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The Rural Aqueduct Returns! (PUBG v. NetEase, Update)
PUBG sued NetEase for breaching the parties’ settlement agreement over a dispute that arose in 2018 over an alleged clone of Player Unknown’s Battlegrounds, a popular battle-royale game. However, PUBG’s lawyers neglected to have the district court retain jurisdiction over the settlement agreement — a rookie mistake — so the court dismissed the action with prejudice, forcing PUBG back to state court.
PUBG I (BACKGROUND)
In 2018, PUBG Corporation, the eponymous publisher of Player Unknown’s Battlegrounds (“PUBG” for short) sued NetEase, the publisher of Rules of Survival, an alleged clone. PUBG alleged that NetEase copied protected elements of PUBG and asserted claims for copyright infringement, trade dress infringement, and unfair competition. In its Complaint, PUBG included dozens of side-by-side screenshots showing how NetEase completely ripped off every aspect of PUBG gameplay, but used different visuals. The side-by-side images showed how NetEase copied various color schemes, every building type (including layouts and features) and map features such as a shooting range, a farm area, a port with shipping containers, and even a rural aqueduct. During the litigation, NetEase even changed the color of its parachute to be slightly different.
NetEase, represented by Quinn Emanuel, took a classic Quinn approach and sent a letter teeing up a Rule 11 motion, arguing that PUBG had included content in its complaint that it did not originate, such as generic grenades and medicine pack art that PUBG licensed on a non-exclusive basis.
This case was particularly interesting because NetEase “reskinned” all of the visual art, causing PUBG to include (among other claims) a “selection and arrangement” theory of copyright infringement.
On April 8, 2019, however, the parties settled the case, leading us to believe it was all over.
PUBG II (THE NEW CASE)
On October 15, 2019, PUBG filed a new complaint alleged a single claim for breach of contract. PUBG alleged that the Northern District of California court had subject matter jurisdiction over the case because the claims arose under the parties’ settlement agreement.
MOTION TO DISMISS AND MOTION FOR PRELIMINARY INJUNCTION
On January 21, 2020, NetEase filed a 12(b)(6) motion to dismiss for failure to state a claim.
On February 3, 2020, PUBG filed a motion for preliminary injunction.
These motions were scheduled to be heard on May 8, 2020. However, in February, NetEase realized that the court didn’t have jurisdiction over the new case because “the stipulated dismissal filed in PUBG I does not expressly state that the Court retained jurisdiction over the matter.”
COURT DISMISSES PUBG II FOR LACK OF JURISDICTION
Federal courts are courts of limited jurisdiction — and it’s presumed that claims lie outside that limited jurisdiction unless otherwise shown.
In Kokkonen v. Guardian Life Ins. Co. of Am., 511 UI.S. 375, 377 (1994), the U.S. Supreme Court held that “if parties wish to provide for the court’s enforcement of a dismissal-producing settlement agreement, they can seek to do so,” by stating in the dismissal that the court would retain jurisdiction or by incorporating the terms of the settlement agreement in the order. “Absent such action, however, enforcement of the settlement agreement is for state courts, unless there is some independent basis for federal jurisdiction.”
PUBG acknowledged that the court did not state in the dismissal order that it would retain jurisdiction. Since the parties were not completely diverse and no other subject matter jurisdiction existed, the district court then dismissed the case without prejudice, refusing PUBG’s request to correct an alleged “clerical mistake” in the dismissal order or infer intent that was not explicitly there.
If you want a federal district court to retain jurisdiction to enforce a settlement agreement, you have to clearly ask for and obtain that.