On June 7, 2010, the Ninth Circuit heard oral argument in Seattle in three cases raising important and interesting issues under the Copyright Act. The three cases are: UMG Recordings, Inc. v. Augusto, No. 08-55998 (9th Cir.) from the Central District of California; MDY Industries, LLC v. Blizzard Entertainment, Inc., Nos. 09-15932, 09-16044 (9th Cir.) from the District of Arizona; and Vernor v. Autodesk, Inc., No. 09-35969 (9th Cir.) from the Western District of Washington.
The Ninth Circuit issued its first opinion in the cases on September 10, 2010 in the case of Vernor v. Autodesk, discussed previously here. On December 14, 2010, the Ninth Circuit issued its second decision, this time in the case of MDY Industries, LLC v. Blizzard Entertainment, Inc.
The most complicated—both factually and legally—of the three appeals pits the creator of the wildly successful MMORPG World of Warcraft (Blizzard) against the creator of a piece of add-on software used in connection with WoW called Glider (MDY and its founder, Michael Donnelly).
Described at its most basic level, WoW allows players to assume the roles of various races (e.g., humans, elves, trolls, orcs, etc.) and level those characters from, currently, level 1 to 85 by, among other things, completing quests. Reaching the maximum level (a time-consuming task) is desirous because it gives players access to more challenging content through which players can obtain better gear and other desirable items. WoW also incorporates a "complex closed economy" in which players can buy and sell virtual items for virtual gold. At the time of the District Court's opinions, WoW had some 10 million active players and generated more than $1.5 billion in revenue annually.
WoW has spawned a large market for "add-on" software to be used, in some form, in conjunction with WoW. For example, numerous add-ons have been developed to allow customization of the WoW user interface, to provide information relating to the WoW economy, and to gather information and provide warnings during combat in the game.
Michael Donnelly, a software developer, created a software program called Glider, which played WoW for its owner, intended to speed up the leveling process. Glider is known as a "bot," short for robot. Donnelly offered Glider for sale through his company, MDY Industries, apparently with significant success.
In October 2006, three representatives of Blizzard appeared at Donnelly's home, demanding, according to Donnelly, that he stop selling Glider and turn over that day all the profits MDY had earned that day. In response, Donnelly filed a declaratory judgment action against Blizzard, which responded with counterclaims against MDY and a third party complaint against Donnelly for tortious interference with contract, contributory copyright infringement, vicarious copyright infringement, violation of the Digital Millenium Copyright Act ("DMCA"), trademark infringement, unfair competition and unjust enrichment.
The District Court's Decisions.
As relevant to the appeal, the District Court issued two opinions in the case, one on July 14, 2008 on the parties' motions for summary judgment, and another on January 28, 2009 following a two-day bench trial.
With respect to the July 14th order, Blizzard sought summary judgment on its claims for contributory and vicarious copyright infringement, violation of the DMCA and tortious interference, while MDY sought summary judgment on all claims except trademark infringement. The District Court granted MDY's unopposed summary judgment motion on Blizzard's unfair competition claim as well as its motion with respect to a portion of the DMCA claim but denied it on the unjust enrichment claim. The District Court granted summary judgment to Blizzard on the issue of MDY's liability for tortious interference and contributory and vicarious copyright infringement.
As to Blizzard's copyright claims, the District Court summed up the allegations concisely:
Blizzard alleges that users of WoW are licensees who are permitted to copy the copyrighted game client software only in conformance with the EULA and TOU, and that when users launch WoW using Glider, they exceed the license in the EULA and TOU and create infringing copies of the game client software. . . . MDY is liable for contributory copyright infringement, Blizzard claims, because it materially contributes to this direct infringement by Glider users. MDY allegedly does so by developing and selling Glider with the knowledge that Glider users will create infringing copies. . . . MDY is liable for vicarious copyright infringement, Blizzard asserts, because it has the ability to stop the Glider-caused infringing activity and derives a financial benefit from that activity.
In defense, MDY argued that Glider users do not infringe Blizzard's copyright; rather, MDY argued that if users violate terms of the EULA and TOU, they are merely breaching a contract, not infringing a copyright.
The District Court first re-stated established Ninth Circuit law that copying software to RAM constitutes “copying” under the Copyright Act. As a result, “if a person is not authorized by the copyright holder (through a license) or by law (through section 117 [of the Copyright Act]) to copy the software to RAM, the person is guilty of copyright infringement because the person has exercised a right (copying) that belongs exclusively to the copyright holder.”
MDY argued that Glider users are licensed to copy the WoW game client software to RAM, which license they acquired by purchasing and loading the software onto their computers. But MDY asserted that provisions of the EULA and TOU that contain prohibitions such as the prohibition against use of bots are merely contractual terms not limitations on the scope of the license granted by Blizzard. As a result, MDY argued that although Blizzard may have breach of contract claims against Glider users, it did not have copyright infringement claims.
The District Court disagreed in large part with MDY, concluding that the EULA granted a limited license to WoW players and that, read together, the EULA and TOU provided limits on the scope of the license granted by Blizzard. Thus WoW players who use Glider acted outside the scope of the limited license and therefore “[c]opying the game client software to RAM while engaged in this unauthorized activity constitutes copyright infringement.”
Among other defenses, the District Court rejected the argument that Section 117 of the Copyright Act provided a defense to a claim of infringement. Section 117 provides that it is not infringement for the
owner of a copy of a computer program to make or authorize the making of another copy or adaptation of that computer program provided that such a new copy or adaptation is created as an essential step in the utilization of the computer program in conjunction with a machine and that it is used in no other manner[.]
Public Knowledge, in an amicus brief, argued that because WoW players were “owners” of the game client software and copying the software to RAM was an essential step to using the software, such copying, even when done in conjunction with Glider, was not an infringement under Section 117.
Relying on the same three Ninth Circuit cases discussed in Vernor v. Autodesk—MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993); Triad Sys. Corp. v. Southeastern Express Co., 64 F.3d 1330 (9th Cir. 1995); Wall Data Inc. v. Los Angeles County Sheriff’s Dep’t, 447 F.3d 769 (9th Cir. 2006)—the District Court rejected the Section 117 defense. The court concluded that Wall Data specifically provided a
two-part test for determining whether the purchaser of a copy of a software program is a licensee or an owner: if the copyright holder (1) makes clear that it is granting a license to the copy of the software, and (2) imposes significant restrictions on the use or transfer of the copy, then the transaction is a license, not a sale, and the purchaser of the copy is a licensee, not an “owner” within the meaning of section 117.
Under that test, the District Court concluded that WoW players were licensees of the game client software they purchased: Blizzard (1) made it clear it was granting a license, and (2) imposed restrictions on transfer and use of the software. As mere licensees of the game client software, WoW players, and therefore MDY, were not entitled to the Section 117 defense.
The District Court also specifically declined to follow the Western District of Washington’s reasoning in Vernor, concluding that it was bound to follow the Ninth Circuit’s precedent in Wall Data.
The District Court summed up its conclusions on Blizzard’s copyright infringement claims:
Blizzard owns a valid copyright in the game client software, Blizzard has granted a limited license for WoW players to use the software, use of the software with Glider falls outside the scope of the license established in section 4 of the TOU, use of Glider includes copying to RAM within the meaning of section 106 of the Copyright Act, users of WoW and Glider are not entitled to a section 117 defense, and Glider users therefore infringe Blizzard’s copyright.
The District Court therefore granted summary judgment in favor of Blizzard on MDY’s liability for contributory and vicarious copyright infringement.
MDY did successfully seek summary judgment on Blizzard’s claim under Section 1201(a)(2) of the DMCA with respect to Blizzard’s game client software code. Specifically, Blizzard claimed that MDY enabled Glider to evade technologies Blizzard designed to detect and prevent the use of bots by WoW players.
Section 1201(a)(2)(A) provides that
[n]o person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, service, device, component, or part thereof, that . . . is primarily designed or produced for the purpose of circumventing a technological measure that effectively controls access to a work protected under this title.
A technological measure “‘effectively controls access to a work’ if the measure, in the ordinary course of its operation, requires the application of information, or a process or a treatment, with the authority of the copyright owner, to gain access to the work.” 17 U.S.C. § 1201(a)(3)(B).
Blizzard’s technological measure, referred to as “Warden,” contains two components:
One component, known as “scan.dll,” scans the user’s computer for unauthorized programs such as Glider before the user logs onto the WoW servers to play the game. If Glider or similar programs are detected, scan.dll denies the user access to the game servers. The second component, referred to as the “resident” component of Warden, runs periodically while a user plays WoW. If the resident software detects the use of Glider or a similar program, Blizzard revokes access to the game.
Blizzard claimed that these two components constituted an effective access control device under Section 1201(a)(2) because they prevented a user from further writing software code to RAM and from further accessing non-literal elements of the game if unauthorized programs like Glider were found on a user’s computer.
But the District Court sided with MDY with respect to the code in Blizzard’s game client software:
A user has full access to that code once the game client software has been placed on the user’s computer. The user need not pass through Blizzard’s security devices to gain access to the code. The user may view the code on the hard drive and may freely copy it to another hard drive, a CD, a jump drive, or other media. Because scan.dll and the resident software do not control access to the code in Blizzard’s game client software, section 1201(a)(2) does not apply and MDY’s marketing of Glider with capabilities of evading scan.dll and the resident software does not violate the statute.
The District Court could not, however, resolve the issue on summary judgment with respect to the non-literal elements of WoW or as to other elements of Blizzard's DMCA claims.
A copy of the District Court's July 14, 2008 summary judgment opinion can be found here.
The parties subsequently entered into a stipulation that Blizzard would recover $6 million in damages from MDY if any of Blizzard’s claims for tortious interference or copyright infringement were affirmed on appeal. (It appears this figure was later changed to $6.5 million.) The parties also agreed that a bench trial would be held to address: (1) the remaining DMCA claims; (2) whether Donnelly was personally liable for MDY’s tortious interference and copyright infringement; and (3) whether Blizzard was entitled to a permanent injunction.
The District Court held a two-day bench trial and issued an order on January 28, 2009, ruling in favor of Blizzard on all three remaining issues. A copy of the District Court's January 28, 2009 order following the bench trial can be found here.
Appeal to the Ninth Circuit.
As to the substance of Blizzard’s copyright infringement claims, MDY’s opening appellate brief focused on the Section 117 “essential step” defense to infringement by WoW players (and therefore contributory and vicarious infringement by MDY). From a public policy perspective, MDY argued that Blizzard was overreaching by claiming that any violation of the EULA would constitute copyright infringement (a concern echoed in the amicus brief of Public Knowledge).
A large portion of MDY's opening appellate brief was devoted to Blizzard's DMCA claims, emphasizing that the purpose of the DMCA--preventing piracy of copyrighted material--was not implicated by Glider or Blizzard's "Warden" program.
A copy of MDY's and Donnelly's opening brief can be found here and their responsive brief here. Blizzard's opening brief is found here and its responsive brief here. As with the other cases, this case spawned four amicus curiae briefs from: Public Knowledge in support of reversal (found here); The Motion Picture Association of America, Inc. in support of affirmance (found here); Business Software Alliance in support of affirmance (found here); and Software & Information Industry Association in support of affirmance (found here).
You can listen to the oral argument before the Ninth Circuit here.
The Ninth Circuit's Decision.
In its decision, the Ninth Circuit reversed the District Court's rulings in favor of Blizzard except with respect to MDY's liability for violation of Section 1201(a)(2) of the DMCA and remanded the case for trial on Blizzard's claim for tortious interference with contract. The opinion is lengthy, with much to digest given more time, but the highlights are described below.
As to the copyright infringement claims (alleging contributory and vicarious infringement), the Ninth Circuit first addressed the "essential step" defense of 17 U.S.C. 117(a)(1) and the question of whether WoW players are owners or licensees of the copies of the WoW software in their possession. Relying on its decision in Vernor, the Ninth Circuit concluded that WoW players are merely licensees of their copies of the WoW software and therefore neither they nor MDY were entitled to the "essential step" defense. As a result, "when their computers copy WoW software into RAM, the players may infringe unless their usage is within the scope of Blizzard's limited license."
The Ninth Circuit thus turned to an examination of the relevant portions of Blizzard's license (the TOU), namely, the portion prohibiting bots and unauthorized third-party software, to determine whether they were "conditions," the breach of which constitute copyright infringement, or "covenants," the breach of which give rise to only contract claims.
The Ninth Circuit concluded that the provisions of the license at issue were covenants, the breach of which did not give rise to copyright infringement claims. Essentially, the Ninth Circuit concluded that the breach of a license agreement must implicate one of the exclusive rights of copyright to give rise to a copyright infringement claim: "[W]e have held that the potential for infringement exists only where the licensee's action (1) exceeds the license's scope (2) in a manner that implicates one of the licensor's exclusive statutory rights."
The Ninth Circuit relied, at least in part, on a policy argument in reaching its conclusion:
Were we to hold otherwise, Blizzard--or any software copyright holder--could designate any disfavored conduct during software use as copyright infringement, by purporting to condition the license on the player's abstention from the disfavored conduct. The rationale would be that because the conduct occurs while the player's computer is copying the software code into RAM in order for it to run, the violation is copyright infringement. This would allow software copyright owners far greater rights than Congress has generally conferred on copyright owners.
We conclude that for a licensee's violation of a contract to constitute copyright infringement, there must be a nexus between the condition and the licensor's exclusive rights of copyright. Here, WoW players do not commit copyright infringement by using Glider in violation of the ToU. MDY is thus not liable for secondary copyright infringement, which requires the existence of direct copyright infringement.
On Blizzard's DMCA claims, the Ninth Circuit considered the two components of Blizzard's Warden technology together because it concluded they both had the same purpose, namely, "to prevent players using detectable bots from continuing to access WoW software.
Examining the statutory language as well as legislative history, the Ninth Circuit concluded that Section 1201 creates two distinct types of claims. First, Section 1201(a) created a new "anti-circumvention right" that was independent of traditional copyright infringement, allowing copyright owners the right to enforce the prohibition of circumvention of a technological measure that controls access to a protected work. Second, Section 1201(b)(1) prohibited trafficking in technologies that circumvent technological measures that protect a right of a copyright owner, and therefore is aimed at protecting existing exclusive rights under the Copyright Act.
[W]e believe that Section 1201 is best understood to create two distinct types of claims. First, Section 1201(a) prohibits the circumvention of any technological measure that effectively controls access to a protected work and grants copyright owners the right to enforce that prohibition. . . . Second, and in contrast to Section 1201(a), Section 1201(b)(1) prohibits trafficking in technologies that circumvent technological measures that effectively protect "a right of a copyright owner." Section 1201(b)(1)'s prohibition is thus aimed at circumventions of measures that protect the copyright itself: it entitles copyright owners to protect their existing exclusive rights under the Copyright Act. Those exclusive rights are reproduction, distribution, public performance, public display, and creation of derivative works. . . . Historically speaking, preventing "access" to a protected work in itself has not been a right of a copyright owner arising from the Copyright Act.
Or, as the Ninth Circuit later put much more succinctly: "section (a) creates a new anti-circumvention right distinct from copyright infringement, while section (b) strengthens the traditional prohibition against copyright infringement."
In light of this conclusion, the Ninth Circuit rejected the Federal Circuit's requirement of an "infringement nexus," which basically requires Section 1201(a) plaintiffs "to demonstrate that the circumventing technology infringes or facilitates infringement of the plaintiff's copyright[.]"
The Ninth Circuit agreed with the District Court that MDY did not violate Section 1201(a)(2) with respect to either WoW's literal elements or individual non-literal elements because Warden did not effectively control access to those elements. But the Ninth Circuit agreed that MDY did violate Section 1201(a)(2) with respect to WoW's dynamic non-literal elements because Warden did act as an effective access control measure as to those elements. And as to Blizzard's claim under Section 1201(b)(1), the Ninth Circuit concluded that MDY was not liable because Warden did not effectively protect any of Blizzard's rights under the Copyright Act.
Finally, the Ninth Circuit considered Blizzard's claim for tortious interference with contract under Arizona law, which had been decided in Blizzard's favor on summary judgment. The Ninth Circuit reversed the District Court, however, concluding that there were triable issues of material fact as to one of the elements of the state law claim, specifically, whether MDY's actions were improper.
The Ninth Circuit thus vacated the District Court's decision and remanded for further proceedings.
A copy of the Ninth Circuit's opinion can be found here.