U.S. District – Page 2 – Patent Arcade

Jun

2010

Case Analysis: Debonneville v. Pierce

Debonneville v. Pierce

United States District Court for C.D. Cal.

Case No. 2:07-CV-03776-R-MAN), Settled May 5, 2008

This wasn’t an IP lawsuit, but it was a bitter dispute between the owners of Internet Gaming Entertainment. IGE is a virtual property company that engages in buying and selling virtual currency and items in MMO games for real money. Even though these games prohibit real money trading, the virtual goods industry is booming – according to the amended complaint, Goldman-Sachs once valued IGE at $220 million.

Alan Debonneville, a Swiss citizen living in Hong Kong and co-founder of IGE, initially filed a complaint in June of 2007 against co-founder Brock Pierce. The original complaint was sealed three months later, but Virtually Blind, who saw the complaint before it was sealed, said it was full of scandalous accusations. For example, Kotaku said “the Complaint … includes third-hand allegations of cash from an earlier venture being spent on illegal drugs, a claim that Pierce’s dog was shot by the “Spanish FBI,” and allegations of minors being transported across state lines for sex. The complaint even takes a swipe at former-child-actor Pierce’s filmography (Pierce played a young Emilio Estevez in The Mighty Ducks and The Mighty Ducks 2, and the lead in First Kid). In short, this is not your average business spat.”

According to the amended complaint, filed in September 2007, Debonneville met Pierce while playing Everquest online. Debonneville was selling virtual goods in Everquest in 2000 and discussed his business plan with Pierce, who was living in Spain. Pierce requested that Debonneville come to Spain to negotiate a business arrangement. “Impressed with the promises of riches that Pierce made, in November of 2001, Debonneville traveled to Spain from Switzerland to meet with Pierce.” Following those talks, IGE was formed, allegedly with certain promises of profits and stock for Debonneville.

The amended complaint claimed, inter alia, breach of fiduciary duty, breach of contract and fraud. Virtually Blind said that allegedly “Pierce deprived Debonneville of millions of dollars Debonneville was owed under his agreements with IGE. Debonneville names an even dozen claims ranging from breach of fiduciary duty to fraud. Along the way he accuses Pierce of failing to pay taxes owed to the Spanish government, using corporate funds for personal expenses, falsely telling Debonneville that one of the other executives in IGE was blackmailing Pierce, and partnering with a third party, Jonathan Yantis, to exploit bugs in game software to make unauthorized duplicates of in-game items and currency to offer for sale via IGE.”

Pierce threw the accusations back at Debonneville in his answer and counterclaim by alleging, as Virtually Blind put it, that Debonneville, “while overseeing IGE’s trading arm, overpaid certain people for virtual goods bought on behalf of IGE — including one of the lawyers who now represents Debonneville on this case — in order to secure favor and personal benefits, in breach of Debonneville’s fiduciary duty to IGE.”

Minutes from March 2008 stated that the parties had reached a settlement on all essential terms and that the parties needed to file a stipulation of dismissal by April 14. But the hostilities continued and the settlement failed – no stipulation was filed by the deadline.

The judge ordered a status conference to see why the settlement hadn’t been finalized and the result of that conference was a temporary restraining order against Pierce. The TRO prevented Pierce from “failing to comply with the terms of the settlement” and specifically kept Pierce from “contacting any bank for Debonneville or his attorneys for purposes of reversing any payment Pierce made to Debonneville under the terms of the parties’ settlement agreement in this lawsuit […], attempting to reverse any payment made to Debonneville or his attorneys […], taking any action to sell, assign, [or] transfer […] any asset owned directly or indirectly by Pierce, unless such action is performed solely to raise funds to be paid to Debonneville, [or] filing any suit relating to the settlement, Debonneville or his attorneys, other than a personal bankruptcy suit.” The court granted the TRO because those acts would cause “irreparable injury” as they “would be part of a wrongful scheme by Pierce, already commenced, to attempt to illegally recover settlement payments already paid to Debonneville or to avoid paying Pierce’s settlement obligations.”

Another hearing was set for May 5 to determine whether the restraining order should be made permanent. The minutes from that hearing revealed that Pierce paid Debonneville the undisclosed settlement amount. After that hearing, a motion for sanctions against Pierce for his failure to attend a scheduled deposition remained (although it may have since been dropped because Pierce paid the settlement). But the emails contained in the exhibits to the motion and response show the hostility that existed between the lawyers and in this case overall.

Virtually Blind wasn’t surprised at the settlement given that the litigation would’ve likely become incredibly expensive and the parties probably wanted to avoid negative publicity. It’s still unfortunate because the issue of virtual property didn’t go in front of a judge. It would’ve been interesting to see how the judge would’ve acknowledged and responded to virtual property in a case concerning a business based on real money trading which violates the Terms of Service MMOs.

Check out Virtually Blind’s website for more extensive analysis of the case as it progressed.

Jun

2010

Case: The Magnavox Co., et al. v. Chicago Dynamic Industries, et al.

The Magnavox Co., et al. v. Chicago Dynamic Industries, et al.

201 U.S.P.Q. 25 (N.D. Ill. 1977)

For those of you who love home video games as much as we do, the following lawsuit will be of interest.

The case concerns the Magnavox Company (makers of the Odyssey) who released a ping-pong style game you may have heard of: Pong. The defendants in this case released similar ping-pong games and Magnavox sued for patent infringement.

At issue in the case were three similar patents that all dealt with a “Television Gaming Apparatus.” While there were several questions at issue in the case, the court focused on the issue of whether the patents were obvious or anticipated in light of one another, as either finding would lead to invalidity.

I. Background

On April 17, 1973, United States Patent 3,728,408 (“the ‘408 patent”), was issued to Ralph Baer. In his oral judgment of the case, District Judge Grady commented: “The ‘408 patent, I think, is the pioneer patent in this art . . . with the players participating in the game in an environment such as a home or some place where a large computer would clearly not be available.” After issuance of the ‘408 patent, for the first time, video games would be brought to the home.

Two years later, on August 5, 1975, William Rusch received a similar television patent. This patent, United States Patent RE28,507 (“the ‘507 patent’), “discloses a movable hitting spot which is controlled by the player and which, by striking a hit spot, can change the direction of that hit spot.” The ‘507 patent used the term “distinct motion,” which Judge Grady interpreted as referring not to “a predictable motion,” but rather to motion that is different from the motion that characterized the hit spot immediately prior to the striking of the hit spot. This idea of changing the direction of the hit spot was not present in the development of games at this time. Before this patent, a player would simply turn a knob which set in motion a series of events that he had no further control over. After the ‘507 patent, however, players could now control the movement of the ball based upon the area of the hit spot the ball struck!

II. Analysis

One question presented to the court was whether the feature of patent ‘507 was obvious at the time of its production. Others had imitated the ‘507 patent in similar ping-pong style games, but Judge Grady found that the novel feature of ‘507 was not obvious. In particular, the judge relied on the testimony by people from RCA who admitted that they had the mechanical capability to create this feature, but were going in a different direction of development at the time.

The next issue concerned what knowledge, if any, the patent examiner had when the ‘507 patent was examined for re-issue. The ‘408 patent, awarded before the ‘507 patent, should have been mentioned in the application, but it was not. The court sought to determine if the patent examiner had knowledge of the ‘408 patent and was actively trying to cover it up in his issuance of the ‘507 patent. Judge Grady determined that since the ‘507 patent was neither anticipated by nor obvious in light of the ‘408 patent, the patent examiner would have reached the same conclusion and awarded the ‘507 patent.

The next issue involved another television gaming apparatus patent, United States Patent RE28,598 (“the ‘598 patent”) which was issued on October 28, 1975. This patent made improvements to the visual reproduction in ‘507. Judge Grady found that ‘507 anticipated the ‘598 patent and also that ‘598 patent was obvious in the light of ‘507. The court determined that the ‘598 patent rectified some of the visual reproduction in ‘507 which, while an improvement, was not patentable. The ‘598 patent simply used the same type of circuitry in a more efficient way to achieve better results. As a result, 28,’598 patent was found invalid by Judge Grady as being anticipated by and obvious in view of the ‘507 patent.

Finally, Judge Grady turned to the question of whether the defendant’s Pong-like games infringed the ‘507 patent. The court found that the games did infringe the claims of the ‘507 patent “to the extent that they contain or use a player-controlled movable hitting symbol which, when it coincides with a hit symbol, causes a change in direction of that hit symbol.” Because all of the defendant’s games featured this characteristic, they were all held to infringe on ‘507.
The defendants made several arguments to provide that their games differed from the ‘507 patent. The judge, however, found these arguments to be immaterial and ruled against them on all counts. The first attempt by the defendant was focused on the influence of the direction of the ball by the place on the paddle where the ball strikes. In the ‘507 patent, when a ball in the game comes into contact with a hit symbol it changes the direction of that hit symbol in a distinct way. The defendants argued that the games do not meet this claim because the direction of the ball cannot be predicted after it strikes the paddle. Judge Grady disagreed, however, ruling that “distinct” meant “simply a motion that is different from the motion characterizing the ball immediately before the coincidence.”

III. Conclusion

This early lawsuit showed that courts were prepared to handle video game patent law, and also was a testament to the strength of patents in the video game industry. For more information on Mr. Baer’s early products, check out Ralph Baer’s web site, which has many more details about his inventions and his trials and tribulations getting them produced!

Jun

2010

Case: Red Baron-Franklin Park, Inc. v. Taito Corp.

Red-Baron-Franklin Park, Inc. v. Taito Corp.
883 F.2d 275 (4th Cir. 1989).

I. Background
Some of you may remember twin martial artists Billy Lee or Jimmy (who also went by Hammer and Spike). For those not familiar with the duo, they can be found in the 1987 beat ‘em up game “Double Dragon.” Hammer and Spike were the subject of this 1989 lawsuit. Taito is a Japanese corporation that sells video games and electronic printed circuit boards used in coin-operated video game units. Taito is the owner of United States Copyright Registration No. PA-327-710, issued June 26, 1987, for the video game audiovisual work Double Dragon.
Red Baron operated arcades where it allowed the public to play games. Red Baron, without license from Taito or Taito America, purchased circuits of Double Dragon from Japan and fitted them into their already existing game units, making the game playable to the customers. Taito took offense, arguing that they had intended the Double Dragon game to be sold in the United States as a complete video game unit, not just its circuit board. Taito claimed that each of the boards displayed the following restrictive note: “This game is for use in Japan only. Sales, exports, or operation outside this territory may violate international copyright and trademark law and the violator subject to severe penalties.”
The question in the case was whether Red Baron infringed Taito’s copyright in “Double Dragon,” when Red Baron imported the game from Japan and installed it in its video arcades for public enjoyment. The district court ruled that Red Baron did not infringe upon Taito’s copyright. This, of course, led to an appeal to the Fourth Circuit . . .

II. Argument

On appeal, Taito argued that it had a separate and distinct right to “perform” Double Dragon, and that it had not conferred this right on Red Baron. As a result, Red Baron infringed Taito’s copyright by its activities in making use of the circuit boards available to the public for a fee.

The court had to determine the following: 1. whether Red Baron’s use of Double Dragon constituted a public performance within the meaning of § 106 (4) and if so to consider 2. whether the first sale doctrine has any application to the performance right as distinguished from actual ownership of the copyrighted work.

A Public Performance

To “perform” a work and to perform it “publicly” are defined by the Copyright Act, 17 U.S.C. § 101 et seq.

“Perform” is defined as: “to recite, render, play, dance, or act [a work], either directly or by means of any device or process or, in the case of a motion picture or other audiovisual work, to show its images in any sequence or to make the sounds accompanying it audible.”

“Public” performance is defined as: “To perform . . . a work ‘publicly’ means- (1) to perform . . . it at a place open to the public . . . .”

The court concluded that Red Baron publicly performed Double Dragon because once a coin was inserted into the machine the television monitor displayed a series of images while the speakers made audible accompanying sounds. Also, because Red Baron’s video arcade was open to public and it was Red Baron’s aim to attract members of the public to its establishment, Red Baron’s arcade was considered a public place.

B. The First Sale Doctrine and the Performance Right

The second issue the court ruled on was Red Baron’s assertion that by selling the circuit boards, Taito intended to transfer the performance right. The court concluded that the first sale doctrine did not apply to the performance right and that Taito America possessed and retained a valid copyright in the public performance of Double Dragon in the United States. They also concluded that since Taito had not granted a performance license to Red Baron, the latter was guilty of copyright infringement.

III. Conclusion

In this early gray-market goods case, the United States Court of Appeals for the Fourth Circuit reversed the judgment of the district court and remanded the case for further proceedings.

Aug

2009

Appeal Update: Fenner Investments Ltd. v. Microsoft et al.

Fenner Investments Ltd. v. Microsoft et al., the case regarding U.S. Patent No. 6,297,751 for a “low-voltage joystick port interface,” is being appealed to the Federal Circuit.

On July 15, 2009, Fenner Investments filed a notice of appeal in the U.S. District Court for the Eastern District of Texas. Fenner is appealing the final order granting summary judgment of noninfringement to Microsoft and Nintendo made in March 2009 and an August 2008 opinion interpreting the patent claim language at issue in the case.

According to Law360, Fenner’s lawyer commented on the appeal: “We disagree with the district court’s ruling on the motion for summary judgment and believe that the court of appeals will see it our way and reinstate the case,” said Robert Chiaviello Jr., an attorney for Fenner in this case. “His ruling was based on two claim terms, and we disagree with his interpretation for both terms,” he said.

Jerry A. Riedinger, an attorney for Nintendo, seems unworried about the appeal. “We believe that Judge Davis rendered a very good decision and we’re confident that the Federal Circuit will recognize the quality of his decision.”

Read Fenner’s Notice of Appeal here.

Jul

2009

Case Settled: Yahoo v. NFL Players Association

Yahoo! Inc. v. Nat’l Football League Players Association, Inc. et al.

United States District Court for D. Minn.

Case No.: 0:09-cv-01272-PJS-FLN, Filed June 1, 2009

On July 7, 2009, Yahoo’s lawsuit against the NFL Players Association was dismissed without prejudice after the two parties entered a settlement. For the time being, this ends litigation that Yahoo commenced at the beginning of June to declare that Yahoo didn’t need authorization to use football players’ images, names and statistics in its fantasy football game. Because the case was dismissed without prejudice, the possibility remains that it may be brought again.

According to the Associated Press, the terms of the settlement haven’t been made public which is unfortunate because, as FantasySportsBusiness.com notes, it would be interesting to see the concessions each side made. Perhaps Yahoo was willing to compromise on licensing fees and forego protracted litigation to protect a business relationship stretching beyond fantasy sports.

The NFLPA is currently appealing the April decision of the similar case National Football League Players Inc. v. CBS Interactive Inc. to the 8th Circuit. The district court found that CBS enjoyed a First Amendment right to use the publicly available players’ names and statistics that prevailed over any right of publicity. In a fantasy baseball case from 2007 (C.B.C. Distribution and Marketing Inc. v. MLB Advanced Media), the 8th Circuit ruled that a fantasy baseball provider didn’t have to pay royalties to baseball players. Because the district court from CBS Interactive relied heavily on the 8th Circuit’s C.B.C. opinion, it seems unlikely that the NFLPA will win its appeal.

Jul

2009

Case Analysis: Hernandez v. IGE

Hernandez v. Internet Gaming Entertainment, LTD.
United States District Court for S.D. Fla.
Case No. 1:07-CIV-21403-JIC, Filed May 31, 2007, Settled August 26, 2008
Much like Blizzard v. In Game Dollar, this case was about virtual property transfer in the MMORPG World of Warcraft (WoW) for real-world money. The main difference is that this suit was filed by an individual player rather than the owner/operator of the game, as was the case in Blizzard.

Hernandez, an avid player of WoW, filed suit on May 31, 2007 against Internet Gaming Entertainment, LTD. (a Hong Kong-based company) and IGE U.S. LLC., both of which were companies “engaged in the business of generating and selling virtual assets.” IGE, LTD. was later dropped because it couldn’t be served with the lawsuit in time, leaving IGE U.S. as the sole defendant. Hernandez filed a class action suit on the behalf of U.S. WoW subscribers, which he estimated could be as high as 2 million people, seeking an injunction and monetary damages.
The amended complaint alleged that “IGE’s calculated decision to reap substantial profits by knowingly interfering with and substantially impairing the intended use and enjoyment” of WoW through its gold-farming, camping spawns and spamming chat violated WoW’s Terms of Use and End User License Agreement and led to lost time, competitive disadvantage, and diminished experience for honest game subscribers. The complaint alleges that the plaintiffs were intended third party beneficiaries of the ToU and EULA between IGE U.S. and Blizzard and suffered harm as a result of IGE U.S.’s breach of these agreements.
The complaint named 7 causes of action:

1. Violation of Florida’s Deceptive and Unfair Trade Practices Act

1. Violation of Consumer Protection Statutes of Remaining 49 States, District of Columbia and Puerto Rico

1. Unfair Trade Practices Act Conspiracy

1. Breach of Third-Party Beneficiary Contract

1. Breach of Third-Party Beneficiary Conspiracy

1. Tortuous Interference with Business Relationship

Tortuous Interference with Business Relationship Conspiracy

Hernandez filed for class certification on May 19, 2008, but the parties settled before certification occurred. On August 26, 2008, Hernandez and IGE U.S. filed a joint stipulation of settlement in which IGE U.S. denied any wrongdoing but agreed to refrain from selling WoW virtual property for five years. It’s unlikely that this agreement will impact IGE.com’s business (WoW gold is still being sold on the site) because IGE U.S. doesn’t actually operate IGE.com. Apparently IGE U.S. had sold all its assets to Atlas Technology Group six days before the lawsuit was first filed, so IGE U.S. was probably the wrong party to sue in the first place, but since IGE, LTD. was dropped early on and the changes to IGE U.S.’s corporate structure weren’t clear at the time, this outcome was probably the best possible based on the factual background they were faced with.

In a previous motion, Hernandez had asked the settlement to be filed under seal. In the order enforcing the settlement, the court denied the seal, saying the public interest must be considered. Courts are cautious about allowing a settlement under seal when class certification is still pending because courts don’t want one party to settle for a high amount that leaves the rest of the injured potential parties without remedy/damages. This court stated the settlement should be under seal only under extraordinary circumstances and said the parties could submit briefs to attempt to prove such circumstances.

As a last note, the class was never certified so the agreement – and the case being dismissed with prejudice – only holds for IGE U.S. and Hernandez. Any other WoW subscriber can file a suit against IGE (or perhaps Atlas or whoever is the operator of IGE.com) and attempt to take the case further than Hernandez did. Although both this case and Blizzard ended with settlements, it seems the door is still wide open for future litigation on illicit virtual property sales in WoW.

For more analysis over the life of the case, see Virtually Blind.

Jun

2009

Case Analysis: Blizzard Entertainment v. In Game Dollar

Blizzard Entertainment, Inc. v. In Game Dollar, LLC
United States District Court for C.D. Cal.
Case No. SACV07-0589-JVS, Filed May 22, 2007, Settled January 28, 2008

On May 22, 2007, Blizzard Entertainment, the creator and operator of the popular MMORPG World of Warcraft, brought suit against In Game Dollar (IGD). IGD was the parent company of www.peons4hire.com which offered power-leveling and virtual gold-selling services. Power-leveling allows a player to pay to have his virtual character advanced to the agreed-upon level by a third party using the player’s account. Virtual gold sales consist of a player paying real-world money then having his virtual character meet the merchant’s character in-game to transfer the virtual gold. IGD advertised its services in the game by constantly sending spam messages to players though WoW’s chat system.

Blizzard alleged that IGD’s services and aggressive in-game marketing via chat spam diminished players’ game experience and cost Blizzard subscribers, bandwidth, employee time, and revenue. Blizzard further stated that IGD’s actions violated Blizzard’s End User License Agreement and Terms of Use. The lawsuit was brought on six grounds:

Violation of the Computer Fraud & Abuse Act
Violation of the California Computer Data Access & Fraud Act
Intentional Interference with Contract
Trespass to Chattels
Unjust Enrichment
Unfair Competition

IGD decided to avoid prolonged litigation and essentially agreed to shut down its business in exchange for Blizzard not seeking monetary damages. The case was settled on January 28, 2008 with the court issuing a Consent Order. The order consisted of a permanent injunction preventing IGD from engaging in any future WoW virtual asset sales or in-game marketing communications.

The blog Virtually Blind provided an analysis of the case and found that Blizzard “has taken what is arguably the most aggressive legal stance in the industry against gold farmers, chat spammers, third-party bot providers, and others who violate World of Warcraft’s Terms of Use and End User License Agreement. The company’s actions have been widely praised both by players and by commentators who follow legal issues in games and virtual worlds.” Virtually Blind saw the settlement as further recognition of virtual property by the court system.

Because this was a settlement rather than a court decision on the merits, the result doesn’t serve as binding precedent. Still, the result of forcing a gold spammer to cease operations within a game has acted as a major milestone.

Read the full Complaint here.

Read the full Consent Order here.

Jun

2005

Case: Midway v. Omni (1st Cir. 1981) [C]

Midway Manufacturing Co. v. Omni Video Games, Inc.
668 F.2d 70 (1st Cir. 1981)

Midway, the creator of the games Pac-Man, Rally-X, and Galaxian, sued Omni for copyright infringement of these games. During the course of this suit, Midway filed a motion for an ex parte hearing seeking to impound any infringing items in Omni’s possession. A single machine, holding an allegedly infringing version of Pac-Man, was seized from Omni and impounded. However, several days later, the District Court vacated this impound order and not only returned the potentially infringing machine to Omni, but also suppressed this machine from evidence admissible at trial and ordered Midway to pay the attorney’s fees incurred by Omni as they sought return of this machine.

Illustrative authentic Pac-Man units (not the allegedly infringing version):

Midway immediately appealed to the 1st Circuit Court of Appeals, requesting reversal of the decision disallowing impoundment of the machine, suppressing it as evidence, and the award of attorney’s fees. However, Midway’s brief and oral arguments failed to address the main legal issue of this case, appellate court jurisdicion under the “collateral order” doctrine.

Under the “collateral order” doctrine, an interlocutory appeal, or an appeal to a higher court before the lower court has issued a final judgment, is rarely allowable. Such an appeal is proper only when (1) the order being appealed is a final order on an issue of law, rather than judicial discretion, (2) the issue is separable from the other issues to be presented at trial, and (3) that the appeal cannot wait until after the final judgment of the court, because irreparable harm would be probable.

Thus, the question in this case was not whether Midway’s arguments had merit, but whether Midway could appeal while its trial was still in progress. The Court of Appeals held that Midway could not appeal the orders of the District Court until after final judgment of the case.

The Court reasoned that the interlocutory appeal was improper because no irreparable damage would be done if Midway was forced to wait until after trial to appeal. At this time, Midway appeared likely to find more evidence of copyright infringement during discovery, therefore the appeal might ultimately be unnecessary. Further, even if Midway were to lose at final judgment, and Omni’s allegedly infringing machine had since disappeared, Midway could still rely on the accounts of the individuals involved in the seizure. These individual accounts, in lieu of the machine itself, would be credible evidence because they were from the neutral agents of the court who had performed the seizure. These agents had also been accompanied by a Midway engineer who could verify the technical details of the machine.

The Court further noted that under 17 U.S.C. s 503(a), the statute authorizing impoundment, a judge “may” order impoundment if he deems it reasonable. The Court interpreted this statute to establish discretionary power on the trial judge to order an impoundment, which would make an interlocutory appeal improper on this issue. Similarly, the Court reasoned that the order to suppress the machine from admissibility at trial, and the award of attorney’s fees to Omni were discretionary and reparable decisions of the District Court. Therefore, the Court denied Midway’s interlocutory appeal, and allowed the trial to resume in District Court.

Thanks to Brian Brisnehan for his assistance in the preparation of this case summary.

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