MDY Industries, LLC v. Blizzard Entertainment, Inc. et al

Filing 111

MEMORANDUM re: Memorandum in Support of MDY and Donnelly's Request to Stay the Permanent Injunction by Plaintiff MDY Industries, LLC, ThirdParty Defendant Michael Donnelly, Counter Defendant MDY Industries, LLC. (Attachments: # 1 Exhibit A - Proposed Order re Injunction, # 2 Exhibit B - Declaration of Michael Donnelly, # 3 Exhibit B1 to Donnelly's Declaration, # 4 Exhibit B2 - to Donnelly's Declaration, # 5 Exhibit C - Patry Blog Articles, # 6 Exhibit D - UNC Law Review, # 7 Exhibit E - Jurimetrics Law Journal, # 8 Exhibit F - McSherry Article, # 9 Exhibit G - Siy Article, # 10 Exhibit H - Ars Technica Article)(Venable, Lance)

LAW OFFICES OF

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VENABLE, CAMPILLO, LOGAN & MEANEY, P.C.
1938 EAST OSBORN ROAD PHOENI X, ARIZONA 85016 TELEPHONE [phone] FACSIMILE [phone] E-MAIL DOCKETING@VCLMLAW .COM

Lance C. Venable (AZ Bar No 017074) 4 Joseph R. Meaney (AZ Bar No. 017371) Attorneys for Plaintiff MDY Industries, LLC 5 and Third-Party Defendant Michael Donnelly
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UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA MDY INDUSTRIES, LLC, Plaintiff and Counterdefendant, vs. BLIZZARD ENTERTAINMENT, INC., and VIVENDI GAMES, INC., Defendants and Counterclaimants, BLIZZARD ENTERTAINMENT, INC., and VIVENDI GAMES, INC., Third-Party Plaintiffs, vs. MICHAEL DONNELLY, an individual Third-Party Defendant. MDY Industries, LLC and Michael Donnelly's Brief Regarding Permanent Injunctive Relief The Honorable David G. Campbell Case No.: CV06-02555-PHX-DGC

In response to the Court's request for additional briefing related to permanent injunctive relief, MDY and Michael Donnelly (collectively "MDY") request the Court to: limit the scope of the permanent injunction to preclude only the acts that the Court has found to be unlawful; grant a stay pending appeal of the permanent injunction to the Ninth Circuit Court of Appeals;
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craft a supersedeas bond amount MDY that can realistically secure; or, in lieu of a supersedeas bond, require MDY to pay all of its net profits to an escrow account whereby the prevailing party will receive the contents of the account after the parties have exhausted all appellate remedies. I. The Court should not enjoin anything more than the activities it has found to be unlawful ­ the use of Glider with WoW. In copyright infringement matters, an injunction cannot serve a fundamentally punitive purpose.1 A court must carefully craft an injunction's scope to be coterminous with the infringement.2 Moreover, courts disfavor blanket injunctions to obey the law.3 A court should narrowly tailor an injunction to fit specific legal violations.4 Most importantly, a district court should only include injunctive terms that have a common sense relationship to specific case's needs, and the conduct for which the defendant has been held liable.5 Assuming Blizzard proposes an injunction with virtually identical language to the proposed injunction in its previous motion for permanent injunctive relief, MDY submits the same response: the Court should limit any injunctive relief to prohibiting MDY from marketing or selling Glider licenses, and remotely activating Glider licenses.6 A. Any restriction preventing MDY from developing or maintaining Glider is outside the scope of the Court's July 14, 2008 and January 28, 2009 Orders.

The Court should deny any request by Blizzard to enjoin MDY from developing

See Bucklew v. Hawkins, Ash Baptie & Co., 329 F.3d 923, 931 (7th Cir. 2003) See Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd. 518 F.Supp.2d 1197, 1226 (C.D. Cal. 2007). 3 Mulcahy v. Cheetah Learning LLC, 386 F.3d 849, 852 n.1 (8th Cir. 2004). 4 See Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., at 1226. (citing Waldman Pub. Corp. v. Landoll, Inc., 43 F.3d 775, 785 (2d Cir. 1994). 5 See Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., at 1226-27. 6 A copy of MDY's proposed permanent injunction is attached as Exhibit A. 2

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or maintaining Glider. The Court's Orders found MDY liable solely for acts pertaining to Glider's use with World of Warcraft ("WoW"). Blizzard has never alleged and the Court has never found that Glider by itself violates any law. In addition, Donnelly testified before the Court in January that Glider has other uses beyond WoW. Thus, by enjoining MDY from developing or maintaining Glider on MDY's own computers, the Court would enjoin lawful conduct. Furthermore, the injunction would constitute a taking of MDY's property without compensating MDY, and would not be narrowly tailored to ensure that MDY complies with the Court's orders. Therefore, the Court should deny any request by Blizzard to enjoin MDY from developing or maintaining Glider. B. The Court should not enjoin MDY from releasing its Glider source code to the public or selling its source code to a buyer where its use would be legal .

Blizzard has not provided any legal support for its position, which seeks to prevent an author of software from publishing his own source code simply because one use of the software (but not the only use) interferes with Blizzard's rights. MDY incorporates by reference the arguments previously made in Section V(B) of its Response to Blizzard's Motion for Permanent Injunction. The Ninth Circuit has held that computer source code is expressive speech protected under the First Amendment.7 Any restriction on the publication of computer source code violates the First Amendment when the restriction burdens more speech than necessary to serve the government's interest.8 This court has ruled that Glider, when used with WoW, infringes upon Blizzard's rights. And Michael Donnelly testified at trial that Glider may be used with many applications other than WoW. Accordingly, any restriction that prevents MDY from publishing Glider's source code is not narrowly tailored to protect Blizzard's interest and would violate MDY's First Amendment rights.
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See Bernstein v. U.S. Dept. of Justice, 176 F.3d 1132, 1141 (9th Cir. 1999). See DVD Copy Control Ass'n, Inc. v. Bunner, 4 Cal.4th 864, 882 (2003). 3

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Moreover, if the Court restricts MDY from publishing its own software source code or from selling/licensing its asset to a third party, Blizzard's victory in this case would effectively amount to a taking of MDY's assets without compensating MDY. Blizzard has offered no legal authority to support this position either. Finally, MDY has received offers from third parties to purchase his company and/or its assets for substantial money.9 These offers include uses for Glider that do not involve WoW.10 The Court should not enjoin MDY from releasing its software in open source form. Nor should the Court restrict MDY from selling its software for value (1) to third parties who may wish to use it for other purposes than using it with World of Warcraft or (2) to buyers in jurisdictions where its unrestricted use may be legal. C. The Court should not enjoin MDY from consulting with third-parties on issues pertaining to bot software since it would not relate to conduct, which the Court has found MDY liable.

Again, assuming Blizzard argues that the Court should restrict MDY from consulting with third parties pertaining to bot software, MDY incorporates by reference the text of Section V(C) of its Response to Blizzard's Motion for Preliminary Injunction. II. The Court should stay its Order granting permanent injunctive relief against MDY pending MDY exhausting its appellate rights. In considering whether to grant a stay, pending appeal, a court must consider the traditional stay factors. They include: (1) whether the stay applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be irreparably injured during a stay; (3) whether the issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies.11 The stay factors contemplate individualized judgments in each case. But generally, if the harm factors weigh heavily in the movant's favor, the movant need only
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See Affidavit of Michael Donnelly ¶¶ 7-10, attached as Exhibit B. See id. 11 Hilton v. Braunskill, 481 U.S. 770, 776 (1987).
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demonstrate a substantial case on the merits.12 A. Legal experts suggest that it is very possible that the Ninth Circuit could overturn the Court's ruling.

Courts have interpreted this first criterion as requiring that the movant show that "the appeal raises serious and difficult questions of law in an area where the law is somewhat unclear."13 The Court understands that this case is one of first impression. And with due respect to the Court's orders, very influential voices in the world of Copyright Law and the DMCA have strongly disagreed with the Court's holding in this case as it applies to the copyright and DMCA issues.14 William Patry, arguably the country's leading expert on Copyright Law and author of the seven volume treatise Patry on Copyrights, firmly criticized (1) the Court's contributory and vicarious copyright liability analysis, (2) how the Court misapplied the MAI ruling, and (3) how the Court rejected the Western District of Washington's ruling in Vernor v. Autocad on the issue of ownership of software under 17 U.S.C. § 117.15 In fact, the Vernor case represents a trend in the Ninth Circuit that clearly supports MDY's position. If the Ninth Circuit affirms Vernor on appeal, the Ninth Circuit would likely use Vernor as precedent to reverse this Court's decision. Authors of law review articles have also criticized the Court's decision,16 while

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Magnesystems, Inc. v. Nikken, Inc., 36 F.3d 1114, 1116 (Fed. Cir. 1994). Overstreet v. Thomas Davis Medical Centers, P.C., 973 F.Supp. 1313, 1314 (D. Ariz. 1997) (quoting Mamula v. Satralloy, Inc. 578 F.Supp. 563, 580 (S.D. Ohio 1983). 14 Without a copyright and DMCA violation, Blizzard could not meet the elements of tortious interference with contract. 15 See Exhibit C. In addition to Mr. Patry's blog entry, he further criticizes aspects of the ruling in the Comments section of his blog entry. Shortly after his blog entry on July 15, 2008, Mr. Patry ended his blog after five years. He said that he had become too depressed about what copyright law has become. He cited cases like this one, which he believes have led to court rulings that have made copyright law do nothing more than "... preserve existing failed business models, [and] to suppress new business models and technologies..." 16 Exhibit D - Satish Chintapalli, Recent Development, MDY Industries v. Blizzard Entertainment: Preventing the Use of Software Robots in an Online Game With Copyright Law, 10 NC JOLT Online Ed. 1 (2008), http://cite.ncjolt.org/10NCJOLTOnlineEd1; Exhibit E - Jordan 5

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other copyright lawyers have expressed disapproval of the Court's ruling in online articles.17 MDY's counsel has also received notice that several lawyers and academics will likely submit amicus briefs for MDY when the parties brief the case to the Ninth Circuit. Without a doubt, MDY has demonstrated that its appeal raises serious and difficult questions of law in an ambiguous area of law. In fact, not only does MDY have a substantial case for appeal on the merits, but the Ninth Circuit could ultimately decide MDY's case in MDY's favor on solid legal and policy grounds. B. MDY will clearly suffer irreparable injury.

MDY provided irrefutable testimony at trial that if the Court enjoins MDY from marketing or selling Glider, MDY will go out of business within a short time thereafter. Furthermore, businesses outside of the U.S. that sell a similar version of Glider will simply replace MDY's business, thereby causing MDY to forever lose its market share. Thus, failing to stay the injunction will cause MDY irreparable injury. C. By staying the injunction, Blizzard may continue to invest money in eradicating Glider, and Blizzard will not sustain substantial injury.

As to the issue of Blizzard's potential injury should the Court grant a stay pending appeal, MDY incorporates by reference Section I(B)(1-5) of its Response to Blizzard's Motion for Permanent Injunction. Furthermore, the only evidence presented at trial regarding damages was Greg Ashe's testimony that Blizzard spends approximately $1,000,000 per year (or $83,333 a month) in its efforts to eradicate bots like Glider.

Christopher Redman, Note, MDY Industries, LLC v. Blizzard Entertainment, Inc.: "Contracts" That Expand Copyrights Have Gone Too Far, __ Jurimetrics J. __­__ (publication date forthcoming). 17 McSherry, Corynne. You Bought It, But You Don't Own It. 15 July, 2008, http://www.eff.org/deeplinks/2008/07/you-bought-it-you-dont-own-it attached as Exhibit F; Siy, Sherwin. MDY v. Blizzard: Cheating at WoW May Be Bad, But It's Not Copyright Infringement. 5 May, 2008, http://www.publicknowledge.org/node/1546 attached as Exhibit G; Lee, Timothy. Judge's Ruling That WoW Bot Violates DMCA Is Troubling. 29 January, 2009, http://arstechnica.com/gaming/news/2009/01/judges-ruling-that-wow-bot-violates-dmca-istroubling.ars attached as Exhibit H.

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Considering that Blizzard receives approximately $150,000,000 per month in revenue from WoW alone, any injury is not substantial relative to its overall income.18 When considering what Blizzard would lose relative to its overall income pending an appeal, and comparing it to what MDY stands to lose, this factor clearly favors MDY.19 D. The public interest favors MDY

The Court must balance Blizzard's interest in protecting its copyrights with the interest the public has in fostering a competitive and innovative market, and allowing innovative individuals to develop add-on software in the United States.20 Imposing what essentially amounts to a corporate death penalty in view of Blizzard's questionable showing of irreparable injury, could well constitute too powerful of a deterrent to future legitimate challenges in similar cases.21 MDY further incorporates by reference its argument in Section IV of its Response to Blizzard's Motion for Permanent Injunction. All four factors favor MDY. At a minimum, because the harm factors weigh heavily in MDY's favor, and because MDY has demonstrated a substantial case on the merits, the Court should grant MDY's request for a stay of any permanent injunction pending appeal. III. What bond or other measures ­ for stay of the injunction and for damages ­ should the Court impose to protect Blizzard pending appeal. F.R.C.P. 62 provides that a supersedeas bond may be used to stay execution of a judgment pending appeal.22 Additionally, the court has discretion to allow other forms of judgment guarantee.23
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$83,333 vs. $150,000,000 is a miniscule 0.056% of Blizzard's gross monthly revenue derived from WoW subscriptions. 19 See In re Hayes Microcomputer Products, Inc. Patent Litigation, 766 F.Supp. 818, 823 (N.D. Cal. 1991). 20 See id. 21 See id. 22 Foster v. Hallco Mfg. Co., Inc., 835 F.Supp. 1235, 1236 (D. Ore. 1993). 23 Id. 7

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In the event that the Court requires that MDY secure a supersedeas bond, the bond amount should not exceed $1,000,000 ­ the amount that Mr. Greg Ashe testified Blizzard must spend annually to police its WoW software for Glider users.24 MDY, however, cannot afford even that amount. If the Court required MDY to provide at least $100,000 in cash and collateral totaling $900,000 to secure the bond, MDY's lack of funds would simply make the bond impractical. MDY suggests that security for the stay pending appeal should require MDY to put all but the necessary funds to operate its business for fixed overhead and salaries25 in an escrow account monthly.26 MDY would report both its monthly income and expenses to Blizzard during the pendency of the appeal. After all appeals are exhausted, the prevailing party would receive the contents of the escrow account. IV. Conclusion For these reasons, MDY requests the relief as set forth on pages 1 and 2. Dated this 13th day of February, 2009

Venable, Campillo, Logan & Meaney, P.C.

By /s/Lance C. Venable

Blizzard will likely argue that the Court should make the bond amount at least $6,000,000. This amount is for past damages ­ not damages that Blizzard may incur pending appeal. Therefore, the Court should disregard Blizzard's suggestion. 25 MDY's current overhead and salaries total $39,690.00. 26 See e.g. Foster v. Hallco Mfg. Co., Inc., 835 F. Supp. 1235, 1236 (D. Ore. 1993); In re Hayes Microcomputer Products Patent Lit., 766 F. Supp. 818, 823-24 (N.D. Cal. 1991). (demonstrating that courts have used this scheme as a substitute for a supersedeas bond where the defendant does not have the funds to secure the bond.) 8

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Lance C. Venable SBN 017074 Joseph R. Meaney SBN 017371 1938 East Osborn Road Phoenix, Arizona 85016 Tel: [phone] Fax: [phone] E-Mail [e-mail] Attorneys for Plaintiff MDY Industries, LLC and Third-Party Defendant Donnelly

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CERTIFICATE OF SERVICE

I hereby certify that on February 13, 2009, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: Name Christian Genetski, Esq. Scott Jeremy Stein, Esq. Shane McGee, Esq. Email Address [e-mail] [e-mail] [e-mail] [e-mail]

I hereby certify that on __________________, I served the attached document by FIRST CLASS MAIL on the following, who are not registered participants of the CM/ECF System: Name Physical or Email Address

s/ Lance C. Venable

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