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Two Motions to Compel Arbitration Worth Noting (Blizzard and Bungie)
Two recent cases involved motions to compel arbitration worth noting. In the first case, Blizzard successfully appealed a lower court’s ruling denying Blizzard’s motion to compel arbitration in a class-action loot box case. This is a great result because it reaffirms a common framework for user agreement and dispute resolution acceptance used by game companies. In the second case, Bungie sued some cheat developers and faced both a motion to dismiss for failure to state a claim and a motion to compel arbitration (which it mostly agreed to). The Bungie situation left me a bit puzzled and is worth reviewing since the result leaves some of Bungie’s claims in federal court and some proceeding in an arbitration.
Blizzard’s case in San Diego
A little more than a year ago, I wrote about a San Diego superior court denying Blizzard’s motion to compel arbitration based on its view that Blizzard’s user agreement didn’t fairly put players on notice of the arbitration agreement. The class-action complaint in that case alleged that Blizzard violated California’s Unfair Competition Law (UCL) because it sold loot boxes to Overwatch players, which, in the plaintiff’s view, constituted illegal gambling under three different statutes:
California Penal Code §§ 330 et seq.;
the Illegal Gambling Business Act (18 U.S.C. § 1955); and
the Unlawful Internet Gambling Enforcement Act of 2006 (31 U.S.C. §§ 5361-5367).
The trial court denied Blizzard’s motion to compel arbitration, finding a “reasonably prudent user would not have inquiry notice of the agreement” to arbitrate because “there was no conspicuous notice of an arbitration” provision in any of the license agreements.
Back then, I opined that it was “a no-brainer for Blizzard to appeal this decision” and, of course, Blizzard did appeal.
On March 29, 2022, the court of appeal reversed the decision of the superior court, finding instead that Blizzard’s agreement did provide sufficiently conspicuous notice of the arbitration agreement. The appellate court included a screenshot of Blizzard’s pop-up acceptance box in the opinion:
The court of appeal then stated:
As the screenshot shows, the portion of the license agreement immediately visible in the text box displayed two significant notices. First, that users may not use Blizzard's service if they do not agree to all of the terms in the license agreement. And second, that users should read the section of the license agreement “below” titled “dispute resolution” because it contains an arbitration agreement and class action waiver that affect users' legal rights.
The court explained the different types of online agreements including browsewrap, clickwrap, and scrollwrap, discussed in the recent case of Sellers v. JustAnswer LLC, 73 Cal. App. 5th 444, reh’g denied (Jan. 18, 2022), review denied (Apr. 13, 2022). The court concluded that Blizzard’s user agreement was a valid “sign-in wrap” agreement and similarly had “no trouble concluding” that Blizzard’s pop-up notice “provided sufficiently conspicuous notice that a user who clicked the ‘Continue’ button at the bottom of the pop-up would be bound by the […] Agreement and the Dispute Resolution Policy incorporated into it.”
This is an important win for Blizzard and for all game companies being sued in these increasingly prolific class-action loot box cases.
Bungie’s case in Federal court in Seattle
Last summer, Bungie sued two corporate defendants, Aimjunkies.com and Phoenix Digital, as well as several of their individual proprietors, in the Western District of Washington for creating, advertising and selling online cheat software for Destiny 2 for $34.95 per month. Bungie asserted nine claims against the various defendants, including:
copyright infringement under 17 U.S.C. § 501;
trademark infringement under 15 U.S.C. § 1114;
false designation of origin under 15 U.S.C. § 1125(a);
circumvention of technological measures under 17 U.S.C. § 1201(a);
trafficking in circumvention technology under 17 U.S.C. §§ 1201(a)–(b);
breach of contract;
violation of the Washington Consumer Protection Act, specifically RCW 19.86.020; and
The defendants moved to dismiss all of Bungie’s claims under 12(b)(6), arguing that Bungie failed to sufficiently plead each of its claims. The defendants also moved to compel arbitration on claims three through nine, and also argued, in the alternative, that personal jurisdiction and venue were improper in the Western District of Washington. The court rejected defendants’ personal jurisdiction and venue arguments, but we will briefly review the first two motions.
The 12(b)(6) Motion to Dismiss for Failure to State a Claim
On the first claim for copyright infringement, the court first dismissed the claim against the individual defendants because Bungie failed to allege how “any of them personally participated in the alleged conduct….” The court then dismissed the claim as to the corporate defendants because it Bungie failed to allege how the cheating software copied constituent original elements from Destiny 2. This isn’t the first time a game company has tried to claim that cheating software infringes the copyright interest in the game, but it’s a dicey proposition because you have to show how the cheating software copied constituent elements of the game itself. Bungie will have leave to amend, but it’s unclear how Bungie will get past this particular hurdle.
On the second and third claims for trademark infringement, the court found that Bungie had adequately alleged its case and denied the defendants’ motion to dismiss these for failure to state a claim.
The Motion to Compel Arbitration
Both parties agreed that Bungie’s user agreement required the parties to arbitrate their dispute, except with respect to copyright and trademark claims. Bungie argued that its third cause of action for false designation of origin should be excepted from the arbitration provision because it’s really a trademark claim and the court agreed, denying the defendants’ motion to compel the third cause of action to arbitration, but granting the motion with respect to the fourth through ninth causes of action.
This creates a weird situation where Bungie can amend its complaint to proceed with a rather dubious copyright claim and two solid trademark claims in federal district court while concurrently proceeding in arbitration on the remaining claims. It’s not at all clear to me why Bungie would want to be in district court for copyright and trademark claims but not its DMCA claims for the defendants’ circumvention of Bungie’s anti-cheat measures, which are probably Bungie’s best legal claims here. In cases like this, the gravamen of the complaint is that the game company’s anti-cheat technology has been wrongfully circumvented. I am puzzled as to why Bungie did not argue that its DMCA claims were also exempt from arbitration because they are clearly “copyright” claims, similar to how it argued that its false designation of origin claim is really a species of “trademark” infringement.
It will be interesting to see if Bungie amends its complaint to try and cure the copyright claim defect and also how the strategy of arbitrating the DMCA claim (and other claims) but not the trademark claims works out.