Bungie obtains restraining order and civil judgment against a West Virginia man who terrorized a Bungie community manager and his wife.

Judgment Summary

Judgment Creditor: Bungie, Inc.

Judgment Debtor: Jesse James Comer

Principal Judgment Amount: $405,189.22

Attorney Fees: $83,806.30

Costs: $240

RCW 4.84.080 Fees: $200

Total Judgment: $489,435.52

Post-judgment Interest: 12% per annum until paid in full

Protecting your Employees from Harassers: Priceless

Default Judgment and Order

To promote Destiny 2, Bungie employs community managers to serve as a bridge between Bungie and its players. One of these community managers referred to as “D. Doe” (to preserve as much anonymity as possible to protect against further harassment) promoted the artwork of UhMaayyze, a talented Black fan and creator of Destiny 2 fan art. This irritated Comer, who started a “campaign of racist, stochastic terrorism against the Does and Bungie.”

The Campaign of Terror

Comer’s first act was to add a new phone number to his TextNow VOIP service, which allows anonymous calling. He then immediately proceeded to call D. Doe’s personal cell phone and left a “hideous, bigoted voicemail.” (Complaint) He then left several more voicemails and repeatedly asked the Does to convince Bungie to create options in Destiny 2 in which only persons of color would be killed. Mr. Comer next threatened D. Doe’s wife, K. Doe, by leaving even more racist voicemails and texts for her. In these messages, he referred to himself as “Clay Bramston.” Comer spent hours carpet bombing the Does with more racist voicemails and texts.

To rachet things up even further, Comer decided to show the Does that he knew where they lived and could assault them there. Using an anonymous number, he placed a cash-on-delivery order with Domino’s Pizza for a “virtually inedible odiferous pizza.” (Complaint) Comer instructed the pizza delivery driver to “knock at least five times” on the Does’ door because he would be “wearing headphones” and so would need loud, insistent banging on the door to hear anything. Comer used Domino’s online order tracking system to confirm that the Does had received his “pizza-shaped threat” then left K. Doe another voicemail telling her to “enjoy the pizza.”

Comer bragged about all of this terrorism to the “terr0rgang” group on Steam. This lovely group apparently maintains a set of sound files and noises labeled as “ear rape” for use in terror campaigns. Comer followed up with yet another voicemail with one of these “ear rape” sounds played at high volume.

Bungie’s Actions

Within one hour of the “pizza attack,” Bungie sent out executive protection to the Does and called the police. Bungie then engaged investigators and outside counsel to track Comer down. It then brought a legal action in West Virginia, Mr. Comer’s home state, to get a restraining order against him. Finally, Bungie retained round-the-clock security for the Does and commenced a civil action in Washington State to pursue damages against Mr. Comer.

In its Washington State court action, the court found that (1) Comer interfered with Bungie’s contractual relations, (2) his behavior constituted a nuisance, (3) he violated Washington’s Consumer Protection Act; (4) he invaded the Does’ privacy and intruded on their seclusion; and (5) Bungie was entitled to injunctive relief as well as money damages.

Enforcing the Judgment

It’s important to remember that just because Bungie won a default judgment doesn’t mean that Comer will actually pay anything. Bungie will now have the often unenviable task of trying to enforce this judgment. Bungie may well encounter difficulties in actually enforcing against Mr. Comer in West Virginia. For example, people like this are often judgment proof because of inability to pay, or they aren’t deterred by having arrest warrants issued against them, etc. Nevertheless, obtaining this civil judgment sends an important message to both Bungie employees and other, would-be harassers, that this kind of racist terrorism won’t be tolerated.

Plaintiffs: Sanchez, et al.

Platinffs’ Counsel: Faruqi & Faruqi

Defendant: Nintendo

Defendant’s Counsel: Perkins Coie

THE BIG PICTURE

Nintendo defeats plaintiffs’ attempt to sidestep mandatory arbitration clause (and class action waiver).

HISTORY

We previously wrote (here and here) about a number of class action lawsuits filed against Nintendo related to issues with the Nintendo Switch Joy Cons (shown below). Courts moved the previous class action suits to arbitration based on the Switch EULA.

CURRENT CASE

In a recent case, parents and their children filed another putative class action related to the Joy Con issues. Here, they attempted to avoid the binding arbitration clause found in the EULA by arguing that the children received the Switches as gifts and that the children properly disaffirmed the EULA. (We’ve previously written about attempts to avoid the application of a EULA through a minor’s disaffirmation here). The arbitration panel considered these arguments and found that the parents had agreed to the EULA during Switch setup and that there was no agreement between Nintendo and the children. The plaintiffs then tried to argue the same gifting and disaffirmation points with the district court under a motion to amend their complaint. The district court held that the plaintiffs were collaterally estopped from making those same arguments again and dismissed the case due to the children lacking standing (the parents previously abandoned their claims when it was clear that their claims would have to be heard individually in arbitration).

CONCLUSION

Plaintiffs continue to try to avoid the applicability of EULAs through minors’ disaffirmation, mostly to avoid the applicability of mandatory arbitration clauses. While it was not successful in this case, there may be an increase in this strategy in the future (for example, this Roblox case where the plaintiff is arguing that in California, a minor is entitled to disaffirm a contract).

Plaintiff: Pavel Gostev

Plaintiff’s Counsel: Blood Hurst & O’Reardon; The Law Offices of Andrew Brown; Ellsworth Law Firm

Defendant: Skillz Platform, Inc.

Defendant’s Counsel: Quinn, Emanuel Urquhart & Sullivan

Big Picture

The California Court of Appeal’s February 28, 2023 decision in this case is important to study for anyone responsible for drafting terms of service agreements that contain agreements to arbitrate. The decision deviates from some recent federal cases (particularly on who decides issues of arbitrability) and it highlights how important it is, in general, to make terms as consumer-friendly and mutual as possible.

The Skillz platform and Terms of service

Skillz provides a mobile platform that hosts games in which players can pay to compete against each other for cash prizes. To participate, players must create an account which entails providing an email address, entering a date of birth, and tapping a button that says “Next.” Below the “Next” button are the words: “I agree to the Terms of Service and the Privacy Policy.” The underlined text is hyperlinked and, if clicked, takes the player to the terms of service.

The plaintiff, a resident of the state of Washington, created his account in July 2019 and sued Skillz in San Francisco County Superior Court in February 2021. He alleged that Skillz’ games constitute gambling games in violation of California and federal law and also brought claims for unfair competition the violations of the CLRA. The plaintiff was aware of the arbitration provision in the Terms of Service when he filed his lawsuit, and addressed it in his complaint. He alleged that the agreement to arbitrate was unenforceable because it prohibited public injunctive relief in violation of McGill v. Citibank, N.A. (2017) 2 Cal.5th 945, 216 Cal.Rptr.3d 627, 393 P.3d 85 (McGill), and because it was unconscionable.

The trial Court decision

Skillz petitioned to compel arbitration and the trial court denied the petition. The trial court found that the parties had not delegated the issue of arbitrability to the arbitrator. The court also found that the arbitration agreement was procedurally and substantively unconscionable. At the hearing on the petition, the court observed:

“I've got to say that we’ve look[ed] at a lot of these arbitration cases and ... this is the longest list of unconscionable features that I think I've ever seen.”

In its written decision, the court identified (among other things) as substantively unconscionable provisions:

• that plaintiff’s damages are limited,

• the arbitration must occur in San Francisco,

• plaintiff only has one year to bring his claim,

• the parties must split the arbitration fees and costs, and

• defendant can obtain equitable relief without posting a bond or security.

After the trial court denied its petition to compel arbitration, Skillz appealed.

The Appeal (affirming the trial court’s decision)

Arbitrability

The appellate court first examined whether the parties had agreed that the arbitrator would decide the threshold issue of arbitrability. The court observed that the default rule is that a court — not an arbitrator — will make that decision, unless the parties clearly and unmistakably agree otherwise. The appellate court found that Skillz’ terms of service did not contain an express agreement on this topic and that it wasn’t sufficient to simply reference the AAA Commercial Rules (which provide: “The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.”) Skillz had pointed to federal authority that holds the opposite, including e.g., G.G. v. Valve Corporation (9th Cir. 2020) 799 Fed.Appx. 557, 558 (under Washington state law, “teenagers clearly and unmistakably agreed to arbitrate questions of arbitrability because the arbitration agreement incorporates AAA rules”). The California appellate court, though, which isn’t bound by federal decisions, said it didn’t find such authority persuasive and instead relied on several California state court decisions in reaching a contrary result.

Unconscionability

The appellate court next examined whether the terms of service were unconscionable. Under California law, both procedural and substantive unconscionability must be shown for the defense to be established, though not necessarily to the same degree. For terms of service agreements, like this one, procedural unconscionability is usually easy to show since they are offered on a take-it-or-leave-it basis. In this case, the court also pointed to allegations of inconsistencies in the agreement itself. On substantive unconscionability, the appellate court was, like the district court, persuaded that Skillz had included too many provisions which were non-mutual in nature. In addition to those listed above by the trial court, the appellate court also highlighted:

• the requirement to arbitrate disputes in this case was not mutual (i.e., only Skillz could bring IP claims in court and only Skillz could bring claims in court for billing disputes and alleged unfair methods in participating in the services or using the software)

• the $50 cap on liability;

• a waiver of liability for injury due to hacking; and

• an indemnification clause which was non-mutual and one-sided.

Accordingly, it concluded that the lack of mutuality in the promises to arbitrate in the terms of service were also substantively unconscionable.

Public Injunctive Relief

Public injunctive relief is relief that benefits the general public — not just the individual plaintiff who brings a lawsuit under California’s CLRA and UCL. In this case, the plaintiff alleged that Skillz’ terms of service violated the McGill case (cited above) which held that an arbitration provision was invalid and unenforceable in California insofar as it purported to waive a plaintiff’s statutory right to seek public injunctive relief under the CLRA and UCL.

In this case, the arbitration provision specified that the “arbitrator may award declaratory or injunctive relief only to you individually, and only to the extent required to satisfy your individual claim.” The appellate court found that, “[g]iven the myriad limitations in the Terms of Service favoring Skillz, it seems likely that Skillz intended the language at issue would prevent the award of injunctive relief benefitting anyone other than the individual user, but we need not resolve this question of contract interpretation.” In other words, since so many of the other terms were found to be unconscionable, this was basically a moot point.

Other Issues with the Terms of Service

In addition to the problems discussed above, the appellate court, like the trial court, also took issue with the shortened one-year limitations period on claims, mandating that arbitration be in San Francisco, and the agreement that the parties share equally in the fees and costs of the arbitration. The court also took particular issue with the fact that the arbitration filing fee for the plaintiff’s claim was $6,250, while the Terms of Service purported to limit damages to $50.

As a result, the appellate court affirmed the trial court’s order denying the petition to compel arbitration.

Plaintiff: Peter Mai, et al.

Plaintiff’s Firm: Blood Hurst & O'Reardon, LLP

Defendant: Supercell

Defendant’s Firm: Tyz Law

BIG PICTURE

Supercell earns a decisive win in a loot box class action lawsuit we mentioned previously. The court dismissed the case with prejudice.

The Amended Complaint

Plaintiffs (on their second go-around after their first complaint was dismissed) alleged that Supercell’s Brawl Stars and Clash Royale games contained loot boxes which should be considered illegal gambling games under California law. The plaintiffs alleged to have spent in excess of $150 and $1,100 purchasing loot boxes in Supercell’s games (image from the first amended complaint below).

Plaintiffs’ claims all rely on the underlying assumption that loot boxes are illegal gambling, they were based on:

1. California’s Unfair Competition Law (UCL) (Cal. Bus. & Prof. Code §§ 17200, et seq.);

2. California’s Consumer Legal Remedies Act (CLRA) (Cal. Civ. Code §§ 1750, et seq.); and

3. Unjust Enrichment.

Order Granting Motion to Dismiss

Illegal Gambling

The court analyzed whether Supercell’s loot boxes constituted illegal gambling under the California Penal Code, which requires a game where a “thing of value” may be won or lost based on chance. Plaintiffs alleged that the loot box prizes had subjective non-monetary value to users, including aesthetic and entertainment value. However, the court held that this is not enough stating that under California precedent such subjective value cannot satisfy the “thing of value” requirement for a game to be considered gambling. Plaintiffs also alleged that the prizes have monetary value because external exchanges allowed for the sale of accounts and items. The court found that this too was not enough under California law because Supercell’s terms of service prohibit the sale or purchase of virtual goods.

Other Claims

The court found that plaintiffs lacked standing on the claims related to California’s UCL and CLRA.

The UCL prohibits any “unlawful, unfair or fraudulent business practice.” To have standing under the UCL, plaintiffs had to show that they suffered some form of economic injury. The court found that plaintiffs failed to show economic injury because the plaintiffs had received exactly what they had paid for (i.e., they had received the benefit of the bargain). Plaintiffs argued that the benefit of the bargain analysis did not apply because there are exceptions for material misrepresentations (i.e. Supercell not disclosing that the sale of loot boxes was unlawful gambling transactions) and because purchasing illegal or unapproved products may constitute economic injury. Both of these arguments failed because the court found that the loot boxes were not illegal gambling.

To have standing under the CLRA, plaintiffs had to show that they were exposed to an unlawful practice related to the sale of goods or services and that they suffered some form of damages. As an initial matter, the court found that the sale of virtual currency is not a good or service under the CLRA. The court also found that there were no damages and that the sale of loot boxes is not unlawful.

Finally, because loot boxes are not unlawful gambling, the court also dismissed plaintiffs’ unjust enrichment claim stating “courts may not use the unfair competition law to condemn actions the Legislature permits.”

Conclusion

This is one of several cases (e.g. this case) over the past year where courts have determined that loot boxes are not gambling under California law. As discussed in our last loot box litigation snapshot in March 2021, there had been a flurry of class-action lawsuit activity in the loot box space. Some of these cases are now being resolved. While the Ninth Circuit hasn’t yet weighed in on the issue, it would look like these cases are doomed for failure in California, at least for now.

Both Warner Bros. and Microsoft have been dealing with putative class-action lawsuits related to in-app purchases in their respective games. Both companies recently filed motions to compel arbitration, in their respective cases, which, if successful, would destroy the class-action nature of the suits and effectively end them. This month, the court ruled on the motions. Microsoft prevailed in its case, but Warner Bros. did not. In this blog, we will explain the differing outcomes and conclude with a couple of simple, practical takeaways.

The Case Against Warner Bros.

Warner Bros. developed a free-to-play mobile game with in-app purchases (“IAPs”) called Game of Thrones Conquest (“GOTC”). The IAPs range in price from $1 to $100 in real currency. The plaintiffs include numerous minors who purchased content packs at various prices, including one minor who allegedly spent $6,200 on IAPs.

On February 24, 2022, the plaintiffs filed a putative class-action against Warner Bros. In their first amended-complaint, filed on May 23, 2022, the plaintiffs alleged a host of familiar claims: violation of California’s UCL; violation of California’s False Advertising Law; violation of the California Consumers Legal Remedies Act; fraud; negligent misrepresentation; declaratory judgment; violation of New Hampshire’s Regulation of Business Practices for Consumer Protection Act; violation of Washington’s Consumer Protection Act; and violation of N.Y. Gen. Bus. Law 349 & 350.

When new players (as well as players who re-download the game) launch GOTC, they see an opening screen that looks like this:

Both the “Terms of Service” and “Privacy Policy” text had hyperlinks to the respective documents. The terms of service (sometimes referred to as the “terms of use”) had an arbitration and class-action waiver. The issue on WB’s motion to compel arbitration, however, was whether this particular acceptance user-interface met the legal standard for “mutual assent” to be bound to a contract under California law.

WB argued that there was mutual assent to the arbitration agreement within the terms because (1) the opening screen provided reasonably conspicuous notice of the terms; and (2) the plaintiffs took an “action” (i.e., clicking a button or checking a box) that unambiguously manifested their assent to the terms. The plaintiffs disputed both points.

In its order denying WB’s motion to compel arbitration, the court agreed with the plaintiffs that WB had failed to provide reasonably conspicuous notice of the terms.

The court began by observing that “in order to determine whether there is mutual assent, the Court must look at the context of the transaction, in addition to the visual elements of the Opening Screen.” The court found it very important that players were not required to create an account before playing the game. In the court’s view, this meant that, at least for some players, there was no contemplation of some sort of “continuing relationship…that would require some terms and conditions.” WB argued that players did have to create App Store accounts, but the court found that the creation of those accounts were “irrelevant to the issue of whether Warner Brothers’ Opening Screen put users on sufficient notice of Warner Brothers’ TOU.”

The court further faults WB for a “typographical error” in the text of its terms because, at least at some point in time, the hyperlinked text read “Terms of Use” whereas the document itself was titled “Terms of Service” and the court thought that could be confusing (presupposing that anyone ever reads the terms, regardless of how they are labeled).

Ultimately, the court concluded that “[i]n the absence of a formal sign-up process—which would convey to users that they were entering into an ongoing relationship with Warner Bros.—the Court cannot reasonable expect GOTC users to click the link to the TOU and be placed on inquiry notice.”

The Case Against Bethesda

The putative class-action against Bethesda involved minors who purchased a “Season Pass” for Fallout 4. The complaint alleges a variety of claims, including: breach of contract; unjust enrichment; promissory estoppel; fraud or deceit; fraudulent concealment; negligent misrepresentation; tort arising out of breach of contract; breach of express warranty; and violation of Maryland Consumer Protection Act. The gist of the complaint is that the plaintiff and those similarly situated purchased a game pass that didn’t contain all the content that was allegedly promised.

Bethesda contended that the plaintiff created an Xbox Live account and Bethesda.net account and agreed to multiple agreements with arbitration clauses, including the ZeniMax Terms of Service (prior to the Microsoft Acquisition on March 9, 2021), the Xbox Live Terms of Use, the Microsoft’s Services Agreement and Microsoft’s Store Terms of Service. The plaintiff countered that he was a minor and did not assent to Bethesda’s agreement, and that Bethesda can’t rely on the Microsoft agreements because it didn’t become a Microsoft affiliate until almost two years after the lawsuit was filed.

The court granted Bethesda motion to compel arbitration.

In its order, the court rejected plaintiffs theory that, because he was a minor when he entered into the ZeniMax TOS, the court had to decide his defense of capacity to contract. The court found that under Maryland law, minors have the capacity to contract, but may “void contracts other than those for life necessities.” In other words, the law in Maryland (and most other places) regards “contractual obligations of minors as voidable, giving the minor child the choice whether to avoid the contract, or to perform it.” Thus, Plaintiff could disaffirm the agreement, making the contract voidable, but it would only become void upon disaffirmance. This meant that “formation of the contract itself is not the issue, and Plaintiff’s potential defense is reserved for the arbitrator.”

This case did not involve any question about the user interface or how the terms were actually presented to the plaintiff for acceptance.

Conclusion

The primary takeaway here is: Get affirmative assent to your terms of use. While it’s always desirable to get players into the game as fast as possible, it’s not that hard to make sure they are affirmatively accepting the terms. Small, hyperlinked text, linking to an external terms of service document below a giant “PLAY” button is not the way to go.

The secondary takeaway is: Do not make spelling mistakes in critical legal documents such as the title of your terms of use.

Plaintiff: Bungie Inc.

Plaintiff’s Firm: Perkins Coie

Defendant: Aimjunkies.com et al

Defendant’s Firm: Mann Law Group

The Big Picture

A cheat maker raises a couple of novel defenses alleging that Bungie violated the cheat maker’s terms of service by decompiling and reverse engineering the cheat software and committed various CFAA and DMCA violations by surveilling a developer without consent.

PROCEDURAL HISTORY

As discussed previously, in June 2021, Bungie sued Aimjunkies (and others), developers of a popular Destiny 2 cheating tool for:

• Copyright Infringement (Count 1);

• Trademark Infringement (Count 2);

• False Designation of Origin (Count 3);

• Circumvention of Technological Measures (Count 4);

• Trafficking in Circumvention Technology (Count 5);

• Breach of Contract (Count 6); and

• Tortious Interference (Count 7).

In January 2022, Aimjunkies filed a motion to dismiss for failure to state a claim on most Counts and to compel arbitration for Counts 3-7.

In April 2022, the court granted Aimjunkies’ motion with respect to Counts 1 and 2, but provided Bungie with the opportunity to file an amended complaint. The court also found that Bungie’s Limited Software License Agreement (“LSLA”) required all but Claims 1, 2, and 3 to be arbitrated (Bungie probably realized they were going to lose on this point and voluntarily submitted a demand for arbitration on those claims in February. Bungie hasn’t updated their LSLA to, for example, exempt DMCA claims (Counts 3 and 4) so we’ll see if they end up changing their arbitration clause in the future.

Bungie filed an amended complaint in May and, on September 16, Aimjunkies filed its Answer and counterclaims.

Answer And Counterclaims

Defendants’ answer includes Counterclaims for Unauthorized Access with Intent to Defraud, Theft of Computer Data, Unauthorized Access, and Circumvention of Technological Measures with respect to Defendant James May and Breach of Contract and Digital Circumvention of Technological Measures with respect to Defendant Phoenix Digital.

Essentially, Defendants have two main counterclaims. First, Defendants argue that Bungie’s anti-cheat software obtained information from Defendant May’s computer about the operation of cheating programs, but Bungie’s LSLA did not provide Bungie with any authority or ability to do so. (Bungie’s current LSLA states that Bungie’s anti-cheat software will process certain information such as running processes, but this wasn’t true for the entire time period at issue.) Defendants also allege that Bungie then used that information to do further surveillance on other parties who also presumably did not consent to such surveillance.

Second, Defendants argue that Bungie agreed to Defendants’ own terms of service to download the cheat and that those terms of service were breached when Bungie decompiled and reverse-engineered the software. It would be interesting to see how the court handles these Counterclaims, but I would assume the case will result in some form of settlement before they are resolved.

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….

This is an interesting order on a motion to dismiss in a loot box class-action case where the court opines on what reasonable people expect about loot box odds even when the publisher doesn’t disclose anything. While the defense would have been even stronger had the game publisher disclosed the drop rates, it’s notable that the publisher still prevailed despite failing to do so, based on notions of common sense.

The Complaint

The class-action complaint alleged deceptive practices in connection with Lilith’s Games’ “Rise of Kingdoms” (RoK) mobile game. The plaintiffs alleged that they were duped into spending thousands of dollars on in-game purchases of gems to play rigged loot box card and wheel games that had unfavorable odds for players. Specifically, plaintiffs alleged that Lilith misrepresented the chances of receiving valuable items for games that required gems to play, secretly sponsored some players and gave them free in-game resources, and failed to enforce the ToS, which allowed some players to share their accounts thereby making the game more difficult and more expensive for players who followed the rules.

The plaintiffs alleged to have spent $8,000 to $15,000 each on purchases of bundles of gems to use in the loot box games within RoK. They allegedly paid to play games called “Card King,” the “Garden of Infinity” and “Wheel of Fortune” 50 or more times at a sitting in hopes of winning prizes. The plaintiffs assumed certain odds based on the use of six-sided dice, 12-spoke wheels and other features, but had no way of knowing the real odds since Lilith did not disclose them. When the plaintiffs didn’t win at what they believed was the statistically expected rate, they concluded the games were rigged and cited to videos on Facebook and YouTube in the complaint to support this claim.

The plaintiffs brought claims based on the:

1. California Consumer Remedies Act (Cal. Civ. Code § 1750, et seq.);

2. Unfair or Unlawful Business Practices (Cal. Bus. & Prof. Code, § 17200, et seq.);

3. Unfair or Unlawful Contest or Sweepstakes (Cal. Bus. & Prof. Code, § 17539.1, et seq.);

4. California’s False Advertising Law (Cal., Bus. & Prof. Code §§ 17500, et seq.); and

5. Breach of the covenant of good faith and fair dealing.

Order granting Motion to Dismiss

Since some of the claims were based on claims of fraud/deception, the court applied a heightened pleading requirement under FRCP Rule 9(b), which requires parties to “state with particularity the circumstances constituting fraud or mistake.” The court concluded that since Lilith did not post odds for the RoK games, it could not have affirmatively misled the plaintiffs. It also found the references to third party videos on YouTube and Facebook “wholly speculative musings” and at several points “largely incomprehensible.” The court chided plaintiffs, saying:

Dropping hyperlinks to what is in effect gossip on the Internet is not the type of plausible allegation of fact that Rules 8 and Rule 12(b)(6) contemplate.

The court also rejected the plaintiffs’ contentions about Lilith misleading players based on how the loot system operated. Plaintiffs had taken the position that because the “Wheel of Fortune” game featured a 12-spoke wheel, this implied players who spun the wheel had a 1 in 12 chance of winning the best prize while spinning the wheel. The court disagreed, finding that “nothing in the presentation of the wheel alone plausibly indicates that players had an equal chance of landing on a given spoke.” Instead, the court found that it “is just as plausible that the odds of hitting a given spoke were not equal,” because “[s]ome of the prizes on the wheel were among the most valuable and rare items available to players, and it is not implausible that it would be more difficult to win them even on what was digitally displayed as an equally divided wheel.” The court observed that “[p]laintiffs’ own characterization of loot boxes as awarding rare and valuable goods on a ‘very low percentage of occasions’ is consistent with the commonplace understanding that rare and valuable items are not equally available as winnings in a game.”

The court next considered the plaintiffs’ allegations about account sponsorship and Lilith’s non-enforcement of the ToS, but found these allegations also lacked sufficient particularity and pointed out other possible explanations for players losing (e.g., to more powerful players).

Observations

At first blush, the court’s reasoning might seem strange. It’s useful, though, to compare RoK’s “wheel” game to the well-known “Wheel of Fortune” game show. If you’ve ever watched “Wheel of Fortune,” you might initially observe that, when a contestant spins the wheel, the chances of the marker landing on a particular wedge (at least those of the same width) are basically the same. For example, if you are trying to calculate the odds of landing on the million dollar prize, you may see that it is initially based on the number of wedges visible — i.e., 1 in 72 chance. However, landing on that wedge only gives you a chance to get the million-dollar prize. You still have to win the game, make it to the bonus round without landing on the bankruptcy wedge (1 in 12 chance each spin), spin for a prize envelope and hope that the prize envelope is the one that has the million dollar prize in it (1 in 24 chance). So, the effective odds of winning the million-dollar prize are far, far worse than initially appears. (Maybe that’s why only three people have ever won it.)

In RoK, the court basically says it’s similar. Reasonable people would understand it’s not really going to be 1 in 12 odds, even if the wedges appear equal to all the others in dimensions. The court refers, conceptually, to a “commonplace understanding” and implies that people intuitively know it’s going to be harder to win rare prizes than common ones.

Another interesting observation is that the court rejected Lilith’s Communications Decency Act (CDA) defense. While this was recently successful for Google in defending against a loot box class-action, the distinction here is that Lilith created the content in question whereas Google, as a platform/host, didn’t.

The court gave the plaintiffs leave to amend for “one last round,” but it seems dubious that this case will survive much longer.

Overview

Zynga quickly settled a class-action lawsuit (discussed previously) alleging that its online games were illegal gambling under Washington law. This was one of many such lawsuits filed post-Kater.

Settlement

This agreement in principle (still requires formal court approval) comes less than three months from the filing of the complaint and establishes a $12 million settlement fund for the class members. As a reminder, Churchill Downs and Aristocrat settled their case for nine figures. We can probably expect to see similar settlements from game companies that operated these virtual casino-type games in Washington.

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:

1. California Penal Code §§ 330 et seq.;

2. the Illegal Gambling Business Act (18 U.S.C. § 1955); and

3. 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:

1. copyright infringement under 17 U.S.C. § 501;

2. trademark infringement under 15 U.S.C. § 1114;

3. false designation of origin under 15 U.S.C. § 1125(a);

4. circumvention of technological measures under 17 U.S.C. § 1201(a);

5. trafficking in circumvention technology under 17 U.S.C. §§ 1201(a)–(b);

6. breach of contract;

7. tortious interference;

8. violation of the Washington Consumer Protection Act, specifically RCW 19.86.020; and

9. unjust enrichment.

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.

The Parties

Plaintiff: Tonda Ferrando and Dex Marzano

Plaintiff’s Firm: Edelson PC

Defendant: Zynga, Inc.

The Big Picture

Following the $155 Million Big Fish Casino settlement, a new class-action suit was filed against Zynga for illegal gambling.

The Case

On February 25, 2022 plaintiffs filed suit against Zynga in the Western District of Washington for violations of Washington gambling and consumer protection statutes (Revised Code of Washington 4.24.070 and 19.86.010) based on Zynga’s operation of various slot machine like games. In particular, plaintiffs allege that the games are illegal gambling in part due to the virtual chips that can be purchased or won are things of value because they extend gameplay. As plaintiffs note, the Ninth Circuit in Kater v. Churchill Downs (which the Big Fish Casino settlement resulted from) held that the virtual chips in that case were things of value pursuant to Washington’s gambling definition because they extended gameplay.

We’ll be keeping an eye on this case.

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.

This is our seventh installment in the Epic Games v. Apple dispute.

• Part I: Lawsuit filed

• Part II: TRO filed

• Part III: Opposition

• Part IV: Court splits the TRO baby

• Part V: Preliminary Injunction Order

• Part VI: Rule 52 Order After Trial

In this post, we’ll review: (i) the Ninth Circuit’s partial stay of the district court’s permanent injunction, (ii) the landslide of amicus briefs supporting Epic Games’ position from 35 state AGs, the EFF, Microsoft, and distinguished law professors, and (iii) Microsoft’s newly announced app store principles and how they might fit into a larger plan to unseat Apple as the world’s largest mobile game distributor.

The Parties

Plaintiff: Epic Games, Inc.
Plaintiff’s Firm: Cravath, Swaine & Moore
Defendant: Apple Inc.
Defendant’s Firm: Gibson Dunn & Crutcher

The Ninth Circuit’s Order

On December 8, 2021 the Ninth Circuit granted Apple’s motion to stay, in part, the district court’s September 10, 2021, permanent injunction pending appeal. The Ninth Circuit explained:

Apple has demonstrated, at minimum, that its appeal raises serious questions on the merits of the district court’s determination that Epic Games, Inc. failed to show Apple’s conduct violated any antitrust laws but did show that the same conduct violated California’s Unfair Competition Law. See City of San Jose v. Off. of the Com’r of Baseball, 776 F.3d 686, 691–92 (9th Cir. 2015) (“[U]nder California law ‘[i]f the same conduct is alleged to be both an antitrust violation and an “unfair” business act or practice for the same reason—because it unreasonably restrains competition and harms consumers—the determination that the conduct is not an unreasonable restraint of trade necessarily implies that the conduct is not “unfair” toward consumers.’” (quoting Chavez v. Whirlpool Corp., 113 Cal. Rptr. 2d 175, 184 (Cal. Ct. App. 2001))). Apple has also made a sufficient showing of irreparable harm, see Disney Enters., Inc. v. VidAngel, Inc., 869 F.3d 848, 865–66 (9th Cir. 2017), and that the remaining factors weigh in favor of staying part (i) of the injunction and maintaining the status quo pending appeal, see Nken v. Holder, 556 U.S. 418, 434–35 (2009).

As a result, the Ninth Circuit stayed the portion of the permanent injunction that enjoined Apple from prohibiting developers to include in their apps and their metadata buttons, external links, or other calls to action that direct customers to purchasing mechanisms, in addition to Apple’s in-app purchase system.” However, the Ninth Circuit left intact the second part of the injunction that enjoins Apple from prohibiting developers from “communicating with customers through points of contact obtained voluntarily from customers through account registration within the app.”

The Amici

On January 27, 2022, numerous organizations filed amicus briefs in support of Epic’s position, including a coalition of 35 state attorneys general, Microsoft, the Electronic Frontier Foundation, and two separate groups of law professors. The Department of Justice also filed a brief, but didn’t directly support either Apple or Epic. The Verge helpfully uploaded all of these briefs to Document Cloud:

• The coalition of 35 states led by Utah

• The Electronic Frontier Foundation (EFF)

• Microsoft

• The Consumer Federation of America and the developers Basecamp (the makers of the Hey email app), Match Group, and Knitrino

• Public Citizen

• The Committee to Support the Antitrust Laws

• The American Antitrust Institute

• A group of 14 law, economics, and business professors

• A second group of 38 law, economics, and business professors

The state AGs largely focus on Section 1 of the Sherman Act (which mirrors their position in their complaint against Google).

The most interesting brief, though, is the amicus brief that includes Prof. Herbert Hovernkamp, who the New York Times has dubbed “the Dean of American Antitrust Law” and who literally wrote the book on antitrust law. According to the publisher, his book has been has been “cited more than 50 times by the Supreme Court, more than 50 times by the FTC, and more than 1,050 times by the federal courts.”

In their amicus brief, the law professors argue that the court committed three fundamental errors:

1. It accepted business rationales that do not promote competition or economic efficiency and are, as a matter of law, not cognizable antitrust justifications;

2. It failed in its legal conclusions to credit a less restrictive alternative to Apple’s restraints that it recognized in its factual findings; and

3. In dismissing the case based on its conclusion that the plaintiff failed to show such an alternative, it never engaged in the required analysis of net competitive effects.

On the first point, the professors contend that Apple’s explanations for why it needed app store payment restrictions — chiefly, to ensure privacy and security for iOS apps — aren’t valid antitrust justifications for harming competition. The professors use cars as an analogy:

Imagine if automobile manufacturers claimed that they should be permitted to restrict competition to ensure that they could provide higher-quality cars—perhaps cars with bigger engines, better sound systems, or more reliable and safer brakes. Such contentions—similar to those offered by Apple—would be dismissed. And this would not be a close call. For more than four decades, one of the most uncontroversial principles in antitrust law is that restrictions on competition cannot be justified by arguments that they will improve product quality or even safety.

On the second point, the professors point out that the district court’s own factual findings showed that Apple could easily use a less restrictive alternative. For example, under Apple’s “notarization” model, Apple could continue to review all the apps on the App Store for safety, privacy and security, without limiting distribution. The professors observe that the court’s acknowledgement of this less restrictive alternative that achieved Apple’s objectives “allows us to have our antitrust cake and eat it too, as the defendant can attain its goals while doing so in a way that much less significantly harms competition.”

On the third point, the professors point out that the district court failed to engage in the required balancing when a court finds both harm to competition and benefits that enhance competition that cannot be obtained by less restrictive alternatives.

Microsoft

Microsoft, of course, whose employees testified at trial, also submitted an amicus brief. And, just yesterday, Microsoft took a further shot at Apple’s business model by publishing its own app store principles. In addition to promising quality, safety, security and privacy — all of Apple’s core values — Microsoft directly challenges Apple’s disputed practices by promising (among other things):

• We will not require developers in our app store to use our payment system to process in-app payments.

• We will not require developers in our app store to provide more favorable terms in our app store than in other app stores.

• We will not disadvantage developers if they choose to use a payment processing system other than ours or if they offer different terms and conditions in other app stores.

• We will not prevent developers from communicating directly with their customers through their apps for legitimate business purposes, such as pricing terms and product or service offerings.

Microsoft published these principles, of course, to help reassure the FTC that its acquisition of Activision-Blizzard won’t harm competition and should proceed. But Microsoft is also clearly trying to position itself as a better alternative to Apple as an app distributor that provides all the same benefits, but also plays fairly with developers.

Back in 1996, Microsoft’s Bill Gates published an essay called “Content is King” to emphasize how a website’s content is essential to attracting visitors. Now, it seems that Microsoft has also fully embraced the corollary adage that “distribution is queen.” In trying to turn its Game Pass subscription into the “Netflix of gaming” Microsoft will need to distribute on all platforms and dethrone Apple and Google in their dominance of mobile app distribution. Their support of Epic Games’ appeal and their new app store principles fully support that disruptive ambition.

Last week, the Ninth Circuit Court of Appeals issued two important orders for cases we’ve covered extensively:

(1) in Epic v. Apple, staying the district court’s injunction against Apple pending appeal; and

(2) In Good Job Games v. SayGames, reversing dismissal and remanding to allow for jurisdictional discovery.

Epic v. Apple

On December 8, the Ninth Circuit Court of Appeals granted Apple’s motion to stay, in part, the district court’s September 10, 2021 permanent injunction pending appeal. The Ninth Circuit found that Apple demonstrated “at a minimum, that its appeal raises serious questions on the merits of the district court’s determination that Epic Games, Inc. failed to show Apple’s conduct violated any antitrust laws but did show that the same conduct violated California’s Unfair Competition Law.” In reaching this determination, the Ninth Circuit cited to previous case law that potentially casts doubt on the district court’s judgment:

[U]nder California law [i]f the same conduct is alleged to be both an antitrust violation and an “unfair” business act or practice for the same reason—because it unreasonably restrains competition and harms consumers—the determination that the conduct is not an unreasonable restraint of trade necessarily implies that the conduct is not “unfair” toward consumers.

As a result, the stay of the injunction will remain in place until the appeal is completed. As a reminder, the order had enjoined Apple from prohibiting developers to include in their:

Apps and their metadata buttons, external links, or other calls to action that direct customers to purchasing mechanisms, in addition to Apple’s in-app purchase system.

It also enjoined Apple from prohibiting developers from:

Communicating with customers through points of contact obtained voluntarily from customers through account registration within the app.

Developers who were planning on engaging in these behaviors as a result of the earlier order may now want to think twice before executing on those plans.

Good Job Games v. SayGames LLC

Back in 2020, I remarked that “[t]he most aggravating thing that happened this year was diametrically opposing CivPro results in some very similar clone cases,” in reference to:

·         Good 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); and

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

All of these cases involved personal jurisdiction questions and allegations of conduct directed at California. All three cases ended up getting dismissed for lack of personal jurisdiction, but only one – the Wargaming.net case – allowed for jurisdictional discovery. I lamented that “[h]opefully, the court of appeal can clear up the confusion soon.”

On December 10, the Ninth Circuit provided at least some help in this regard. It reversed a district court dismissal and remanded to allow for jurisdictional discovery in the Good Job Games (GJG) case (that we’ve covered before). GJG, which sued SayGames for its allegedly infringing Cannon Shot! game, had alleged that Cannon Shot! was distributed in the U.S. on the Apple App Store and on Google Play, and U.S. citizens received ads on Facebook. In requesting leave to conduct jurisdictional discovery, GJG had sought specific information from SayGames, including:

·         the downloads of, revenue derived from, and distribution agreements regarding Cannon Shot! in the United States;

·         SayGames’ efforts to advertise, market, license, commercialize, or profit from Cannon Shot! in the United States;

·         and SayGames’ ability to engage in country-specific distribution of Cannon Shot!, including the ability to choose distribution in the United States.

Thankfully, the Ninth Circuit recognized that this kind of discovery might well demonstrate facts sufficient to constitute a basis for jurisdiction. It remains to be seen, on remand, whether a basis for jurisdiction will exist, but I am dubious that SayGames didn’t direct its efforts towards the United States and remain cautiously optimistic that GJG will be able to discover and prove this. Practitioners representing developers should keep a close eye on this case going forward.

This is our sixth installment in the Epic Games v. Apple dispute.

• Part I: Lawsuit filed

• Part II: TRO filed

• Part III: Opposition

• Part IV: Court splits the TRO baby

• Part V: Preliminary Injunction Order

In this post, we’ll review some highlights from the court’s September 10, 2021, “Rule 52 Order After Trial on the Merits” and reflect on the outcome.

The Parties

Plaintiff: Epic Games, Inc.
Plaintiff’s Firm: Cravath, Swaine & Moore
Defendant: Apple Inc.
Defendant’s Firm: Gibson Dunn & Crutcher

The Order

The App Store Business

The court’s 185-page order provides a lot of interesting information about Apple and Epic’s respective business practices and the market for mobile gaming. The court made a number of interesting observations about the App Store business in particular:

• One industry report describes mobile gaming as a “$100 billion industry by itself” that accounts for 59% of global gaming revenue

• Apple enjoys considerable market share of over 55% and extraordinarily high profit margins

• Game transactions overall accounted for 76% of Apple’s App Store revenues in 2017, 62.9% in 2018, and 68% in 2020

• This ~70% of revenue is generated by less than 10% of all App Store consumers

• By contrast, over 80% of all consumer accounts generate virtually no revenue, as 80% of all apps on the App Store are free

• The App Store is primarily a game store and secondarily an “every other” app store

On the “positive” side of Apple’s App Store distribution restrictions, the court found:

• App distribution restrictions increase security in the “broad” sense by allowing Apple to filter fraud, objectionable content, and piracy during app review while imposing heightened requirements for privacy

On the “negative” side of Apple’s App Store distribution restrictions, the court found:

• Apple’s restrictions on iOS game distribution have increased prices for developers

• Some of Apple’s practices unreasonably restrain competition and harm consumers; namely, the lack of information and transparency about policies which effect consumers’ ability to find cheaper prices, increased customer service, and options regarding their purchases. Apple employs these policies so that it can extract supracompetitive commissions from this highly lucrative gaming industry.

Why Did Epic Sue Apple?

Epic sought to disrupt Apple’s business model for two reasons. First, Epic sought “a systematic change which would result in tremendous monetary gain and wealth.” Second, Epic sought “to challenge the policies and practices of Apple and Google which are an impediment to Mr. Sweeney’s vision of the oncoming metaverse” which Epic views as the future of both gaming and entertainment. On that topic, the court recited Tim Sweeney’s metaverse definition: “a realistic 3D world in which participants have both social experiences, like sitting in a bar and talking, and also game experiences . . . .” It also provided an example Sweeney gave at trial involving players in Fortnite watching a Netflix show:

All in the virtual 3D world. You can stand there and watch Netflix with your friends, and it’s different than watching it in front of the TV. You can talk to your friends and you can emote and throw tomatoes at the screen. And so it is a very different experience than either a game or Netflix.

(Sweeney also referenced two outstanding sci-fi novels, Snowcrash and Ready Player One, in his testimony, both of which involve metaverses.)

Epic saw, however, that Apple’s App Store “platform fees” posed “an existential issue” to both Epic’s “business plans and Mr. Sweeney’s personal ambitions for Fortnite, its digital gaming and retail store, and the evolving metaverse.” The court observed that “Epic Games also hoped to revive and reinvigorate Fortnite by pivoting its business whereby player-developers could create new content and plaintiff could ‘shar[e] [a] majority of profit with [those] creators.’”

We’ve previously discussed how Epic went about suing Apple, so we won’t cover that again here.

The court found that Apple Did Not Violate the Antitrust Laws

The court’s antitrust analysis in the order is long and complicated. But the gist of what the court found isn’t. It found that Apple isn’t a monopolist and that, even though Apple exercises considerable market power, it didn’t unreasonably restrict trade with its App Store rules — or, at least not within the meaning of the antitrust laws (more on that, below).

The parties vigorously disputed the relevant product and geographic markets and the court agreed with neither side. Instead, the court found that the relevant market is “digital mobile gaming transactions.” Although the court found that Apple exercises “market power,” in the mobile game market, it also found that its market power wasn’t extreme or substantial to the point where it could be said that Apple has “monopoly power.” Instead, the court viewed Apple and Google as duopolists (which gives us at least some insight into how the Epic v. Google case may fare). The court opined that “Apple is near the precipice of substantial market power, or monopoly power, with its considerable market share” and “is only saved by the fact that its share is not higher, that competitors from related submarkets are making inroads into the mobile gaming submarket, and perhaps, because [Epic] did not focus on this topic.” As a result, the court next looked to whether Apple nevertheless imposed an “unreasonable restraint on competition” with its App Store rules.

Using the “rule of reason” test, the court employed the Supreme Court’s burden shifting framework:

To determine whether a restraint violates the rule of reason, . . . a three-step, burden shifting framework applies. Under this framework, the plaintiff has the initial burden to prove that the challenged restraint has a substantial anticompetitive effect that harms consumers in the relevant market. If the plaintiff carries its burden, then the burden shifts to the defendant to show a procompetitive rationale for the restraint. If the defendant makes this showing, then the burden shifts back to the plaintiff to demonstrate that the procompetitive efficiencies could be reasonably achieved through less anticompetitive means.

While the court found that Apple’s app distribution restrictions do have “some” anticompetitive effects, it also found some “procompetitive justifications based on security and the corollary interbrand competition, as well as generally with respect to intellectual property rights.” As such, the burden shifted back to Epic and, while Epic proposed some alternatives to Apple’s restrictions, it did not meet its burden to show that those alternatives are “virtually as effective” as Apple’s current distribution model and can be implemented “without significantly increased cost.” The court found that “Apple’s business choice of ensuring security and protecting its intellectual property rights through centralized app distribution is reasonable,” and it declined “to second-guess that judgment on an underdeveloped record.”

What about the anti-steering provisions?

Even though Epic conceded that it breached the DPLA (the standard, non-negotiable developer agreement with Apple) and lost all of its antitrust claims, it still had an Unfair Competition Law (UCL) claim. California’s UCL prohibits business practices that constitute “unfair competition,” which means “any unlawful, unfair or fraudulent business act or practice.” Cal. Bus. & Prof. Code § 17200.

Under the “unfair” prong, as a competitor who claimed to have suffered injury from Apple’s unfair practices, Epic needed to show that Apple’s conduct:

(1) “threatens an incipient violation of an antitrust law,”

(2) “violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law,” or

(3) “otherwise significantly threatens or harms competition.”

In evaluating this claim, the court highlighted that Apple uses “anti-steering provisions” prohibiting apps from including “buttons, external links, or other calls to action that direct customers to purchasing mechanisms other than in-app purchase,” and from “encourag[ing] users to use a purchasing method other than in-app purchase” either “within the app or through communications sent to points of contact obtained from account registrations within the app (like email or text).” Thus, “developers cannot communicate lower prices on other platforms either within iOS or to users obtained from the iOS platform. Apple’s general policy also prevents developers from informing users of its 30% commission.”

Relying on a Supreme Court First Amendment case, Bates v. State Bar of Arizona, 433 U.S. 350, 364 (1977) the court stated that “commercial speech, which includes price advertising, ‘performs an indispensable role in the allocation of resources in a free enterprise system.’” Thus, although Epic Games failed to prove a “present antitrust violation,” the anti-steering provisions “threaten an incipient violation of an antitrust law by preventing informed choice among users of the iOS platform.” The court decided these provisions in the DPLA violated the UCL’s “unfair prong” and should be stricken with an injunction.

The Scoreboard

The court found in favor of Apple on all counts except with respect to violation of California’s unfair competition law and only partially with respect to its claim for declaratory relief. The court also terminated the preliminary injunction.

Epic will get:

…a nationwide injunction…enjoining Apple from prohibiting developers to include in their:

Apps and their metadata buttons, external links, or other calls to action that direct customers to purchasing mechanisms, in addition to Apple’s in-app purchase system.

Nor may Apple prohibit developers from:

Communicating with customers through points of contact obtained voluntarily from customers through account registration within the app.

Apple will get:

(1) damages in an amount equal to (i) 30% of the $12,167,719 in revenue Epic Games collected from users in the Fortnite app on iOS through Epic Direct Payment between August and October 2020, plus (ii) 30% of any such revenue Epic Games collected from November 1, 2020 through the date of judgment; and

(2) a declaration that (i) Apple’s termination of the DPLA and the related agreements between Epic Games and Apple was valid, lawful, and enforceable, and (ii) Apple has the contractual right to terminate its DPLA with any or all of Epic Games’ wholly owned subsidiaries, affiliates, and/or other entities under Epic Games’ control at any time and at Apple’s sole discretion.

Further Thoughts

I had two big questions after reading the opinion:

First, between the termination of the preliminary injunction and the new declaratory relief, Apple now has discretion to terminate the separate DPLA between Apple and Epic International (which it threatened to do before the TRO issued), which would prevent Epic from accessing the tools and SDKs necessary to continue Unreal Engine development for iOS. Will Apple do that? It seems unlikely, but that would be very bad for developers, of course, if it happened.

Second, even though things could have been far worse, how much does this really hurt Apple? In big mobile game markets like Southeast Asia, many games — particularly those made by the biggest and most profitable developers — already send players outside of the app (e.g. to a developer website) to make purchases, thereby avoiding the 30% app store commission. If that practice becomes the new global norm after this ruling, won’t Apple face a material drop in revenue? Apple’s global revenues were $271 billion in 2020. If Apple does, in fact, control 55% of the $100 billion mobile market (i.e. approx $55 billion — or roughly 20% of Apple’s revenue), losing a significant chunk of that seems, at least potentially, pretty unpleasant. Even if Apple only loses half that amount, that’s still a 10% drop in revenue.

Needless to say, we’ll need to see the exact wording of the permanent injunction once it issues — and how game developers respond — but it probably won’t be much different (if at all) from what’s in the Rule 52 Order. For the time being, though, unless Apple decides to act vengefully and terminate access to the tools necessary to continue Unreal Engine development for iOS (again, I think that’s unlikely since that would hurt Apple, too), this order could strike an enormous blow to Apple’s revenue. The real winner here seems to be game developers who have the wherewithal to implement their own payment systems on other platforms, now that they have the freedom to tell their players that those other payment options exist outside the app.

Finally, I think it’s unlikely that Judge Rogers’ ruling will be overturned on appeal. The court’s antitrust analysis is thorough and compelling, and its unfair competition law ruling is solidly grounded in First Amendment principles. Still, there is a very strong chance the fight between Epic and Apple will continue well after trial and, with this much at stake, it’s hard to predict exactly how and when this war will end.

The New Mexico Attorney General claims that Rovio violates COPPA and state privacy laws.

THE SUIT

On August 25, 2021, the New Mexico Attorney General sued Rovio, the Angry Birds developer, for COPPA violations. The suit alleges that Rovio directs Angry Birds towards minors and as such must comply with COPPA and state privacy laws. The suit also alleges that Rovio fails to comply with the relevant laws because it provides third parties with device identifying information constituting minors’ personally identifiable information.

COPPA

COPPA (The Children’s Online Privacy Protection Act) protects the information of children under the age of 13. COPPA applies to website operators and service providers who either direct their services towards children under the age of 13 or who have actual knowledge that they have personal information from children under the age of 13. COPPA requires services providers to obtain parental consent when collecting minors’ personal information as well as providing a privacy notice detailing how personal information will be used among other requirements. The COPPA statute identifies some factors to consider to determine if a website or service is directed towards minors and those include:

its subject matter, visual content, use of animated characters or child-oriented activities and incentives, music or other audio content, age of models, presence of child celebrities or celebrities who appeal to children, language or other characteristics of the Web site or online service, as well as whether advertising promoting or appearing on the Web site or online service is directed to children

DIRECTED TOWARDS MINORS

The suit alleges that Rovio “aggressively directs” Angry Birds to minors through:

• Angry Birds’ E (Everyone) Google Rating - pointing out that Google’s rubric for determining a game’s rating looks at some of the same factors as the COPPA statute;

• Angry Birds’ silly, cartoonish animated characters (image below from Complaint):

• Rovio’s marketing campaign that included toys and merchandise directed to young children (including plush toys, coloring books, and children’s puzzles, baby blankets, children’s Halloween costumes, etc.);

• Market research showing addictive play by children;

• Cartoons and films marketed towards children; and

• Rovio’s own words from its website:

Kids love playing our games! We strive to create fun and engaging games that people of all ages can enjoy, and we’re totally jazzed that so many young kids gravitate towards our titles. Thank you parents for allowing your children to enjoy our games!

(This quote alone may have been enough on this point.) The suit alleges that Rovio attempts to avoid complying with COPPA by crafting a privacy policy that “disavows its actual audience.”

Under our Terms of Service, you represent that you are at least 13 years of age. However, we do not know the specific age of individual users of our Services. If you are under 13 years of age, please do not provide your personal data (including your name, address, telephone number, or email address) to us or use the Services to make your personal data available to others.

Personal INformation

The COPPA statute defines personal information to include “any other identifier that the Commission determines permits the physical or online contacting of a specific individual.” The suit states that the Angry Birds apps collect device identifiers to “track children over time and across apps, devices, and websites” and that this information is shared with advertising companies to create user profiles and serve third-party advertising.

THOUGHTS

Game companies should beware when having games or ancillary content heavily directed towards children. Privacy policies disclaiming information from minors will most likely not cut it with government regulators.

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]

In this post, we’ll briefly review some of the interesting legal cases going on in the world of video games.

Trials

Gree v. Supercell

While we decided at the start of this year that we (at least mostly) wouldn’t be covering patent cases going forward, we’ll make an exception here to continue a bit of coverage on Gree v. Supercell. Back in September 2020, a Texas jury found that Supercell had willfully infringed a number of Gree’s patents and awarded $8.5 million in damages. (Case 2:19-cv-00070-JRG-RSP). This year, on May 7, 2021, another Texas jury found that Supercell had willfully infringed a number of different Gree patents and awarded $92,176,058 in damages. (Case 2:19-cv-00200-JRG-RSP) While both of these verdicts made the news, they weren’t the whole story.

On November 19, 2020, the Federal Circuit issued an opinion affirming the invalidity of certain claims in Gree’s U.S. Patent No. 9,597,594, including claim 2, which was the only claim of the ‘594 patent asserted at trial (there were other patents asserted, as well). Then, on May 10, 2021, the Federal Circuit affirmed a PTAB decision invalidating claims 1-20 of Gree’s U.S. Patent Number 9,897,799 (not directly at issue in either trial). During the post-trial motion phase, Judge Gilstrap ordered the parties to mediate and the parties settled.

If you want to study the cases at issue, the dockets include:

• 2:19-cv-00070-JRG-RSP

• 2:19-cv-00071-JRG-RSP

• 2:19-cv-00072-JRG-RSP

• 2:19-cv-00200-JRG-RSP

• 2:19-cv-00237-JRG-RSP

• 2:19-cv-00310-JRG-RSP

• 2:19-cv-00311-JRG-RSP

• 2:19-cv-00413-JRG-RSP

• 2:20-cv-00113-JRG-RSP

Overall, these cases continue to remind us of the perils of defending patent cases in Texas (or, at least, in the Eastern and Western districts).

Huffman v. Activision-Blizzard et al.

Activision successfully defeated Booker T. Huffman after a jury trial in Texas over the alleged copying of his “G.I. Bro” wrestling/comic book character persona. Back in July, when covering the denial of Activision’s MSJ, I commented that having a jury trial would be “[a] ridiculous waste of time and resources for what’s clearly an erroneous decision,” so I was pleased to learn that a jury agreed with me on the merits and sided 100% with Activision. Simply put: there was no copying of any original elements from Booker Huffman’s work. The judge has set a schedule for post-trial briefing with opening briefs due on August 16, 2021. Let’s hope Huffman throws in the towel soon.

Valve Loses Patent Trial -- Jury Awards $4,029,533.93

In keeping with our general rule against covering patent cases, we’re just going to leave this citation here for review since the verdict was not insignificant: Ironburg Inventions Ltd. v. Valve Corp., No. C17-1182 TSZ, 2021 WL 2137868 (W.D. Wash. May 26, 2021).

Civil Procedure

Wargaming.net Dismisses Apple Suit

Earlier this year, we discussed three different mobile game clone cases brought by foreign game developers in U.S. district courts in California. All three were eventually dismissed on personal jurisdiction grounds, including Wargaming.net Ltd. v. Blitzteam, LLC, Case No.: CV 20-02763-CJC. After getting dismissed in the initial suit against Blitzteam, Wargaming then filed a suit against Apple for distributing Blitzteam’s allegedly infringing game. 

On April 12, however, Wargaming and Apple stipulated to a dismissal of the case without prejudice. (Case 2:21-cv-01066-JVS-JPR). This is the second time in two years we’ve seen Apple get sued for allegedly distributing an infringing clone game followed by a quick voluntary dismissal, indicating some behind-the-scenes negotiation and/or settlement. It will be interesting to see if this becomes a trend.

“Cranking” Dance Step Case Transferred to Northern District of Georgia

Remember the “Cranking” Dance Step Case? We first covered it more than a year ago, where I mused about personal jurisdiction and thought this would be an easy win for Take-Two. A year later, though, while the court decided that the case was justiciable under the Declaratory Judgment Act since Mr. Sims had sent a demand letter to Take-Two claiming he owned the dance step used in Take-Two’s NBA2K game, the court also decided that venue in California was improper since all Sims did to establish contact with California was send Take-Two a letter there. The court acknowledged that “in some instances” sending a cease-and-desist letter may provide a basis for personal jurisdiction, but here, it didn’t find sufficient supporting facts aside from that, so transferred the case to Georgia to die there instead. Take-Two Interactive Software, Inc. v. Sims, 2021 WL 2417002 (N.D. Cal. June 14, 2021).

Antitrust

Pistacchio v. Apple

On October 8, 2020, less than a month after Epic Games sued Apple, this fast-follow, class-action lawsuit was filed against Apple for allegedly monopolizing “the market for iOS subscription-based mobile gaming services.” On March 11, 2021, Judge Rogers granted Apple’s motion to dismiss the complaint with leave to amend. Rogers ruled that “Pistacchio’s antitrust claims must be dismissed because such claims rest on an insufficiently pled narrow product market.” A few weeks later, the plaintiffs’ firm threw in the towel and voluntarily dismissed. Pistacchio v. Apple, (N.D. Cal. Case No. 4:20-cv-07034-YGR). This case is really only interesting insofar as you’re trying to read the tea leaves and predict how Judge Rogers might rule in the Epic Games v. Apple case. 

Epic Games v. Apple

The biggest antitrust story of the year has been the Epic Games lawsuit against Apple, which we’ve covered a few times already. While the parties have already tried the case, Judge Rogers has yet to issue a ruling. She is expected to rule within the next few months.

State AGs Sue Google

On July 7, 2021, three dozen state attorneys general joined the big tech piñata party and sued Google for allegedly taking “steps to close the ecosystem from competition and insert itself as the middleman between app developers and consumers.” The complaint makes very similar allegations as Epic’s complaint against Apple and bemoans the up to 30% commission that Google charges app developers on purchases. Google responded, in a blog post, by saying that “[t]his complaint mimics a similarly meritless lawsuit filed by the large app developer Epic Games, which has benefitted from Android’s openness by distributing its Fortnite app outside of Google Play.”

Wolfire Games, LLC v. Valve Corp.

On April 27, 2021, a small indie game studio, Wolfire Games, sued Valve for allegedly monopolizing distribution of PC games via the “Steam Store.” The complaint alleges, similar to the Apple and Google lawsuits, that “Valve is able to extract such high fees because it actively suppresses competition to protect its market dominance.” WOLFIRE GAMES, LLC v. VALVE CORPORATION, 2021 WL 1658403 (W.D.Wash.) Valve has filed a motion to dismiss, currently calendared for hearing on September 17, 2021. Wolfire Games is represented by Quinn Emmanuel. Based on the complaint, and similarly peculiar market definition, I expect this case to meet a similar fate as Pistacchio.

Anti-Cheat

In January 2021, the fine attorneys at Mitchell Silberberg & Knupp represented Riot and Bungie in a garden variety lawsuit against a reseller of cheating software over VALORANT and Destiny 2 cheating tools. After that case settled, Bungie then teamed up with Ubisoft to go after another cheat distributor to “put an immediate stop the the unlawful, for-profit sale and distribution of malicious software products designed to enable members of the public to gain unfair competitive advantages (i.e., to cheat)” in Rainbow Six: Siege and Destiny 2. Bungie v. Thorpe a/k/a Krypto, (N.D. Cal. Case No. 3:21-cv- 5677). Ubisoft and Bungie obtained a default judgment. While these are ordinary cases, they are perhaps somewhat unique in that they involve developers teaming up to fight cheating.

Employment

DFEH v. Activision-Blizzard

The DFEH’s enforcement action, filed on July 20, 2021, seeks to “remedy, prevent, and deter unlawful harassment, retaliation, and discrimination.” Specifically, the DFEH pleads “claims for sex discrimination in terms and condition of employment (including compensation, assignment, promotion, constructive discharge, termination); unlawful sexual harassment; retaliation; failure to prevent discrimination, harassment, and retaliation; and unequal pay.” Department of Fair Employment and Housing v. Activision-Blizzard, 2021 WL 3109804 (Cal.Super.).

Contracts

You Still Gotta Pay the Caterer for Your Esports Event

In March 2020, a catering company called Marbled and a U.K. gaming company, Overlord, entered into a contract in which Marbled agreed to provide catering services to Overlord for the FLASHPOINT CS-GO Global Qualifier, including for competitors and Overlord's staff, tables, chairs, food for lunch and dinner, servers and food warmers, in return for payment of $93,963.15. Because of the pandemic, though, the event couldn’t happen in-person as planned. Instead, Marbled alleges that the parties entered into a new, oral contract, whereby the catering would be delivered to the competitors’ houses in Los Angeles and to Overlord’s staff in its LA office during the 5-week competition. Marbled alleges that it ended up supplying food and services totaling $201,544.01, but that Overlord only paid $130,543.33 leaving an unpaid balance of $71,000.68. Medz Ventures, Inc. v. Overlord Media, Ltd., 2021 WL 3075378 (Cal.Super.).

O'Donnell/Salvatori Inc. v. Microsoft Corp.

A company called ODS sued Microsoft alleging that Microsoft still owes it payments for use of the Halo music or derivative works and for internal uses of the music for promotional and marketing purposes. Microsoft moved for partial judgment on the pleadings. The court granted the motion as to some of the claims, but denied it as to others, including the primary claim for breach of contract and the duty of good faith and fair dealing, so the case goes on. O'Donnell/Salvatori Inc. v. Microsoft Corp., No. C20-882-MLP, 2021 WL 535128 (W.D. Wash. Feb. 12, 2021).

Loot boxes & Monetization

Coffee v. Google

Back in February, we wrote about an order granting Google’s motion to dismiss with leave to amend in the Coffee loot box case. The plaintiff filed a First Amended Complaint. Google filed a new motion to dismiss and the hearing is set for October 21, 2021 at 9:00 am. In the FAC, the plaintiffs allege more of the same, including: (1) that “loot boxes are gambling devices” under California law; and (2) that Google’s conduct “violates established public policies and is immoral, unethical, and unscrupulous” in violation of the Unfair Competition Law. Both of these theories continue to have little chance of succeeding.

Ramirez v. Electronic Arts

Back in February, we also wrote about the Ramirez v. EA case. On March 5, 2021, the court granted EA’s motion to compel arbitration. This is great news for EA; and, also, it provides an argument for keeping arbitration and class-action waivers in terms of service. (Compare this approach with Amazon’s recent decision to ditch arbitration altogether in its user agreement in an attempt to avoid mass arbitration filings.)

Zanca v. Epic Games

The court in Zanca v. Epic Games, Inc., No. 21-CVS-534 (N.C. Sup. Ct.,Wake County) has yet to grant or deny final approval of the proposed settlement. A similar case filed in California, K.W. v. Epic Games, No. 3:21-cv-00976-CRB (N.D. Cal.), is stayed, pending the outcome.

Automatic Renewal Case filed against Zenimax

On July 22, 2021, a class-action complaint was filed against Zenimax for allegedly “engaging in an illegal ‘automatic renewal’ scheme” with respect to its subscription plans for Elder Scrolls Online (ESO) Plus-branded products and services that are available exclusively to consumers who enroll in Zenimax’s auto-renewal membership programs. Armstrong v. Zenimax Media, Inc., 2021 WL 3123974 (Cal.Super.). This complaint follows similarly-themed legislative news: On July 6, 2021, Senators Schatz (D-Hawai’i), Thune (R-S.D.), Warnock (D-Ga) and Kennedy (R-La) introduced new legislation to “stop deceptive subscription business practices.” You can read the text of the bill here.

Roblox Sued for Allegedly Deleting Purchased Content

On May 25, 2021, Roblox got sued in a class-action for allegedly unfairly deleting purchased content without issuing a refund. The complaint alleges:

Defendant’s decision to sell first and “moderate” later has obvious monetary benefit for Roblox. By the time Defendant has deleted items from the Avatar Shop and users' inventories, it has already taken its 30% commission from the sale. Roblox retains all monetary benefit after deleting items from its platform while its players are left with nothing. 

Doe v. Roblox Corp., 2021 WL 2143926 (N.D.Cal.). While this seems like a fun final exam hypothetical, it seems unlikely that Roblox actually engages in this behavior. On June 10, 2021, however, Roblox filed a notice that the parties are “evaluating a potential resolution of this action,” so perhaps we’ll never know.

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.]

Nintendo wins a motion for summary judgment against a ROM site operator, continuing their fight (as previously discussed) with ROM sites.

The Parties

Plaintiff: Nintendo of America, Inc.

Plaintiff's Firm: Perkins Coie

Defendant: Matthew Storman

Defendant’s Firm: N/A

Background

In 2018, Nintendo began a campaign against ROM sites. Most sites suspended operations, but Matthew Storman, the owner of ROMUniverse.com, was determined to fight back. He continued to operate the site and was publicly defiant. In September 2019, Nintendo sued Matthew Storman for copyright infringement (Nintendo of America Inc. v. Matthew Storman, Case No. 2:19-cv-07818, (C.D. Cal 2019)). Storman attempted to crowdfund a legal defense, stating:

Now I know what you’re thinking, this one person is going to take on one of the largest console/gaming manufacturers in the world?  And the short answer is YES, I believe that I have a solid defense, and considering that other romsites have folded and settled, this has never been done before.

And due to the presumed failure of the crowdfunding campaign, it remained one person taking on Nintendo - he was forced to (or chose to) represent himself throughout the case. On December 29, 2020, Nintendo filed a motion for summary judgment which the judge granted on May 26, 2021.

Motion for Summary Judgment

Nintendo moved for summary judgment on all counts (Direct Copyright Infringement, Secondary Copyright Infringement, and Trademark Infringement) and sought $15,610,000 in statutory damages, attorneys’ fees, and a permanent injunction. Storman attempted to avoid responsibility for copyright infringement by arguing that he never actually verified the contents of the files on his website, including those that he uploaded himself. He attempted to walk this line in his opposition to the MSJ and filed a declaration stating:

Defendant denies and disputes that he uploaded any files to said website and at no time did he verify the content of said ROM file. A file with a title of Mario Brothers does not mean that said file contains Nintendo’s copyrighted video game.

The problem for him is that during his deposition he stated:

Q. Okay. And the -- and the files you uploaded, they -- whether you verified what was actually on them, they did indicate that they were ROMs of Nintendo games; right?

A. That is correct.

This did not sit well with the judge who struck the declaration under the “sham affidavit rule,” stating that Storman couldn’t create an issue of fact with an affidavit contradicting his own prior deposition testimony. Any leeway the judge may have been giving him as a pro se defendant was probably gone at this point. Even without this (and several other missteps including spoliation of evidence) Storman’s case was pretty much doomed from the start and the judge awarded Nintendo $1,715,000 in statutory damages under the Copyright Act and $400,000 in statutory damages under the Lanham Act for a total of $2,115,000 in statutory damages as well as attorneys’ fees and costs to be determined later.

Conclusion

Nintendo continues to have success litigating against ROM sites, but we’ll see if it has any real effect on the availabilty of ROMs or if it just continues to be game of whack-a-mole.