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MDY Industries, LLC v. Blizzard Entertainment, Inc., et al. (D. Ariz. 2008)

Update on October 2, 2008:

On Sept. 26, 2008, the court ruled that MDY must pay Blizzard damages in the amount of $6M, i.e, $6,000,000.00. At the next hearing, scheduled for January 2009, the judge will determine whether MDY founder Michael Donnelly is personally liable for damages and whether MDY violated the DMCA when it manipulated codes to keep Glider under WoW’s radar.

Posted on July 15, 2008:

Looks like Blizzard has won round 1 of the WoWGlider/MMOGlider lawsuit, with the District Court ruling that MDY's bot application violates Blizzard's copyrights, and also causes tortious interference with Blizzard's other paying customers.

On July 14, 2008, the U.S. District Court in Arizona issued an order granting summary judgment for Blizzard, developers of the World of Warcraft (WoW) massively-multiplayer online role-playing game, on their tortious interference, contributory copyright infringement, and vicarious copyright infringement claims against MDY, developers of a “bot” known as Glider that allows players to cheat in WoW. We had previously commented on this case when Blizzard initially filed this lawsuit against MDY.

As to its copyright infringement claims, Blizzard prevailed on the argument that while WoW users are given a license to play the game (and thus are given a license to cause digital copies of Blizzard’s copyright content to be made in RAM so that the WoW source code may be executed), the scope of this license is limited by the End User License Agreement (“EULA”) and the Terms of Use Agreement (“TOU”), such that breaching these agreements amounts to copyright infringement. In adopting Blizzard’s argument on this point, the district court rejected the argument advanced by MDY and amicus party Public Knowledge that WoW users are “owners” of copies of the software who are permitted to copy the WoW software into RAM irrespective of the restrictions in the EULA, rather than mere “licensees” who are not. Because the district court found that using MDY’s Glider constitutes a breach of WoW’s EULA and TOU, it accordingly held that users of MDY’s Glider were committing direct copyright infringement. However, this lawsuit was not against individual users of Glider—rather, Blizzard was trying to stop the problem at its source namely, MDY. Since it was MDY that was facilitating this direct copyright infringement (which is the requirement for contributory copyright infringement) and MDY that derived a financial benefit from this direct copyright infringement and had the ability to stop it (which are the requirements for vicarious copyright infringement), the district court held that MDY was guilty of both contributory copyright infringement and vicarious copyright infringement.

As to their tortious interference claim (which admittedly sounds more exciting than copyright infringement), Blizzard prevailed on the argument that MDY’s development of Glider induces WoW users to breach WoW’s EULA and TOU. Unlike copyright infringement, tortious interference with contract is a question of state law rather than federal law, and in applying Arizona law, the district court found it particularly significant that MDY “actively promotes the use of Glider even though it knows that using Glider breaches the TOU.” See Order at 22. In addition, the district court noted that “MDY does not dispute that Glider consumes more Blizzard resources than any other bot because of its sophisticated anti-detection features, that Blizzard must divert resources from game development to combat Glider, and that Blizzard has received numerous complaints from WoW players regarding other players’ use of Glider.” Id. at 23. Finally, the district court found that MDY’s conduct amounted to improper interference within the meaning of Arizona law. Id. at 26. Considering all these factors together, the district court concluded that MDY’s distribution of the Glider bot indeed constituted tortious interference with Blizzard’s TOU for WoW.

But putting aside tortious interference, the real significance of this case appears to be that a district court has allowed a software developer to enforce its EULA by characterizing exceeding the scope of the EULA as an act of copyright infringement rather than a mere breach of contract. While this tactic is not new in the copyright license/copyright infringement context, this is a novel approach in the enforcement of EULAs and TOU. As the district court itself acknowledged, copyright infringement is a “more powerful claim” than breach of contract because damages for copyright infringement are typically far greater than damages for breach of contract. See Order at 6. Indeed, damages for copyright infringement account for actual damages to the copyright owner (e.g., Blizzard’s expenses in fighting Glider, lost revenue from players who stopped playing WoW because of bots, etc.) and the infringer’s profits (i.e., MDY’s revenue from selling Glider), or alternatively, may include statutory damages up to $150,000 per infringed work (if willful). Id. Thus, if courts continue to apply this rationale in future cases, copyright infringement lawsuits could become effective weapons for video game developers in their quest to enforce EULAs and thereby limit the use of their creations to their own rules. But this future is only an “if,” as this case is only the opinion of a trial court, and an appeal is sure to follow (i.e., this ruling could be reversed (or affirmed) on appeal to the Ninth Circuit). Stay tuned...

(Thanks for Rajit Kapur for his assistance with the creation of this post)
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