious takeaway from above. The court observes that “Redbubble introduces evidence that it promptly removed any allegedly infringing listings identified by Atari upon receiving notice.” The court again faults Atari for not providing notice of the other allegedly infringing items on the site. Tl;dr - you should consider giving notice to the platform of infringing items before filing suit. Similarly, when the court gets the analysis of “willfulness” later in the opinion, it decides that “Redbubble’s systems overall appear to be designed in a ‘copyright protective’ way and again observes that Redbubble “promptly removed infringing listings and began to police for Atari’s content.”

DAMAGES

Lastly, the court addressed Redbubble’s motion to preclude Atari from offering a damages case because Atari allegedly failed to disclose damages calculations in discovery. The court recognized that “Atari broadly disclosed a statutory damages range ‘per infringed work’ and ‘per type of counterfeit good’” but decided that the briefing on this topic was too light and asked the parties to further discuss it at an upcoming case management conference.

FINAL THOUGHTS

There are at least two takeaways from the opinion. First, if you see infringement as an IP owner on a platform like Redbubble, you should consider notifying the platform and diligently working with them to police your rights. Not all courts find this necessary; but some courts, like this one, count that as a useful fact for IP owners. Second, the facts of how the platform works with third parties (e.g., fulfillers) matters a lot. Before getting to the MSJ stage, every effort should be made to establish facts that will support a theory of agency or partnership that demonstrate exactly how decisions get made and who calls the shots.

• Job Games Bilism Yazilim Ve Pazarlama A.S. v. SayGames LLC, 458 F. Supp. 3d 1202, 1214 (N.D. Cal. 2020)

• Voodoo SAS v. SayGames LLC, No. 19-CV-07480-BLF, 2020 WL 3791657 (N.D. Cal. July 7, 2020)

• Wargaming.net Ltd. v. Blitzteam, LLC, Case No.: CV 20-02763-CJC (MRWx) (C.D. Cal. Oct. 20, 2020)

In the first two cases (Job Games and Voodoo), the Northern District of California held that “passively” publishing on the App Store wasn’t sufficient to create jurisdiction in California without “something more.” In my view, these courts took an unduly narrow view of how the apps and advertising targeted California citizens and incorrectly decided the “purposeful availment” test.

In a third case (Wargaming), a Central District of California court in October of last year initially refused to dismiss the plaintiff’s case on personal jurisdiction grounds and allowed jurisdictional discovery. Earlier this month, however, the same court has now dismissed the case on personal jurisdiction grounds. The court continued to share my view about purposeful availment, but nevertheless dismissed the case on “fair play and substantial justice grounds.”

THE FEDERAL LONG ARM STATUTE

In Wargaming, the plaintiff argued for personal jurisdiction under the federal long-arm statute, FRCP 4(k)(2) which has three requirements:

1. the claim against the defendant must arise under federal law;

2. the defendant must not be subject to the personal jurisdiction of any state court of general jurisdiction; and

3. the federal court’s exercise of personal jurisdiction must comport with due process.

In this case, the first two requirements were undisputed, leaving the third prong the only one in question. The court provided further explanation on plaintiff’s burden for meeting the third prong:

The due process analysis under Rule 4(k)(2) is nearly identical to traditional personal jurisdiction analysis with one significant difference: rather than considering contacts between the [defendant] and the forum state, [courts] consider contacts with the nation as a whole. Constitutional due process concerns are satisfied when a nonresident defendant has “certain minimum contacts” with the forum “such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.”

Unlike the Northern District courts in the previous cases, the Central District recognized the importance in the defendant’s choice of making its allegedly infringing game available to U.S. players through the Apple and Google stores. Similarly, unlike the other courts, the Central District court was persuaded by Wargaming’s evidence that the defendant “ran advertisements specifically targeted at the United States” and recognized the obvious — i.e., that when you buy Facebook ads, those are specifically targeted at the geographic region you pay for. Finally, the district court highlighted the fact that the defendant had a separate terms of service for U.S. players that took advantage of U.S. law.

Nevertheless, the defendant was able to present a compelling case for why it would be unreasonable for the court to assert jurisdiction. Again, the court explained the standard:

In determining whether the exercise of jurisdiction over a nonresident defendant comports with ‘fair play and substantial justice,’ [the Court] must consider seven factors: (1) the extent of the defendants’ purposeful interjection into the forum state’s affairs; (2) the burden on the defendant of defending in the forum; (3) the extent of conflict with the sovereignty of the defendants’ state; (4) the forum state’s interest in adjudicating the dispute; (5) the most efficient judicial resolution of the controversy; (6) the importance of the forum to the plaintiff’s interest in convenient and effective relief; and (7) the existence of an alternative forum.

The court found that five of the seven factors favored the defendant and highlighted the fact that Wargaming had “already filed and lost five actions in Belarus related to infringement of its source code.” The court also focused on the fact that neither party is a U.S. citizen; that U.S. citizens aren’t being harmed by the defendant’s conduct; and that, as a result, the U.S. has “little interest in adjudicating this suit.” In sum, the court saw this as a dispute between two completely foreign companies that had adequate forums in their home countries of Cyprus and Belarus and had already been litigating there.

CONCLUDING THOUGHTS

I was pleased to see that the Central District court, unlike the previous decisions in the Northern District, correctly concluded that the defendant “purposefully availed” itself of the privilege of conducting business in the U.S. I also don’t necessarily disagree with the court’s decision to nevertheless throw out the case on reasonableness grounds, in light of the parties and the facts. What remains to be seen is how the other two Northern District cases will fare on appeal. I hope that the appellate court will agree with the Central District on purposeful availment even if they ultimately uphold the decisions on reasonableness grounds in keeping with the Central District’s view of these foreign litigant clone cases.

Earlier this month, an airplane racer sued Ubisoft and its developer, Ivory Tower, for allegedly misappropriating his “identity” by including his allegedly famous airplane in The Crew 2. This case presents unique facts and, hopefully, an opportunity to push right of publicity law in the right direction, towards greater First Amendment protection for video game developers.

BILL “TIGER” DESTEFANI AND HIS PLANE, STREGA

Plaintiff Bill G. Destefani, also known as “Tiger,” has raced airplanes in California for forty years. Now 75 years old, Destefani won the “Gold” unlimited race at the National Championship Air Races in 1987, 1992, 1993, 1995, 1996, 1997 and 2008. In 2009, 2010, 2012, 2015, and 2017, Destefani “handpicked” other pilots to fly in his famous “Strega” airplane and they, too, won gold. Destefani acquired “Strega” (which means “witch” in Italian), a highly modified P-51 Mustang originally flown by the Royal Australian Air Force, in 1945.

Destefani claims that “Strega” is highly distinctive and known by “a unique constellation of identifying features,” including:

1. a unique paint job

2. a stylized number “7” of the tail

3. an image of the Italian flag behind the cockpit

4. Destefani’s name in script font underneath the cockpit

5. the stylized word “Strega” on the front of the airplane near the nose

Destefani claims that over his 40+ year racing career, he and Strega have become “famous in the aeronautics and airplane exhibition industries and among consumers in those industries.” In other words, “Strega and Destefani are inexorably linked.”

In addition, Destefani registered the word “Strega” as a trademark in 1991.

DESTEFANI’S ALLEGATIONS

Developed by Ivory Tower and published by Ubisoft for Windows, PS4, Xbox One and Stadia, The Crew 2 is a racing game that was first released on June 29, 2018. Destefani alleges that Ubisoft marketed the game with several key statements, including:

• The game “takes you and your friends on a reckless ride inside a massive, open-world recreation of the United States.”

• Unlike the original The Crew game, which only featured cars, Ubisoft allegedly advertises that The Crew 2 allows players to “[e]xperience the thrill of intense motorsports action in a car, truck, motorcycle, boat, off-road buggy, or even a stunt plane!”

• The Crew 2 advertises that players can “[c]heck out some of the most iconic vehicles you will be able to ride,” which includes a virtual copy of Strega.

Destefani alleges that Ivory Tower even copied his actual, real-world sponsors, including the primary sponsor for a particular time period, “Palazzo Estates” (along side of the fuselage) and secondary sponsors AeroShell and Roush Aviation (on the front of the fuselage near the nose). Destefani also alleges that Ubisoft’s game website advertises the plane as “NORTH AMERICAN - P51 Mustang(tm) STREGA(tm) 1945,” without referring to Destefani as a trademark owner.

Destefani seems particularly salty that: (1) defendants did obtain trademark permission from other brand owners with products featured in the game such as Harley Davidson (and attributed them), but didn’t do so for him and Strega; and (2) that Ivory Tower did change some existing brands in the game, including the famous Wynn Hotel in Vegas to the “Win” Palace.

Destefani claims that the defendants violated both his statutory and common law right of publicity under California law. He also has claims for False Endorsement (15 U.S.C. § 1125(a)) based on using “personally identifying attributes” of his identity, Trademark Infringement, and unfair competition.

THE TRADEMARK CLAIMS

Since Destefani sued in the Central District of California, we will first look at how Ubisoft and Ivory Tower could move to dismiss using Ninth Circuit and California precedents. The first case that comes to mind, since both involved similar legal claims and professional racers, is VIRAG, S.R.L. v. Sony Computer Entm't Am. LLC, 699 F. App'x 667 (9th Cir. 2017).

In Virag, Mirco Virag, a professional race-car driver, and his eponymous, Italian flooring company, VIRAG, S.R.L., sued Sony for including the VIRAG trademark on a banner on a bridge over the realistic racetrack in Sony’s Gran Turismo 5 and Gran Turismo 6 games. The district court dismissed VIRAG, S.R.L.’s right of publicity claim because corporations cannot assert a right of publicity, but declined to dismiss Mirco Virag’s individual right of publicity claim. The district court also dismissed the trademark infringement and false designation of origin claims under the Lanham Act after applying the Rogers test. As the district court observed, “under the Rogers test, the Lanham Act should not be applied to expressive works (1) unless the use of the trademark or other identifying material has no artistic relevance to the underlying work whatsoever, or, (2) if it has some artistic relevance, unless the trademark or other identifying material explicitly misleads as to the source or the content of the work.”

Interestingly, in the Virag case, Virag agreed to voluntarily dismiss his right of publicity claim with prejudice so that he and VIRAG, S.R.L. could immediately appeal the district court’s dismissal of the Lanham Act claims. This, it turned out, was not a good strategy.

On appeal, (which again only focused on the Lanham Act claims), the Ninth Circuit agreed that the Rogers test barred the plaintiff’s claims because “Sony’s use of the VIRAG trademark furthers its goal of realism, a legitimate artistic goal […] and therefore satisfies the requirement that Sony's use of the trademark have ‘above zero’ artistic relevance to the Gran Turismo games.” On the second prong, the Ninth Circuit found that “Sony’s use of the VIRAG trademark meets the second requirement of Rogers, because VIRAG does not allege any ‘explicit indication, overt claim, or explicit misstatement’ that would cause consumer confusion.” Sony then moved for its attorney’s fees.

For Destefani, the Virag case presents a substantial obstacle for his Lanham Act claims. The Rogers standard is extremely permissive. Not only is there an easy case to be made for “artistic relevance” (an extremely low bar to begin with), but the complaint also lacks allegations sufficient (at least in my view) to constitute something “explicitly misleading” as to the source or the content of the work. Since the unfair competition claim is really just a throwaway, that then leaves the right of publicity claims.

RIGHT OF PUBLICITY CLAIMS

Destefani can probably make a prima facie claim for violation of his right of publicity. In an even older racing right of publicity case, the Ninth Circuit addressed a Tobacco company’s advertisement featuring a red race car with distinctive white pin-striping and an oval medallion with a white background that was allegedly “exclusive” to the race car driven by famous racer, Lothar Motschenbacher. Motschenbacher v. R.J. Reynolds Tobacco Co., 498 F.2d 821, 827 (9th Cir.1974). In Motschenbacher, the Ninth Circuit reviewed a district court’s granting of summary judgment. It faulted the district court for failing “to attribute proper significance to the distinctive decorations appearing on the car” in determining whether the racecar driver’s identity had been used, even though his actual likeness hadn’t been featured. The Ninth Circuit didn’t actually decide the issue, but instead remanded the case back to the district court for further proceedings. Later Ninth Circuit opinions, however, including Virag, cite the Motschenbacher case as standing for the proposition that you can invoke someone’s right of publicity without actually showing their likeness or using their name.

In some ways, Destefani’s case is stronger than the case in Motschenbacher because The Crew 2 has a plane that actually has his name on it. This then raises the big question: Is the use of Strega “transformative” and therefore protected by the First Amendment?

THE TRANSFORMATIVE USE TEST

Let’s pretend, for starters, that we know nothing about right of publicity jurisprudence and just skip to the jury instructions. If a California jury had to decide this First Amendment defense, how would a court instruct them? Like this:

Given these instructions, we might argue about the first point, but on the second point, it seems hard to argue that the “value” of The Crew 2 results primarily from Destefani’s fame.

Unfortunately for Ubisoft and Ivory Tower, courts deciding right of publicity cases on motions for summary judgment or motions to dismiss, do not follow clear and easy instructions like this. The Ninth Circuit, applying California’s Comedy III test, looks at “whether the work in question adds significant creative elements so as to be transformed into something more than a mere celebrity likeness or imitation.” To assess this, it evaluates five factors:

1. First, if “the celebrity likeness is one of the ‘raw materials’ from which an original work is synthesized,” it is more likely to be transformative than if “the depiction or imitation of the celebrity is the very sum and substance of the work in question.”

2. Second, the work is protected if it is “primarily the defendant’s own expression”— as long as that expression is “something other than the likeness of the celebrity.” This factor requires an examination of whether a likely purchaser’s primary motivation is to buy a reproduction of the celebrity, or to buy the expressive work of that artist.

3. Third, to avoid making judgments concerning “the quality of the artistic contribution,” a court should conduct an inquiry “more quantitative than qualitative” and ask “whether the literal and imitative or the creative elements predominate in the work.”

4. Fourth, the California Supreme Court indicated that “a subsidiary inquiry” would be useful in close cases: whether “the marketability and economic value of the challenged work derive primarily from the fame of the celebrity depicted.”

5. Lastly, “when an artist’s skill and talent is manifestly subordinated to the overall goal of creating a conventional portrait of a celebrity so as to commercially exploit his or her fame,” the work is not transformative.

Super easy and clear, right?

If this was a person being put into a video game, we might analogize to the Hart and Keller NCAA football cases (which both applied the Comedy III factors and found that EA’s use of the athlete’s likeness was not transformative). In each case, the majority drew a bright line rule (which was heavily criticized by the dissent) against game developers literally recreating the celebrity “in the very setting in which he has achieved renown.” If we begin with the premise that a distinctive vehicle can invoke someone’s identity (Motschenbacher); and the rule that you aren’t allowed to recreate a celebrity’s identity in the very setting in which he achieved renown (Hart and Keller); does that lead to the conclusion that including the “Strega” in The Crew 2 isn’t “transformative”?

Not necessarily.

For one thing, the Ninth Circuit in Motschenbacher didn’t decide that the race car used in the tobacco advertisement was an unlawful use of the driver’s identity. It simply said that the court erred in failing to consider whether a distinctive race car could be considered a use of a person’s identity for purposes of making a right of publicity claim. In that case the cigarette company’s use of the car in its TV advertisement actually “caused some persons to think the car in question was plaintiff's and to infer that the person driving the car was the plaintiff.” Here, Destefani doesn’t allege any similar facts and, moreover, he alleges that numerous other racers raced in Strega — and even won many races — for many years. This leaves ample room to argue both (a) that the game developers did not include Strega to invoke Destefani’s identity; and (b) that there is no reason to believe the public viewed the use as invoking Destefani’s identity.

Of course, we could delve into further arguments about how Hart and Keller were wrongly decided and how more recent decisions like Sarver v. Chartier, 813 F.3d 891 (9th Cir. 2016) — which, while rightly decided, also had incorrect reasoning and analysis — get closer to where the law should be. However, the smarter course for the defendants may be to just give the trial court an easy way to dismiss the complaint without having to worry about correcting the gigantic mess that is right of publicity jurisprudence.

Shortly after announcing a music licensing deal, Twitch issued a wave of DMCA takedown notices to Twitch streamers and removed allegedly infringing content.

TWITCH’S MUSIC LICENSING DEAL

Twitch’s music licensing deal allows streamers to use using within the Twitch platform through a service called Soundtrack by Twitch. The music can be used in livestreams free of charge, but does not include music from major labels. Many streamers use presumably unlicensed music on their streams.

THE DMCA AND TAKEDOWNS

The Digital Millennium Copyright Act protects service providers for copyright infringement committed by third parties, so long as the service providers meet certain requirements and perform certain actions under 17 U.S.C. Section 512. This safe harbor protects service providers from claims of copyright infringement if, upon receiving notice of infringing material, the service provider “acts expeditiously to remove, or disable access to, the material.” (Part (c)). The safe harbor also protects service providers from claims by a user for taking down the content if the service provider provides a process a “counter notification” process for the user to challenge the take down (Part (g)).

TWITCH’S TAKEDOWNS

Unlike some service providers, Twitch decided not to provide the Twitch users with the opportunity for a counter notification. Note that their their stated policies do include the opportunity for counter notification. Twitch also told some users that they had additional infringing material, but Twitch failed to specifically identify the material at issue. Instead, Twitch effectively told streamers to figure it out themselves and remove the content or suffer the consequences.

By not providing the counter-notification process, a service provider potentially opens itself up to liability from users for wrongful content takedowns. However, Twitch provides its service for free and its terms of service state that it can remove content at will (and limits liability to essentially $100 per user). I imagine that the number of DMCA complaints meant that Twitch could not administratively deal with the number of counter notifications it would receive if it allowed that option. We’ll keep an eye on the situation to see if anything else develops.

Back in March, Wargaming.net filed a trademark infringement lawsuit in the Central District of California against Blitzteam, a Belorussian competitor started by former Wargaming employees. Blitzteam moved to dismiss for lack of personal jurisdiction and Wargaming asked the court for permission to take jurisdictional discovery in support of its opposition to the motion. The court allowed jurisdictional discovery so that Wargaming can learn more about Blitzteam’s ads targeted at California residents and revenue generated in California. This is especially interesting to us because back in May, a Northern District of California court reached the opposite conclusion on the exact same issue.

In this blog, we’ll look at the current decision, then compare and contrast.

BACKGROUND

Wargaming.net, the developer of World of Tanks, World of Warships, World of Warplanes, etc., has sued a group of former employees who worked on “World of Tanks Blitz,” a popular mobile game based on the famous PC title. Internally, Wargaming referred to this group of employees as “The Blitz Team,” led by four individuals — Andrei Karpiuk, Vitali Baradouski, Stsiapan Drozd, and Dzimitry Babraunichy. Wargaming alleges that it “richly compensated” these guys for their efforts, paying them collectively over $10,000,000, which included a share of the game’s revenue.

In 2017, the four devs left to start their own videogame company, Blitzteam LLC, formed in Belorussia, and allegedly hired away over thirty Wargaming employees. Wargaming alleges that Blitzteam then began distributing a game called “Battle Prime” on Google Play, the Apple App Store, and various websites.

On March 25, 2020, Wargaming sued Blitzteam and the individual devs in the Central District of California, alleging trademark infringement and various other claims. You might be wondering: Why would a videogame company headquartered in Cyprus sue a Belorussian company in California federal court? Wargaming answers this question in its complaint. It alleges: “BATTLE PRIME’s total worldwide revenue is $183,694, and the single largest source of revenue was $70,023 from the United States. As such, Defendants’ BATTLE PRIME game is advertised and marketed to the same public as the one targeted by Plaintiff for its own BLITZ video games.”

On July 30, 2020, Blitzteam answered and Wargaming filed an amended complaint on August 20.

On September 23, 2020, Blitzteam filed a motion to dismiss for lack of jurisdiction. Wargaming opposed the motion and filed an ex parte application to continue the hearing date so it could conduct jurisdictional discovery, to further support its opposition.

EX PARTE APPLICATION TO CONDUCT JURISDICTIONAL DISCOVERY

The court’s short order explains that “Courts may exercise specific personal jurisdiction only where a Plaintiff’s claim is related to the defendant’s activities that are purposefully directed at the forum state.” Wargaming had asked to conduct discovery into the defendants’ “targeting of advertisements for the allegedly infringing game at California consumers” and also “revenue earned from the allegedly infringing game in California.” The court concluded that this discovery would be relevant to the “purposefully directed” inquiry and granted Wargaming’s application, setting a new hearing date and discovery deadline.

COLOR COMMENTARY: WHAT ABOUT THAT INTERNET COURT OF THE WORLD THING?

Back in May, I wrote about a Northern District of California Court that announced it is not the world’s “international court of internet law” and dismissed a copyright infringement clone case between a Turkish and Belorussian company, even though the allegedly infringing game was distributed in the U.S. on the Apple App Store and on Google Play, and U.S. citizens received ads on Facebook. In response to that opinion, I asked:

When you distribute a game on Apple or Google’s platforms you have to choose to distribute your game in the United States, though, don’t you? Similarly, when you advertise to U.S. or California residents on Facebook, you have to choose to do that — and pay for it, no?

That particular N.D. Cal. court didn’t see either of these things as a specific focus on California residents and granted the motion to dismiss for lack of personal jurisdiction and also denied the plaintiff’s request for leave to propound jurisdictional discovery. Good Job Games Bilism Yazilim Ve Pazarlama A.S. v. SayGames LLC, 458 F. Supp. 3d 1202 (N.D. Cal. 2020). Here, however, we see a Central District of California Court reaching the exact opposite conclusion about what’s relevant. True, this court hasn’t ruled on the merits of the motion to dismiss yet, and may ultimately still reach the same conclusion, but at least this court views the jurisdictional discovery as relevant to the question.

In my view, the Central District got this question right and the Northern District got it wrong.

[Special thanks to Docket Navigator for access to the pleadings. The case is Wargaming.net Ltd. v. Blitzteam, LLC, Case No.: CV 20-02763-CJC (MRWx), currently pending in the Central District of California.]

As a follow up to the lawsuits we previously discussed, Nintendo won both suits against the Switch mod resellers, one via default judgment and the other via consent.

CASES

NINTENDO V. ANXCHIP.COM, ET AL.

Nintendo filed this suit against Doe defendants operating eight websites. The websites sold Switch modification devices that allowed users to play unauthorized copies of games. Because the defendants “deliberately obscure their identities” according to Nintendo, the court granted Nintendo’s motion to serve the defendants via email. None of the defendants appeared or responded, but they did change website URLs and sent emails to customers referencing the lawsuit. Nintendo moved for entry of a default judgment and entry of a permanent injunction, which the court granted on October 6, 2020.

Among other things, the defendants are enjoined from (a) selling the circumvention devices, (b) infringing Nintendo works, (c) transferring the numerous websites they operated to avoid the first two prohibitions. Additionally, the websites were ordered to be transferred to Nintendo and the defendants were ordered to destroy all anti-circumvention devices.

Due to Nintendo’s inability to get the actual owner information, this win would probably mean those sites would shut down while others would pop up using similar means to disguise ownership. There were other developments (see Miscellaneous below) that might mean a different outcome for Nintendo here, but I wouldn’t hold my breath.

NINTENDO V. DILTS AND UBERCHIPS, LLC

Nintendo filed this suit against Dilts, the owner of UberChips, through which he sold the same Switch modification devices. Dilts did answer the complaint, but didn’t put up much of a fight. On September 30, 2020 the parties jointly moved for an entry of a judgment and permanent injunction with Dilts owing $2,000,000 and enjoined from any more of his copyright-infringing activities.

MISCELLANOUS

In a related matter, on October 2, 2020 the Department of Justice announced that 3 members of Team Xecuter (the entity that created and sold the mods) were charged with 11 felony counts ranging from conspiracy to commit money laundering to trafficking in circumvention devices in violation of the DMCA. The U.S. Attorney for the Western District of Washington (Nintendo’s home district) stated:

These defendants lined their pockets by stealing and selling the work of other video-game developers – even going so far as to make customers pay a licensing fee to play stolen games.

We’ll follow these cases as the progress.

The court granted the plaintiff a partial victory while denying Take-Two’s MSJ entirely, teeing the case up for a jury trial early next year. The court’s analysis, though, left me scratching my head more than once.

BACKGROUND

Catherine Alexander, a former tattoo artist, inked six tattoos on a WWE wrestler, Randy Orton, between 2002 and 2008. She stopped working full time as a tattoo artist in 2009 and never licensed her tattoos. Take-Two makes WWE 2K, a series of realistic video games that incorporates real-world wrestlers, with duly licensed likenesses from the wrestlers (via WWE). In 2009, Ms. Alexander called WWE’s legal department to negotiate a tattoo sleeve product featuring her tattoos, but made no headway. WWE did offer her $450 for extensive rights to use her tattoo designs on WWE products, but she declined and told them they didn’t have permission to reproduce her tattoo designs. After Orton (with Alexander’s tattoos visible on his body) appeared in WWE 2k16, WWE 2k17, and WWE 2k18, Ms. Alexander sued for copyright infringement.

During the litigation, both parties moved for summary judgment.

ALEXANDER’S PARTIAL MSJ ON COPYING

Ms. Alexander moved for partial summary judgment, solely on the issue of copying.

Take-Two opposed the motion on four grounds: (1) the copying was de minimis; (2) the tattoos weren’t original to Ms. Alexander both because they were unauthorized copies of tattoos created by another tatooist and, separately, featured common elements and motifs common across tattoos; (3) Alexander granted an implied license when she inked the tattoos; and (4) the use in the video game was a fair use.

Without addressing any of these arguments — including the argument about lack of originality — the court concluded that Take-Two “admitted to copying her original copyrighted tattoo artworks without permission.” Strangely, the court then accused Take-Two of relying on “Second and Fifth Circuit decisions” to argue that Ms. Alexander needed to prove legally actionable copying. While Take-Two does cite cases from those circuits, it also relies on authorities from courts in the Seventh Circuit, including a case that makes the well-settled point that copying is only actionable to the extent original elements were copied. So does the court, in fact, which cites, in its order, to Muhammad-Ali v. Final Call, Inc., 832 F.3d 755, 760 (7th Cir. 2016), which explains that to establish copyright infringement a plaintiff must “prove two elements: ‘(1) ownership of a valid copyright, and (2) copying of constituent elements of the work that are original.’”

The court’s conclusion that, under Seventh Circuit law, “Alexander only needs to show that Defendants used her property” is correct; but the court misunderstands that “her property” requires a showing that the tattoos included original elements authored by Alexander and not (as Take-Two argued was the case) elements originated by another tattoo artist or comprised of common, unprotectable motifs. The court simply ignores this in granting Alexander’s partial MSJ.

TAKE-TWO’S MSJ ON AFFIRMATIVE DEFENSES

Take-Two, for its part, filed an MSJ on the three affirmative defense grounds, i.e., implied license, de minimis use, and fair use. [Note: Lack of originality, discussed above, is not an affirmative defense — it is part of the required showing a plaintiff must make to prove infringement, which again, the court seems to have misunderstood.]

On the first defense — implied license — the parties agreed that an implied license is created when (1) a person (the licensee) requests the creation of a work; (2) the author (licensor) creates the work and gives it to the licensee; and (3) the author intends that the licensee copy and distribute the work. The parties disagreed on the third factor, however, and the court decided that “[i]t is unclear whether Alexander and Orton discussed permissible forms of copying and distributing the tattoo works or whether any implied license included sublicensing rights such that Orton could give permission for others to copy Alexander’s tattoo works.” Huh? This isn’t what Take-Two was arguing, and obviously people who get tattoos don’t discuss licensing rights with their tattoo artists. The whole point of an implied license is that it’s implied by conduct and situational expectations, not expressly “discussed.” I felt like I was watching that Simpsons episode where Homer is telling Bart about a ship in international waters rebroadcasting MLB with implied oral consent not express written consent. Very silly stuff.

On the second defense — fair use — the court goes through the standard four-factor test. Right from the get-go, though, the court again left me puzzled. The court remarks: “Alexander contends she created the tattoos for the purpose of displaying them on Orton’s body and that Defendants used the tattoos for the same purpose; to display them on Orton’s body in the videogames.” The court sees this as a material factual dispute. What? As the Second Circuit observed in Cariou v. Prince, 714 F.3d 694, 707 (2d Cir. 2013), “[w]hat is critical is how the work in question appears to the reasonable observer, not simply what an artist might say about a particular piece or body of work.” Interestingly, the Second Circuit made its observation in reliance on a Seventh Circuit case involving a South Park parody of the viral internet video “What What (In The Butt).” In that case, the court completed the first factor analysis after deciding that “the only two pieces of evidence needed to decide the question of fair use…were the original version of the video and the episode at issue.” Brownmark Films, LLC v. Comedy Partners, 682 F.3d 687 (7th Cir.2012). Here, too, all the court needs for the fair use analysis is a copy of both works to compare. Finally, after muddling through the less important second and third factors, the court totally fails to analyze the fourth factor (market harm) at all. It simply regurgitates the parties’ arguments and recites statements of law about the fourth factor.

On the third defense — de minimis use — the court questions whether the Seventh Circuit even recognizes this defense to copyright infringement and asserts that neither party cites any Seventh Circuit decisions applying the defense and that the court is aware of none. Again, what? Take-Two, in its brief, had already directed the court to two cases in the opening paragraph of its de minimis use argument:

Copying is de minimis if the amount of “protected material” copied “is so trivial as to fall below the quantitative threshold” for infringement. Isringhausen Imports, Inc. v. Nissan N. Am., Inc., No. 10 Civ. 3253, 2011 WL 6029733, at *6 (C.D. Ill. Dec. 5, 2011); see also G.R. Leonard & Co. v. Stack, 386 F.2d 38, 40 (7th Cir. 1967) (copying five of 90,000 entries in travel guide was de minimis and not infringement).

Catherine ALEXANDER, Plaintiff, v. TAKE-TWO INTERACTIVE SOFTWARE, INC., 2K Games, Inc.; 2K Sports, Inc.; World Wrestling Entertainment, Inc.; Visual Concepts Entertainment; Yuke’s Co., Ltd.; and Yuke’s LA, Inc., Defendants., 2019 WL 8109809 (S.D.Ill.)

I actually went to look up the G.R. Leonard case just to read the section on de minimis use for myself because I had a hard time believing that the Seventh Circuit had never dealt with this issue before. Take-Two was right, of course. Alas, needless to say, the court found against Take-Two on this defense also.

Finally, the court denied Take-Two’s MSJ on the issue of damages finding that there “is disputed evidence regarding the value of the copyright tattoo works to the videogames.”

CONCLUSION

The only real winners here are the lawyers. It really felt like the court just wanted to punt everything to the jury and didn’t want to deal with this case. If the court thought that maybe this would pressure the parties to settle, the court was probably wrong. My guess is that Take-Two won’t settle this case and will continue fighting through trial. The only thing this does is drag the case out unnecessarily for several more months.

On September 18, 2020, after a seven day trial, a jury found that Supercell infringed valid GREE patents and ordered it to pay $8,500,000. We previously discussed this case:

Part I: Should Game Companies Fear GREE?

Part II: GREE v. Supercell Continued

THE VERDICT

Of note, the jury found that Supercell failed to prove that any of the asserted claims were invalid. Additionally, the damages award was far less than the $24.6 million GREE was requesting. However, the jury found that at least some of the infringement was willful which means that the judge can impose up to 3x the awarded amount. I suspect that this won’t be the end of this case, and we’ll know within 30 days of entry of the final judgment if Supercell intends to appeal.

A former wrestler and football player sued Microsoft, Epic Games, and others, over a Gears of War character that looked like him. The district court held that the First Amendment protected the game developers and the Third Circuit appeals court affirmed.

BACKGROUND

In the 1990s, Lenwood “Skip” Hamilton, a former college football player, created the now -defunct Soul City Wrestling, a “family-friendly” organization. He performed as “Hard Rock Hamilton” and hoped to spread a “message to kids about drug awareness, and the importance of getting an education.”

In 1998, Lester Speight joined Soul City Wrestling, performing as “Rasta the Voodoo Man.” On July 25, 1998, Soul City Wrestling held an event in Philadelphia featuring Hamilton as “Hard Rock” and Speight as “Rasta.” During the after-party for the event, Speight told Hamilton about plans to participate in a violent shoot ‘em up video game, but Hamilton wasn’t interested because he was trying to promote “family-friendly” content rather than violent games. That video game series would eventually become Gears of War.

A few years ago, Hamilton learned that Epic Games had created a character called August “Cole Train” Cole in Gears of War — a post-apocalyptic fantasy series that takes place on an Earth-like planet called Sera and involves human characters battling exotic reptilian humanoids known as the “Locust Horde.” The character had nothing to do with wrestling or football, and had no references to Hamilton, but nevertheless, when Skip saw the “Cole Train” character, he felt like he was “looking into a mirror.”

He sued Speight and the game developers, including Microsoft and Epic Games, for violation of his right of publicity.

THE DISTRICT COURT JUDGMENT

On September 26, 2019, the District Court in Pennsylvania applied the Transformative Use test (first developed by the California Supreme Court in Comedy III Productions, Inc. v. Gary Saderup, Inc., 25 Cal.4th 387 (2001)) to balance the game developers’ First Amendment rights against Hamilton’s right of publicity. The District Court, being in the Third Circuit, relied on Hart v. Elec. Arts, Inc., 717 F.3d 141 (3d Cir. 2013), which previously applied the test to EA’s NCAA Football game, which included real-world college football players.

In Hart, the Third Circuit distinguished two previous Transformative Use test cases:

• Kirby v. Sega of America, Inc., 144 Cal.App.4th 47 (2006) — The First Amendment protected Sega’s “Ulala” character, a reported in the 25th Century sent to investigate an invasion of Earth by dance-loving aliens who shoot earthlings with ray guns, causing them to dance uncontrollably. The court found that even though there were many similarities between the “Ulala” character and real-world musician Keirin Kirby (whose catch-phrase was “ooh la la”), Sega’s use of the character was “transformative.”

• No Doubt v. Activision Publ’g, Inc., 192 Cal. App. 4th 1018, 1022, 122 Cal. Rptr. 3d 397, 401 (2011) — The First Amendment did not protect Activision’s use of No Doubt band members’ likenesses for uses in Band Hero beyond what they had contractually agreed to (e.g., Gwen Stefani was unhappy that her in-game avatar could be modified to sing other bands’ songs and/or with a male voice).

The Hart court came up with a bright-line rule (over a blistering, well-reasoned dissent) that game developers can’t take real people and put them in a video game doing exactly what they did to get famous in real life, such as playing college football.

The District Court in the Hamilton case followed this bright line rule and saw this situation as more like the Kirby case, where to the extent the real person’s likeness was used, it was totally transformed by the setting of outer space, with aliens, and the fact that the game character didn’t do any of the things the real person (Hamilton) did in real life to achieve fame (football and wrestling). As a result, the District Court ruled that the game developers’ use was protected by the First Amendment.

APPEAL

The Third Circuit affirmed, concluding that “no reasonable jury could conclude that Hamilton…is the ‘sum and substance’ of the Augustus Cole character.” The Third Circuit did agree there were similarities, including: similar skin colors, facial features, hairstyles, builds and voices — as well as a “thrashball” skin which was a fictionalized sport in the game that sort of resembled American football and a “Superstar Cole” skin that resembled Hamilton’s signature wrestling costume. However, the Third Circuit found “other significant differences” which revealed that “Hamilton was, at most, one of the ‘raw materials from which Augustus Cole was synthesized.” The court concluded that “[i]f Hamilton was the inspiration for Cole, the likeness has been so transformed that it has become primarily the [game developers’] own expression,” meaning the First Amendment barred Hamilton’s claims.

MY THOUGHTS

Right of publicity law remains wonky. The points made by the dissenting judges in Hart and Keller — that there is now a “medium-specific metric” in First Amendment jurisprudence that treats video games differently than other artistic mediums — still haven’t been resolved. While this case is a win for the game developers, it doesn’t address those horrific First Amendment problems which still lurk in right of publicity jurisprudence. The idea that it’s never OK to put a real-world person into a video game doing what they did in real life to get famous simply doesn’t jibe with the First Amendment’s protection of expressive speech. Because this particular case involved a “space” fantasy character fighting aliens, everything was fine. I suppose no real change can be expected in the law until a game developer makes a game that features real-world people acting just like their real-world selves in a way that makes judges understand that games can be just as expressive as films, books, and television.

On September 2, 2020, Nintendo withdrew its counterclaims of patent infringement against Gamevice. We’ve discussed this case previously:

• Part I: Third Time's a Charm for Gamevice?

• Part II: Nintendo Loses Damages Expert Testimony

As noted in the last update, Nintendo lost its damages expert testimony, severely hamstringing their case. It looks like they threw in the towel and conceded defeat. The parties stipulated to dismissing Nintendo’s case with prejudice, meaning the case cannot be refiled. This case appears to be the first time Nintendo asserted its own utility patents against another party. This tactic struck me as odd considering the potential damages at stake were probably fairly low on Gamevice’s end. Nintendo most likely counterclaimed for patent infringement to merely create pressure rather than receive damages. It’s also odd that Nintendo decided to withdraw the case entirely since it can still serve to create pressure (and require Gamevice to devote time to it). I’d guess that counsel was concerned that Nintendo may be sanctioned for bringing a frivolous case. Nintendo’s first foray into asserting patent infringement was probably costly and ultimately fruitless.

Trial on Gamevice’s infringement case was scheduled to begin October 26, 2020, but the court vacated that date and a new trial date has not yet been set.

This case involves IP infringement claims brought by Atari against RageOn, for RageOn’s alleged facilitation of sales of infringing Atari merch on RageOn.com. We’ve written about this case twice previously:

• Court denies RageOn’s ex parte application to set aside default judgment

• Court denies RageOn’s ex parte application to release levied funds

Now, the Court considers RageOn’s regularly scheduled motion to set aside the default judgment (i.e., not on an emergency, ex parte basis)

JUDGE GRANTS RAGEON’S MOTION TO SET ASIDE DEFAULT JUDGMENT

After reviewing new evidence that showed RageOn’s CEO had tried his best to keep apprised of the case, the Court decided that RageOn did not intentionally fail to respond to Atari’s complaint. Instead, the Court concluded that RageOn’s first attorney “did not merely commit malpractice.” More than that:

She told her client that she was going to timely file a response, failed to do so, failed to inform her client that she missed the deadline, failed to take any actions to rectify the situation, evaded questions about her various failures, assured her client that all deadlines were being met, and failed to inform her client that other additional deadlines were being missed and that it should hire other counsel to further defend the case.

In other words, the Court that concludes that RageOn did not know that their lawyer had totally “abdicated her duties as counsel.”

As to whether RageOn has a meritorious defense, the Court essentially says that there are a bunch of fact questions that go to the merits, that shouldn’t be resolved at this stage of the case. The Court also was not persuaded that Atari would be prejudiced by having the judgment set aside because Atari hadn’t produced any evidence that RageOn would dissipate the levied funds such that there wouldn’t be enough money for a similar, future judgment. Finally, the Court didn’t think there was too long of a delay between the time Atari received the default judgment and the motion to set it aside. The Court observed that “although a more prudent client may have hired new counsel sooner and would not have assumed the case was resolved because it did not hear anything for a few months” RageOn still didn’t wait an unreasonable time to bring its motion.

NEXT STEPS

From here, with the default set aside and writ of execution quashed, the case will proceed as normal and RageOn will have to file its responsive pleading by September 15, 2020.

As previously discussed, Atari sued RageOn.com for facilitating the sale of counterfeit Atari merch on its platform. After RageOn failed to respond to Atari’s Complaint, Atari obtained a default judgment and had the U.S. Marshal seize $882,000 from RageOn’s bank account. RageOn then fired its counsel (Betty Tufariello), and hired new counsel (Arash Beral of Freeman Freeman and Smiley LLP) and applied, ex parte, for an order setting aside the default judgment. The Court denied that ex parte motion, but did grant RageOn’s request to prevent further enforcement of the judgment until the Court could hear a properly noticed motion to set aside the default, scheduled for August.

RAGEON FILES A NEW EX PARTE APPLICATION

After the Court denied RageOn’s initial ex parte application, RageOn filed a new ex parte application, this time moving for an order releasing $612,192 of the $882,000 on the grounds that RageOn needs those funds to operate its business pending a decision on the motion to set aside the entry of default to vacate the default judgment.

DISTRICT COURT DENIES NEW EX PARTE APPLICATION

The Court begins by explaining that the standard for a TRO is the same as for a preliminary injunction. As a reminder, the plaintiff must establish: (1) a likelihood of success on the merits; (2) likelihood of irreparable harm without the preliminary relief; (3) that the balance of equities tips in his favor; and (4) that an injunction is in the public interest. However, if a plaintiff seeks a mandatory injunction, “she must establish that the law and facts clearly favor her position, not simply that she is likely to succeed.” The Court further explains that “mandatory injunctions should not issue in ‘doubtful cases.’”

Next, the Court explains that to set aside a default judgment, the defendant must show the default wasn’t a result of its culpable conduct, that it has a meritorious defense, and that reopening the default judgment wouldn’t prejudice the plaintiff. If any one of these factors is true, the Court can refuse to set aside the default.

Here, the Court observed that it “could not conclude that the default was not the result of Defendant’s culpable conduct.” The Court points out that RageOn’s CEO was both aware that its prior counsel missed the deadline to respond and that default was entered. The Court also observes that the CEO never saw any draft response to the Complaint, had “apparent conflicts and other issues” with prior counsel, and provided no new evidence to satisfy RageOn’s burden to show that the facts on the issue of fault “clearly favor” it.

After denying RageOn’s request for a mandatory temporary restraining order on that basis, the Court nevertheless goes on to address the 2nd factor (irreparable injury), even though it’s a moot point, to address the veracity of some of RageOn’s statements. In the motion to set aside the entry of default and vacate the default judgment, RageOn had argued that the U.S. Marshal seized “all of RageOn’s money,” rendering it “unable to pay employee wages already earned, unable to pay vendors and suppliers, unable to continue employing workers, and unable to purchase new merchandise to resell.” However, in support of its new ex parte application, RageOn submitted evidence that it has a “working line of capital through Shopify” that “takes 14% of daily sales for its loan to RageOn,” and that shortly after the Marshal levied the funds, RageOn obtained $295,000 in “emergency loans.” The Court then pointed to another $47,149.93 left in the account as well as projected gross profits of $275,000 in July, $261,250 in August, and $247,500 in September, with net income exceeding $30k each month. The Court concludes that “[t]hese figures cast serious doubt on [RageOn’s] statements to the Court that without the levied funds, it would be unable to pay employees and vendors and unable to purchase necessary supplies.”

After going through some additional math and figures, the Court ultimately determines that “seeking to obtain ‘financial health’ is not the same as suffering irreparable harm.”

THE HORIZON

With a hearing still set for August to determine RageOn’s motion to set aside the default judgment, RageOn will have to come up with a persuasive case for why it lacked culpability, in particular, for failing to respond to the Complaint. In the meantime, it will continue to have no access to the $882,000 levied — a great reminder to us all of the pressure good enforcement of judgment work can have on a defendant.

[Special thanks to Docket Navigator for access to the docket and pleadings]

Rageon.com markets itself as the “world’s largest all-over print online retailer” giving “freedom of creation to the masses.” Rageon.com enables “artists from around the globe” to “create and sell any design that comes to mind with no investment other than time.”

Atari sued and obtained a large default judgment against RageOn, Inc. for facilitating the sale of counterfeit products bearing Atari IP on RageOn’s platform. After the U.S. Marshal seized money in RageOn’s bank account (getting RageOn’s attention), RageOn filed an ex parte motion to set aside the default judgment. The court denied the motion, but agreed to give RageOn a chance, on a regularly noticed motion schedule, to make a full argument as to why the judgment should be set aside. Meanwhile, RageOn cannot access any of the money seized by the U.S. Marshal, allegedly causing it all kinds of financial distress (e.g., not being able to make payroll).

COMPLAINT

On December 20, 2019, Atari sued RageOn for “facilitating the sale of substantial quantities of counterfeit goods” bearing Atari’s IP and taking a 25% commission from the sellers.

Atari provides several visual examples in its complaint:

It’s a garden variety counterfeit complaint, with nine different claims, but they all just boil down to: (1) copyright infringement; and (2) trademark infringement.

ENTRY OF DEFAULT AND JUDGMENT AGAINST RAGEON

On December 27, 2019, RageOn received service of process through its registered agent, but did not answer or otherwise respond to the complaint or otherwise participate in the litigation. Between December 30 and January 9, RageOn’s CEO, Mike Krilivsky, emailed his attorney Betty Tufariello numerous times asking for an update but Tufariello did not respond.

On January 16, 2020, Tufariello finally responded stating that “Atari and I are in discussion. I have 21 days. And he is aware of my traveling” and told Krilivsky that she was going to file a stipulation to extend RageOn’s deadline to respond to the complaint. However, Tufariello did not file any stipulation or respond to the complaint by the deadline.

On January 23, 2020, Krilivsky spoke to Atari’s counsel on the phone and by email, explaining that RageOn was being represented by Tufariello, who purportedly received a two-week extension to respond to the complaint from a person named Daniel Sahad. But when Atari’s counsel explained that no one by the name of Daniel Sahad worked at their law firm and that Atari was “about to proceed with default judgment against RageOn because its attorney did not file anything,” RageOn ceased communications and failed to respond. In a footnote, the court observes, of Daniel Sahad, that “there does not appear to be a member of the California bar with that name.”

On January 30, 2020, the clerk entered default pursuant to F.R.Civ.P. 55(a), for RageOn’s failure to file a responsive pleading or otherwise defend the action.

On February 3, 2020, Krilivsky again emailed Atari’s counsel requesting to have a phone call, but counsel declined, as the court observes, presumably due to ethical duties not to communicate with represented opposing parties. Then Krilivsky contacted an “attorney friend” who told him that default had been entered.

On February 10, 2020, Krilivsky followed up with Tufariello who, that same day, filed a motion to withdraw as counsel for RageOn in another matter citing failure to pay, “irreconcilable differences regarding litigation strategy” and “certain conflicts of interest that have recently come up in the present matter, as well as in two other matters, in which I also represent Defendant,” including one matter that “named Intellectulaw and me personally as Defendant’s co-defendants, as a result of my representaiton of Defendant in that matter.”

On February 12, 2020, Tufariello nevertheless texted Krilivsky “that the only pressing deadlines involved non-Atari matters and that ‘the deadlines imposed by Court are being met.” This was not true.

On March 13, 2020, Krilivsky spoke with Tufariello who failed to inform him about the entry of default or her failure to answer the complaint. Krilivsky received no additional case updates which he assumed was because of COVID-19 related court closures.

On April 2, 2020, the court granted Atari’s application for default judgment, in part. The court found the direct copyright and trademark claims sufficient and ignored the other seven claims. The court enjoined RageOn from infringing Atari’s copyrights and trademarks, but declined to award Atari the maximum relief of 4.75 million. Instead, the court exercised its “broad discretion in determining the amount of statutory damages to be awarded,” did some ballpark math about how many infringing products RageOn probably sold and how much profit it probably made, and arrived at a damages figure of $800,000 in Lanham Act damages — but nothing for copyright damages and no attorney’s fees. However, the court also permitted Atari to file a supplemental brief to address these issues, which Atari did.

On April 14, 2020, the court issued a supplemental order regarding Atari’s motion for default judgment. Initially, Atari had failed to establish that its copyrights were registered prior to the first infringement (a necessary prerequisite to obtain statutory damages and attorney’s fees under the Copyright Act). Needless to say, Atari fixed this issue and then sought the maximum statutory damages under the Copyright Act of $150,000 per instance of willful infringement. Again, the court exercised its discretion and declined to award the maximum amount. Instead, the court again did some ballpark math about RageOn’s likely business model and profits and awarded “$60,000 per copyright, twice the maximum for non-willful infringement.” This amounted to $300,000 in copyright damages, to which the court added attorney fees of $25,600, and the original Lanham Act award of $800,000, for a grand total of $1,125,600, plus the injunction.

On April 15, 2020, the court entered judgment.

WRIT OF EXECUTION ISSUED

On June 23, after identifying RageOn’s bank account, Atari requested an order from the court to issue a Writ of Execution and for appointment of a process server to actually serve the Writ on RageOn. The next day, the court issued the Writ and granted Atari’s request. Atari successfully levied on RageOn’s bank account.

On June 29, 2020, Krilivsky learned that approximately $882,000 in his Bank of America account had been seized by a U.S. Marshal. This helped clarify for Krilivsky that the situation was quite dire, causing him to hire new counsel and file an application for relief.

EX PARTE APPLICATION FOR RELIEF AND ORDER

On July 6, 2020, RageOn filed an emergency ex parte application to set aside the judgment and prevent Atari from enforcing the judgment. In opposition, Atari argued that RageOn provided “no plausible explanation why it failed to retain new counsel to represent it in this case after its separation with Ms. Tufariello, or otherwise defend the case.”

On July 10, the Court denied RageOn’s ex parte motion, but granted its request to prohibit Atari from taking further steps to enforce the default judgment or to enforce the Writ of Execution pending decision on a noticed motion. The levied bank funds are now sitting with the U.S. Marshal and the parties have until August to file additional briefs for the court to consider, on a regularly noticed motion schedule, whether to set aside the default judgment.

Needless to say, this is quite awful for RageOn, because it cannot access those substantial funds unless and until the court decides to set aside the default judgment. Of course, that is what happens when you ignore lawsuits and/or hire incompetent counsel to represent you.

[Thanks to Docket Navigator for access to the docket and pleadings in this case.]

A court struck Nintendo’s damages expert testimony severely damaging its patent infringement case.

BACKGROUND

This is a continuation of a case discussed earlier, Gamevice v. Nintendo, where Gamevice sued Nintendo for the Nintendo Switch’s alleged infringement of a family of Gamevice patents. One aspect of the case we did not discuss earlier is Nintendo’s assertion that Gamevice devices infringe three of Nintendo’s patents, U.S. Patent Nos. 7,193,165 (directed towards a handheld gaming device), 8,702,514 (a controller system), and 9,700,806 (a game controller that connects to a separate device). This appears to be the first and only time that Nintendo has asserted any of its utility patents in the United States.

Example figures from the Nintendo patents and Gamevice device below:

On March 30, 2020 Gamevice filed motions for summary judgment of invalidity and noninfringement of the three patents and to exclude the expert testimony of Nintendo’s damages expert. The court issued its ruling on June 6, 2020.

MOTIONS FOR SUMMARY JUDGMENT

INVALIDITY AND NONINFRINGEMENT MOTIONS

The court denied Gamevice’s motions for summary judgment of noninfringement and invalidity of the ’165 and ’514 Patents primarily due to conflicting expert testimony from the experts creating genuine issues of material fact. These opinions don’t really warrant much discussion except for a civil procedure practice point for N.D. Cal. patent cases.

Gamevice filed invalidity contentions for the ’514 Patent on November 1, 2018 (this is a procedural filing identifying why a party believes the patents are invalid and generally identifies all of the prior art it will be using to invalidate a patent). On May 24, 2019, Gamevice served interrogatories on Nintendo asking it to “explain all factual and legal bases for each contention by [Nintendo] that” each prior art reference does not anticipate and thus “invalidate the asserted claims.” Nintendo responded substantively while objecting to the interrogatory as prematurely calling for an expert report. After Gamevice filed its expert report of invalidity of the ’514 Patent in December 2019, Nintendo filed a rebuttal export report in February 2020 and included new substantive arguments towards validity. Gamevice objected to the new arguments and argued for their exclusion. The court recognized that there is something of a split amongst the courts in the district on how to handle these types of objections but ultimately sided with Nintendo because Gamevice had the burden of proof on invalidity. The practice point is that, at least in front of Judge Seeborg in the N.D. Cal., you can reserve some of your arguments for rebuttal expert reports on issues which you do not bear the burden of proof.

The court found for Gamevice on noninfringement of the ’806 Patent primarily on technical/claim construction grounds.

DAUBERT MOTIONS

Both parties filed motions to exclude testimony from the other party’s experts, known as Daubert motions (from Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 589 (1993)). Nintendo moved to exclude Gamevice’s technical expert, which the court denied. Gamevice moved to exclude Nintendo’s damages expert, which the court granted.

Nintendo’s damages expert identified a reasonable royalty in his expert report, but failed to tie it to any facts of the case. The court’s reasoning is fairly damning. A couple of excerpts (with citations removed):

The only attempt Wunderlich makes at tying the royalty rate he assumed to evidence is a statement that his assumed royalty rate is a multiplier on a rate Gamevice paid to a third party. However, Wunderlich then admitted at his deposition that he had used the incorrect third-party royalty rate. He characterized his mistake as a “typo,” but said the typo would not change his damages conclusion because “my analysis isn’t take the [third-party royalty] rate and double it.” Thus, at his deposition, Wunderlich disavowed the only concrete basis for the royalty rate used in his report. This underscores that, regardless of what evidence Wunderlich considered in compiling his report, his calculations are not tied to that evidence. Under Rule 702, a jury cannot be permitted to rely on such unreliable testimony. Without a royalty rate, Wunderlich’s damages calculation is of no use.

And on the damages expert’s opinion on the nexus between the Nintendo patents and success of Nintendo products:

Many of the “technical” opinions on which he relies are inapposite. For example, Wunderlich states, citing another witness, that the size of one of Nintendo’s products, which embodies the ’165 Patent, was integral to its commercial success—but the ‘165 Patent is not about the size of the claimed device. Moreover, Wunderlich cites to a conversation with a technical expert, but that conversation was about Gamevice’s, not Nintendo’s, products. The unreliability of Wunderlich’s opinion on this matter is further underscored by the fact that he does not differentiate among the claims of each patent, while Nintendo itself does not assert its products practice each of the asserted claim.

I’m not sure if Nintendo was just phoning it in with the damages expert reports (and deposition testimony), but I’m sure it wasn’t cheap based on what experts charge.

THE BIG PICTURE

Losing one’s damages expert in patent litigation is a major setback. It allows the other side to enter in expert testimony on appropriate damage without a damages theory of one’s own. Some courts have even granted no damages where infringement was shown, though the Federal Circuit has remanded a number of those cases back to the district court to determine a reasonable royalty. However, if the court finds that the Gamevice devices infringe Nintendo’s patents, it will be hard for Nintendo to argue that a reasonably royalty is far from Gamevice’s damages expert’s estimate. It can also be a setback for the expert since counsel will often vet experts by asking if they’ve ever been successfully Daubert’d. The deficiencies in Nintendo’s damages case make me think that its patent assertion is more about driving towards settlement than to recover any sort of damages, but it’s still surprising that Nintendo’s counsel would allow that damages expert report to go to the court.

[Thanks to Docket Navigator for access to the case docket]