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

Filing 137

TRANSCRIPT filed for hearing on Motion Hearing for dates of 6/26/08 before Judge David G Campbell. Court Reporter: Elizabeth A Lemke. Re 134 Notice of Cross Appeal, Transcript may be viewed at the court public terminal or purchased through the Court Reporter/Transcriber before the deadline for Release of Transcript Restriction. After that date it may be obtained through PACER. Redaction Request due 6/4/2009. Redacted Transcript Deadline set for 6/15/2009. Release of Transcript Restriction set for 8/12/2009. (BAS, )

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

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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA _________________ MDY INDUSTRIES, LLC,, ) ) Plaintiff and ) Counter-Claim Defendant, ) ) vs. ) ) BLIZZARD ENTERTAINMENT, INC., ) and VIVENDI GAMES, INC., ) ) Defendants and ) Counter-Claim Plaintiffs ) ________________________________________) BLIZZARD ENTERTAINMENT, INC., and ) VIVENDI GAMES, INC. ) ) Third-Party Plaintiffs, ) ) vs. ) ) MICHAEL DONNELLY, ) ) Third-Party Defendant. ) ________________________________________)

CIV06-02555-PHX-DGC Phoenix, Arizona June 26, 2008 2:58 p.m.

BEFORE: THE HONORABLE DAVID G. CAMPBELL, JUDGE REPORTER'S TRANSCRIPT OF PROCEEDINGS MOTION HEARING

Official Court Reporter: Elizabeth A. Lemke, RDR, CRR, CPE Sandra Day O'Connor U.S. Courthouse, Suite 312 401 West Washington Street, SPC. 34 Phoenix, Arizona 85003-2150 [phone] Proceedings Reported by Stenographic Court Reporter Transcript Prepared by Computer-Aided Transcription

Dockets.Justia.com

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 UNITED STATES DISTRICT COURT For the Plaintiff/Counter Defendant MDY Industries and Third-Party Defendant Michael Donnelly: VENABLE, CAMPILLO, LOGAN & MEANEY, PC By: Joseph R. Meaney, Esq. Lance C. Venable, Esq. 1938 E. Osborn Road Phoenix, AZ 885016 For the Defendant/Third-Party Plaintiff Blizzard Entertainment: Sonnenschein, Nath & Rosenthal, LLP. By: Christian S. Genetski, Esq. Shane M. McGee, Esq. 1301 K St. NW Suite 600 East Tower Washington, DC 20009 APPEARANCES

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PROCEEDINGS (Called to the order of court at 2:58 p.m.) THE CLERK: Civil case 06-2555. MDY Industries, LLC This is

v. Blizzard Entertainment, Incorporated, and others. the time set for motion hearing.

Counsel, please announce your presence for the record. MR. VENABLE: Your Honor, Lance Venable for the

plaintiff MDY Industries, LLC and Third-Party Defendant Michael Donnelly. THE COURT: All right. Good afternoon. Christian

MR. GENETSKI:

Good afternoon, Your Honor.

Genetski on behalf of Blizzard Entertainment, Vivendi Games, and I'm joined by my colleague Shane Mc Gee, also from Sonnenschein, and Rod Rigole, Senior Counsel at Blizzard. THE COURT: Okay. All right. Good afternoon.

Our purpose this afternoon is for oral argument

on the various motions for summary judgment that have been filed. I have read the briefs. I have read many of the cases.

I have read the statutes.

I have looked at portions of the

record, so I understand the issues in the case and you don't need to repeat basic arguments. I do want to start with a couple questions before I actually hear your arguments, because they may affect my thinking as we go through these issues. you, Mr. Genetski, with a question. UNITED STATES DISTRICT COURT I want to start with

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Blizzard clearly argues in this case that a copyright violation occurs when game client software is copied from the users' hard drive to RAM. Do you also contend that a copyright violation occurs because software from the server at Blizzard is copied to the user's RAM? Or is your claim limited to the software that's on

the game client disk? MR. GENETSKI: Yes, Your Honor.

Your Honor, the -- our claim is limited to the software -- the copying of the software on the client with a caveat, which is the software that's resident on the client, the protected code on the client, is when it is connected to the game servers, Blizzard's proprietary game servers, and interacts with that code. That interaction in the server

environment, in the online environment, displays -- enables the display of the expressive elements of the copyrighted code, but that code does -- is loaded into RAM from the client. And it's

the code loaded into RAM from the client, in conjunction and interaction with the server code, that forms the basis for our copyright infringement claim. THE COURT: So you are not contending that there is

code on the server that is copied to RAM in violation of the Copyright Act? MR. GENETSKI: THE COURT: Not my users of Glider. You said something a moment ago

Okay.

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that you said in your brief, which is when the code on the user's computer interacts with the server at Blizzard -- I can't remember the word that you used -- "expressive." MR. GENETSKI: THE COURT: you've used? MR. GENETSKI: "Nonliteral elements" is another phrase Yes, Your Honor. What's the phrase

Something expressive.

we've used that comes from the case law. The -THE COURT: nonliteral element. MR. GENETSKI: The display screen, the way that the Give me an example of an expressive

character -- the art, the different characters in the game is displayed, the display that show user chat windows, if you are communicating online with people during the game, the screen that shows the amount of loot that your character has collected during that session. All of the graphical display, the music, the multimedia, the sound, all those things can only be experienced in the online environment. You have to run the client code and

connect to the servers to be able to see those graphical displays. This might be an opportune time to mention to Your Honor, we have brought today a four-minute video of -- it's sort of an introduction to World of Warcraft. It just shows

with no sound -- just shows what it looks like when it is UNITED STATES DISTRICT COURT

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displayed on the screen. We also have a short four-minute video, out of fairness of MDY's Glider program, running in World of Warcraft also that we have discussed with Mr. Venable about using as a demonstrative exhibit -- and I understand he has no objection -- we defer to the Court, if it would be helpful just to your question: THE COURT: What am I talking about -You didn't provide that explanation in the

brief, so I wasn't sure what you meant when you referred to nonliteral expressive elements. But I want to come back and be clear. When -- so you

are saying the copyright infringement, that is, the copying in violation of Section 106, is simply the copying of code from the game client to RAM? MR. GENETSKI: THE COURT: Yes, Your Honor.

Is there an additional copyright violation

you are asserting in that these expressive elements are somehow misappropriated by MDY? MR. GENETSKI: They are -- those elements -- the

reason to draw the distinction between the code that's resident on the client and that code when it is loaded into RAM in connection with the server, when the user is connected to the server, is that MDY has made an issue in the case of the ability to cut and paste the code into Notepad or another program, regular program you have, and have said in the context UNITED STATES DISTRICT COURT

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of the DMCA claims, it doesn't prevent all copying of that code. And our position is that the important copying, what's protected by our copyright, are the nonliteral elements, these expressive graphic display elements of the code which is resident on the client. But when it interacts with the server,

that's the only context in which that content is displayed. Our claim is limited to infringement when a user without authorization in excess of his authorized right to load the copy into RAM under our license loads that -- pardon me -loads that content into RAM in connection with the server. THE COURT: You just said that the expressive elements

are resident on the client, correct? MR. GENETSKI: The code that enables them to be

displayed is resident on the client, but by necessity, must interact with the server code to be displayed. THE COURT: right? So we're just talking about the code,

That's the copyright violation is the copying of the

code from the game client to RAM? MR. GENETSKI: to RAM, yes. THE COURT: Okay. Thank you. Yes, Your Honor, from the game client

Mr. Venable, did you want to say anything on this issue before we talk about other general matters? MR. VENABLE: Yes, Your Honor, just briefly.

UNITED STATES DISTRICT COURT

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I think what Mr. Genetski is confusing here is the issue of the difference between the code and what can be loaded into RAM and viewed with whether or not World of Warcraft is active or not. The code that is on the software -- the code that is on the hard drive can be loaded into RAM using Notepad viewer. It can be loaded using a picture viewer. Use of these things

that he's referring to, these expressive elements that he is referring to, can all be viewed independently of World of Warcraft. see these. Admittedly, you do need to log onto the server to use them in the concept of playing the game, but unfortunately there is no case law to support -- I should say, fortunately for us, there is no case law to support the concept of taking something that's a protected element on the hard drive and saying that, well, it's only -- it's only accessible because of this access that they require to be able to use it within the concept of the game. That's functional. You don't need to actually log onto the server to

And the functional elements of playing the game within the ability to see these things that he's referring to is just not protected under Section 106 of the Copyright Act, Your Honor. THE COURT: Okay. We will come to that on the DMCA

UNITED STATES DISTRICT COURT

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Let me ask you one other question, Mr. Genetski. there World of Warcraft players today in the world that are operating under the two older versions of the EULA? Or is

Are

everybody effectively today operating under Exhibit 21, the 2007 version of the EULA? MR. GENETSKI: Everyone currently playing the game is

operating -- if they have logged on since that new EULA was updated, they're playing under the new EULA. THE COURT: case, isn't it? MR. GENETSKI: That would be our position, yes, Your Then that's the only EULA at issue in this

THE COURT:

Is the same true of the TOU?

Anybody who

is using the game today is under the most recent version of the TOU? MR. GENETSKI: THE COURT: disagree with that? MR. VENABLE: THE COURT: I'm sorry, Your Honor? The question that I put to him was whether Yes, Your Honor. Thank you. Mr. Venable, do you

Okay.

there are users of World of Warcraft anywhere in the world today who are using it under the two older versions of EULA. And his answer was no. Everybody who is using it today is

using it under the current version of EULA, which would be the 2007 revision. UNITED STATES DISTRICT COURT

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And then I asked him, well, then that's the only EULA issue in this case, and he agreed with that. What's your view on that issue? MR. VENABLE: Well, it is in terms of whether or not

someone is in breach of an agreement today, but there are issues that we have raised in our briefs regarding what Mr. Donnelly understood at a certain time. THE COURT: Right. I understand for the tortious

interference claim you're saying it wasn't intentional or improper when he started because it wasn't prohibited. MR. VENABLE: THE COURT: Right. But you agree that the people who are

operating World of Warcraft today are under the current EULA and the current TOU? MR. VENABLE: Yes. We have no objection to that, Your

THE COURT:

Okay.

All right.

Okay.

That answers the

two questions that I wanted to focus on, so Mr. Venable, why don't I let you take 15 minutes or 20 minutes and address the matters you think need to be addressed, and then I will let Mr. Genetski respond, and then we will decide where to go from there. MR. VENABLE: Thank you, Your Honor.

Your Honor, I understand that since you have a -- read the briefs significantly, I won't try to delve too deep into UNITED STATES DISTRICT COURT

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things that I believe are a waste of this Court's time. do want to start off by addressing what has not been

But I

properly -- or I should say what has not been responded to from us on the issue of Section 117, because technically, the amicuses had the opportunity to speak. We would like to raise a couple of points that I think are imperative to be able to show why this case can be dismissed at this point or grant our motion for summary judgment and deny Blizzard's. As the Court may be aware, Your Honor, Section 117 of the Copyright Act grants the owner of the copy -- of the copy of the code to make a copy of the code, as long as the copy in question is an essential step to using the software. And I believe that clearly Congress enacted this exception for a reason, and that reason was to prevent the copyright owner from suing the owner for copyright infringement just for using the very program that he or she owns; for example, as a result of a retail sale. Blizzard's sole basis for its copyright infringement claims against MDY are derived from this issue of whether or not the copy is made from the point it is -- Blizzard's software is residing on the user's hard drive and taking it into RAM. And that's it. If there is no copyright infringement that is occurring as a result of that action, then there can be no UNITED STATES DISTRICT COURT

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direct infringement by the user of the World of Warcraft software. And, of course, if there is no direct infringement,

there can be no vicarious or contributory infringement either, which means my client has no liability under the copyright statutes. And Blizzard cannot dispute the fact that when I walk into Best Buy, for instance, and I walk into Best Buy and I pick up this box off of the shelf, which I believe goes for $39.99. I go up to the cash register. I pay for it. I walk

out of the store.

I have a receipt that shows I am the owner

of this box that contains several disks which contain the code that they claim is protected under the copyright law. And we

don't dispute the fact that this code is, in fact, protected under the copyright law. I could take this box and as I'm walking out of the Best Buy, if someone was walking into the Best Buy and said that they were interested in going to buy this box to play World of Warcraft at home, I could sell them my box of World of Warcraft software. I could sell them to it for whatever price

I choose to sell it for and there is nothing that Best Buy or Blizzard or any other person can do to stop me. I don't purchase that software under any restrictions from Best Buy. In fact, I don't really purchase that software

under any restrictions from Blizzard. So the only question is whether Blizzard's customers UNITED STATES DISTRICT COURT

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become owners of these copies despite Blizzard including a license agreement that somehow restricts how long it can be played after I have loaded that software onto my computer. But prior to the time I have loaded that software onto the computer, there's no doubt, Your Honor, that I'm an owner of that package. And this is, I think, really the heart of the question under 117, is that when I go in and do this -- when I take -when I do this transaction with, you know, a retail establishment such as Best Buy, am I not an owner? What am I at that point? In fact the question is

really is Best Buy the owner of the software when they sold it to me? THE COURT: minute, Mr. Venable. MR. VENABLE: THE COURT: Yes. When the Sheriff's Department in the Wall Well, let me interrupt you on that for a

Data case purchased their disks and had them in hand before they loaded it, they're in the same position you are in your hypothetical walking out of Best Buy, right? MR. VENABLE: there, Your Honor? Well, there is a slight difference

The Wall Data case did not involve the

retail sale of a single purchase of a -THE COURT: MR. VENABLE: Right. -- of a piece of software. Wall Data,

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there was several thousand copies that were purchased, and it was at that time, I believe, the License Agreement that was in place was actually negotiated between them and the Wall Data to be able to get a discount, and there were all sorts of things. So when we do this with Wall Data, this is not your -this is not really classified as a typical retail sale. Certainly, a person who walks into Best Buy expects that they would be the owner of this software, at least the copy of the software; not the copyright, but just the software itself, the disks. And so I think that's how we would

distinguish ourselves from the Wall Data case. THE COURT: Well, in Wall Data the Ninth Circuit said

that the two factors the courts must consider in deciding whether you own the rights to the software when you walk out of Best Buy is whether the copyright owner, Blizzard -MR. VENABLE: THE COURT: Yes. -- has made it clear that it's granting

only a license to you, number one; and number two, whether it places significant restrictions on your use or transfer of it. Isn't that the test I have to apply in deciding whether, in fact, you are -- or a user is an owner under 117? MR. VENABLE: Well, actually, Your Honor, this sort of

leads me into my next point, because the Western District of Washington just in the last couple of weeks has come out on this issue. UNITED STATES DISTRICT COURT

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THE COURT: MR. VENABLE: THE COURT: MR. VENABLE:

Is this Verner? This is the Verner case. I have read Verner. Okay. And what Verner says,

essentially, is that when looking at these cases, there's a trio of cases, the MAI case, the Triad case, and the Wall Data case, is that those cases cannot be reconciled in view of the Wyse case which discusses this issue about what really is the main issue when deciding whether or not there's been a -- you know, a first sale. And the main issue is whether or not -- I should say the primary issue that the Court discussed there -- was whether or not the user, the purchaser of the software, the owner -the quote-unquote owner of the software -- is allowed to basically keep these copies for as long as they wish. And certainly, when I walk out of Best Buy, I expect I can hold these disks as long as I want. I don't even have to

load them onto my computer if I don't want to load them on my computer. But I certainly would be able to get these disks as That was the critical issue. Well, here's -- yes, and I understand

long as I want.

THE COURT:

that, and I read Judge Jones' opinion with interest in Verner. Here is what I wrestle with on that, so that you can address it. In Verner, Judge Jones was interpreting the word UNITED STATES DISTRICT COURT

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"owner" under Section 109 and the First Sale Doctrine. MR. VENABLE: THE COURT: Yes. And he was looking at, Wyse, which was a

first-sale case, and asking whether the MAI trio under Section 117 should, in effect, overrule them. they are essentially indistinguishable. older case Wyse. I'm in a different position. case to apply 117. I'm being asked in this And he said I have -I have to look at the

And the Ninth Circuit has specifically held

in MAI and Wall Data that under 117, I use the Wall Data test. It seems to me if I were to go Judge Jones' route, I would be doing it in direct contravention to Ninth Circuit authority, whether or not I agree that Wall Data is the correct test. MR. VENABLE: But the difference, Your Honor, is that

in the MAI trio, Triad, MAI, Wall Data, none of those cases were the case where I walk -- I can walk into a retail establishment, purchase a piece of software, like I can here. None of those cases involve that. All of those cases involve

either a negotiated license or something where the person purchased hardware that contained software within it. In other words, what I bought with MAI or what I bought with Wall Data or what I bought with Triad was the license itself. I'm not doing that in the case here with And I think that

Blizzard's -- with Blizzard's software.

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what -- I think what also in the Verner case is very important to note is that the judge said that you cannot simply look at whether or not something is a sale and say that you're an owner for 109, but you can't be an owner for 117. You are either an owner or you're not. in-between. There is no

And I think that the risk is that if we take We're

the -- you know, we're not asking you to overturn MAI. not asking you to overturn Wall Data.

Those cases are easily

distinguishable, because they were not involving the sale. I mean, I think if you take the approach that someone is not an owner of software when they go into a Best Buy and purchase it, I think it could have very detrimental effects on what software creators can allow you to do once you purchase that software. But there's no doubt, Your Honor, that at the point where I walk in and I buy this box that contains the code, these disks, I certainly own it. ability to own it. Blizzard doesn't restrict my

So the only way that they can get to the

issue of whether or not I'm no longer an owner is to say that well, when you turn this computer on and install the software -- which by the way under their License Agreement they give you the right to do -- in fact, the two things that Blizzard grants you under their End-User License Agreement are only two things. They grant you the right to install it on as many UNITED STATES DISTRICT COURT

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copies as you own of -- I'm sorry, as many computers as you own in your possession so that you can play World of Warcraft on three or four different computers in your house if you so choose. And the other thing is the right to use the software. So even within their own license, they grant you the right to be able to put it on the computer and at a minimum be able to load it into RAM to be able to access this license that comes up and then says to you, Now you must agree to all these terms. But what you are really agreeing to is not the issue -- is not a question of ownership. They're asking you to

agree to these terms so that you can then access their server and then play the game and then load the code from the hard disk into RAM. So then what they are essentially doing is they're reaching back and they're saying, Well now you were an owner of this software, but now you are no longer an owner because you are agreeing to these new terms. 117 works. But that's not the way that

117 says that you are an owner at that point.

Congress has given you this exception to the normal rule of whether or not something is a copy or not. And I believe that the intended purpose of this is for this very reason. You can't just simply say that you're an

owner for one reason and then you're not under certain circumstances. UNITED STATES DISTRICT COURT

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And that by allowing you to be able to purchase the software and then say, Now I'm no longer an owner -- and by the way, there's nothing in their License Agreement that says that here is an explicit waiver of Section 117(A) that maybe you were an owner, now you're no longer an owner; or now you no longer have the right to load this program into RAM unless you do certain things, play the game a certain way. But the issue of whether or not you can play the game a certain way, Your Honor, those are all rights that are granted under contract law. copyright laws. Copyright law is a minimalistic statute. It grants They are not granted under the

five specific rights; copying, derivative works, public display, all those things. But the copy that the -- the

copyright law grants you under 106, doesn't count under 117 when it's this loading into RAM if it's an essential step and you're an owner. THE COURT: Mr. Venable, what if, instead of going to

Best Buy and buying the box, you buy it online directly from Blizzard and download it to your computer? MR. VENABLE: It still would not matter, Your Honor, I still own -- I I would

because I'm still getting the same software.

would still be in full possession of the software.

have it -- and the fact that I think even Wyse addressed this issue directly, that just because you don't have to pay for it, UNITED STATES DISTRICT COURT

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that, you know, you pay value for it, doesn't mean that you are still not an owner of it. THE COURT: What if Blizzard said before you pushed

"yes" to download it, you're agreeing that you're only getting a license? MR. VENABLE: Well, it still doesn't matter, Your

Honor, because the license that they are giving you is a right to play the game under certain circumstances. right to make copies into RAM. It's not the

They have implicitly granted

you that right even within their license. THE COURT: So what you are arguing is that retail There is no --

marketers of software are always under 117? MR. VENABLE: THE COURT: MR. VENABLE: At a minimal.

-- there's no way of getting around it? I don't see any way that you could

possibly do it that when you go to buy a single copy, if you are purchasing that software with no restrictions, I don't see how you could not be. And the other thing is we don't

necessarily have to say this is specifically tailored to retail. I'm sure you probably read the Krause case. And the

Krause case, although it's a Second Circuit of New York -Second Circuit Court of Appeals case, it is one of the leading cases that addresses this very issue about what factors in this License Agreement itself constitute granting the right of UNITED STATES DISTRICT COURT

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ownership. And, you know, when you look at all the five factors in the Krause case, every single one of them, when you look at the Blizzard license, all of them -- and this was discussed very extensively in the amicus brief -- but every single one of those factors align in favor of MDY to show that what they really are doing is just, in fact, giving you the software. They don't ask you to return it, which is key. key fact. They even say that you can -- you know, it says here are the five factors. You can purchase a single copy for a single price. That's a factor in favor of ownership. Does the purchase of that copy limit the right to possess the copy for an unlimited time? Well, yes. You That's a very

don't -- you can hold onto your software for an unlimited sometime. Does the user have the right to discard or destroy the copies as you wish? Well, yes, I can take these disks when I I can throw

walk out of Best Buy and break them if I want. them away. I can cut them in half.

There is nothing that And

Blizzard or anyone else can do to stop me from doing that. those are the disks that contain code. Is the program stored on the users hardware? is. That favors ownership. UNITED STATES DISTRICT COURT

Yes, it

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And are there severe restrictions on resale or other Blizzard themself, even in their License Agreement, says

I can take the software I bought or download it, by the way, and I can transfer the rights to the new person that I want to give it to, as long as I destroy all the copies that I had before. But that's no different, Your Honor than if you went to the store and bought Microsoft Word. on your computer. You put Microsoft Word

I certainly could not, nor are we advocating

that we could, take Blizzard's software and make copies on computers that I don't own so that my friends could use it. Although I don't really think they would mind that because you can download these programs for free. But if I had Microsoft Word, if I took Microsoft Word and made a second copy without destroying the copy on my hard drive, then now I have made an unauthorized copy under 106. That's not allowable. But all five of these factors are

discussed in the Krause case and they go directly at, okay, so you give me a license, but the question is -THE COURT: MR. VENABLE: THE COURT: MR. VENABLE: I understand that. -- but you have to look to the license. All right. Okay. Your Honor, even if the Court

doesn't find that Section 117 applies to this case, Blizzard still can't create a cause of action for copyright infringement UNITED STATES DISTRICT COURT

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merely by having its customers breach a term in its agreement that has no relevance to copyright law, because this is a key factor. There are no -- there are no disputed facts in this

case that the reason why Blizzard says that they can sue Mr. Donnelly and his company for copyright infringement is because they say that this license is sort of a big condition precedent. And if you don't agree to it when you load this

program into RAM, you are making a copy that's not authorized. Well, if under 117 that doesn't apply, the question still is what term of the agreement did I actually breach? I breached the agreement saying that I agreed to not use third-party programs, but then I use this third-party program that Blizzard doesn't like, well I have breached their contract, yes, but I have not breached any act or any right under 106. THE COURT: Mr. Venable. MR. VENABLE: THE COURT: Sure. Let's assume I sell you some software with Let me give you a hypothetical, If

the agreement that you're going to pay me $10 a month for the license to use it. MR. VENABLE: THE COURT: Yes. You pay me this month in July and August

and then you stop paying. MR. VENABLE: Yes.

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THE COURT:

You don't pay me anymore and you don't do Next March you

anything with the software until next March. load it on the computer and copy it to RAM. Copyright violation? MR. VENABLE: THE COURT: Yes, it is, Your Honor.

But in that hypothetical, the act that

constituted the breach, which was nonpayment, is different from the act that constitutes the copyright violation, which is copying to RAM. be different. And it seems to me you're arguing they can't They have to be one in the same. No. But there are several cases out

MR. VENABLE:

there that address the issue of whether or not you stop making payments for something, because then you are then outside the scope of the license. THE COURT: Exactly. So what they are arguing is if

you breach the contract -MR. VENABLE: THE COURT: Yes. -- by using a third-party product such as

Glider, you've breached the contract just like you do when you don't pay. You are now outside the scope of the license. And

when you load it to RAM, you make a copy in violation of Section 106. MR. VENABLE: But the case law is different on the

issue of payment versus the issue of what they are talking about. The Storage Tech case is a classic case that discusses UNITED STATES DISTRICT COURT

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this, Your Honor. THE COURT:

There is a quote in Storage Tech. And I have read Storage Tech. Okay. And again, the reason I'm sort of pushing

MR. VENABLE: THE COURT:

you on this is because Storage Tech to me is unremarkable. What Storage Tech says is if you do something to get outside the license, you're not liable for copyright infringement unless you infringe, unless you engage in an action that's infringing. But I don't see Storage Tech saying that the act of infringement has to be the same act that gets you outside the scope of the license, which is really what you are arguing. MR. VENABLE: Well, in this case, Your Honor, I think What we pay

we can distinguish it for one very important fact.

for -- with Blizzard's -- with Blizzard's -- to play Blizzard's game, you pay a $15-a-month fee to be able to play the game. Okay ? What Blizzard says in its contract is they are If you are loading the

giving you the right to use the game.

software into RAM, you are technically not using -- you're not playing the game yet. Okay?

So when I stop paying my $15, I'm sure what happens on Blizzard's end is somebody in their Accounting Department says, Well, this person is no longer authorized to play this game. And if I tried to log in, I couldn't play the game. So

technically, I would only be violating Blizzard's agreement, if UNITED STATES DISTRICT COURT

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in fact, I was playing the game, despite the fact that I was not paying $15 a month. I think Blizzard has already addressed this very issue in the case that they dealt with a couple of years ago, the B Net D Davidson case in the Eighth Circuit where somebody was taking a copy of Blizzard's software and actually playing the game on a server that was not connected to Blizzard. And

they -- that's exactly what they were doing, which was clearly a copyright infringement. This was something that was not only outside the scope of the agreement, but it was clearly an infringement, because they were not allowed to do that. Not paying the $15 according

to Blizzard's license doesn't say that I'm an infringer, even if I load the program into RAM. What we are paying $15 for is In fact, I think

the right to be able to play the game. Mr. Genetski even said that earlier. THE COURT:

Well, I understand that, but they're not

claiming that the $15 is -- or the failure to pay the $15 is what gets you outside the scope of the license. They're saying

it's when you use Glider, you are now using this program in a way they haven't authorized. license. It's outside the scope of the

And once you're outside the scope of the license, as

soon as you copy to RAM, you are copying in violation of Section 106, because you're not licensed to do it. MR. VENABLE: But what the license also says, Your

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Honor, is that they have granted us the right to install it and the right to use it. right to use. The right to copy it is subject to the I can point

That's right in their agreement.

that out to you. License Agreement.

I believe it's section IVA of their End User So this whole question of whether or not

when I load it into RAM I'm making a copy, well, that's not really a violation of what I'm licensed to do. of the agreement. That's a breach

I'm not making a copy under the copyright

law that would infringe the copyright law. At worst, I have just breached their agreement. still licensed to use the software. In fact, I'm still I am

licensed to use the software until they terminate the software. THE COURT: Without Glider.

I mean, their point would be if you're using it without Glider, you're certainly authorized to make copies. They've given you a license. But once you start using Glider, you step outside the area they've authorized the use for. And when you make a copy And under MAI, it's

outside of that area, it's not authorized. a copy and, therefore, an infringement. Isn't that their argument? MR. VENABLE:

Well, yeah, that's exactly it.

And I

think if you look at the other things, virtually anything that you do within this Agreement, because that's their interpretation of their agreement, is that if you do anything, UNITED STATES DISTRICT COURT

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anything whatsoever, that violates one term of their agreement, you want to call your character Michael Vick, well, you are not Michael Vick. That's a violation of the agreement, now you're

a copyright infringer. You want to do -- and then they also use terms like "doing anything that Blizzard considers contrary to the essence of the game." Well, I wouldn't even know what that is, quite frankly. I don't know what Blizzard considers contrary to the

essence of the game unless I sat down and talked with them about it. If I provided a false address to them, I'm now

violating the contract and I'm a copyright infringer. There are ways that you have to do to control your -what they are trying to do essentially, Your Honor, is they are trying to extend the rights under copyright law through their contract. They are trying to say that, Well, we really can't

control what Mr. Donnelly is doing, so here is the way we will do it. We will just simply say that if he does this, well, it's a violation of the contract. software is a copyright infringer. Now everybody who uses this Image for a second, Your

Honor, that if Ford Motor Company was selling automobiles. And, of course, they have software embedded within their ignition system, let's say. front of the car saying: UNITED STATES DISTRICT COURT And they put a contract on the

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If you buy this automobile and you want to drive it around, that's fine. However, you cannot replace any of the

parts on this car with NAPA auto parts. If you do, you are now outside the scope of your license to be able to drive this car. And when you load that

ignition software into RAM, oh, my goodness, you are a copyright infringer. You have loaded something and now you So they

don't have the right to load that software into RAM. can --

If you give Blizzard the ability to do this, any company in the world can put in a, you know, a piece of software on their machine, put in some artful contract language and say, here, you know what, if you don't like what we're doing we can sue you for copyright infringement. That's not what Congress intended, Your Honor. What

Congress intended was to grant the author of his work a limited right to be able to protect it from being copied, from making derivative works, so that it can't be exploited. What Blizzard is trying to do is trying to use this copyright as sort of a punitive measure to be able to try to take out anybody who plays the game in a manner that they don't want it to be played, in a manner that they find is unacceptable. And, you know what, they have every right to

control how they want to play their game, they just can't use copyright to do it. UNITED STATES DISTRICT COURT

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THE COURT: Mr. Venable.

All right.

I understand that argument, Were

You have used a little over 20 minutes.

there any other matters you wanted to touch upon? MR. VENABLE: Your Honor, the only other -- well,

yeah, there were a couple of other matters I wanted to -- I haven't even gotten to my DMCA or my tortious interference arguments. You know, I would just like to say that with regard to the copyright issue, one last matter is that even if you can find that 117 doesn't apply and that there is a copyright infringement under this scheme that Blizzard feels that it can sue you for copyright infringement for, the fact remains is, Your Honor, that under the Laser Cone case, this is still copyright misuse. Again, Congress cannot allow or does not allow people to use copyrights to try to enforce -- to try to prevent some third party from being able to use its software with what Blizzard is doing. You know, this is -- this goes far beyond what someone can do with their copyrights. They cannot tell a third party

that they cannot use something and say that it's all under the guise of copyright law. It's Draconian in terms of its ability

to deter what may be a very valid attempt to try to write software and use it for third parties. My client has expressed in his briefs that his UNITED STATES DISTRICT COURT

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software -- what started out to be used for Blizzard's World of Warcraft can be used now for many different things. That's --

I think that's basically what I wanted to say in terms of copyright. There's no set of facts, Your Honor, under the copyright law that you could find for Blizzard on this. There

has clearly not been a copyright infringement either under 117 -- people that buy this software are clearly owners -- and there is certainly misuse of copyright if you believe that what they can do is -- or what my client does is infringing. With regard to the DMCA, Your Honor, very quickly, we have briefed the Chamberlain case very extensively. We have

basically said that no matter what -- no matter what Blizzard is able to say in terms of their version of the facts, that the Scan.dll and this Warden program, they are just simply not effective measures at being able to control access to what Mr. Genetski said earlier this afternoon that what is really protected is the code. Warden and Scan.dll are machine -- or software schemes to be able to detect third-party software like Mr. Donnelly's program. They are not designed to protect the actual loading It's not disputed by the

of the copyrighted code into RAM.

people that we have deposed at Blizzard that despite the fact that Warden runs or despite the fact that Scan.dll immediately detects there is an unauthorized third-party software program, UNITED STATES DISTRICT COURT

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you are still able to load that software from the hard drive into RAM using Notepad, using any number of code viewers. And if you can load it into RAM, Your Honor, it's a copy. Just because it's not a copy when it's being played,

which is functional and not protected under the copyright law, it is still loaded into RAM. Therefore, despite the fact that Blizzard says that they have some protected right to this code, these -- these so-called access control measures are not only not effective, they don't do what -- they're not even intended to do what they say they do, which is to protect the code from being loaded into RAM. Chamberlain spells this out explicitly. The DMCA,

Your Honor, and I think Chamberlain goes through this explicitly too -- the history of the DMCA was there to protect massive distribution of digitized works. When I go to the store and I buy a DVD, Your Honor, that DVD is encrypted. computer. I could not make a copy of it on my

I could not load it in and say, Here, I want to copy

this from the DVD to my hard drive because it's encrypted. It's there because you don't want people to be able to get on the Internet, put this DVD code on there, and then distribute it massively through the Internet. THE COURT: Mr. Venable. UNITED STATES DISTRICT COURT Let me ask you a question on that,

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If I conclude that copying code from the game client to RAM is copying for purposes of Section 106, isn't it true that Warden stops a player from performing additional copies to RAM after they're intercepted? MR. VENABLE: No, it does not. All it can do is --

what Warden does is it detects the presence of, say, Glider. It will notify Blizzard back at its servers, at its headquarters, that there is an unauthorized third-party program that has been found. And then once that happens, either somebody from Blizzard can notify the Accounting Department and say you can no longer allow this person to play the game. This has

happened many, many times, in fact, by the people at Blizzard. It's been well-known, well-documented, and we don't deny the fact that they have detected my client's software on many occasions. THE COURT: Well, let me ask you this question.

Looking at 1201(b)(1)(A), in order for this portion of the Act to apply, Warden must be a technological matter that effectively protects a right of a copyright owner under this title. MR. VENABLE: THE COURT: Yes. Where does it say that Warden itself has

to shut out the user as opposed to notifying Blizzard so they can shut out the user? UNITED STATES DISTRICT COURT

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MR. VENABLE:

No, Your Honor, but that's not what it

What it does is it says that you can't play the game It will effectively lock you out of their server so

anymore.

that you can't load the program into RAM to be able to play it. It does not prevent you from being able to load the actual code itself into RAM. THE COURT: I understand that. But let's say it

catches you at level 19 and it prevents you from going to level 20. Had you gone to level 20, additional code would have been

written to RAM, right? MR. VENABLE: No. That's not my understanding of how

Everything that you have to be able to play the game

is already on your hard drive. THE COURT: On the hard drive.

But Blizzard has asserted that as you progress through the game, additional code is written to RAM. And my point is,

if Warden stops you in mid-game, then it prevents you from any of that additional writing to RAM. MR. VENABLE: I don't believe that that's what

THE COURT: Mr. Genetski on that. MR. VENABLE: not the case. THE COURT:

All right.

Well, I will hear from

That has been their assertion. Okay. Well, my understanding is that is

So is it your view that everything in the

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game client is written to RAM when you turn on the game? is no additional call to the hard drive to write anything further to RAM? MR. VENABLE: No.

There

My understanding is that what it

does is it goes out on the server and actually gets information about your character, but it doesn't actually put any additional software onto your computer. Mr. Genetski has even said that earlier. your hard drive when you load it up. It's all on

What it does is that it

shuts out your access to the server and that's a key distinction. THE COURT: I understand that distinction. I just

understood Blizzard to say that when that happens, it prevents further writing to RAM that would have occurred had you not been shut out. factual matter. MR. VENABLE: THE COURT: I don't believe that is the case. Okay. We're going to run out of time for And it sounds like you disagree with that as a

the arguments, so why don't you wrap up your points and then I will hear from Mr. Genetski. MR. VENABLE: Okay. Really quickly, Your Honor, we I think the last major issue

have already discussed the DMCA.

I just wanted to hit really quickly was the issue of the tortious interference, Your Honor. And briefly, all of the facts that -- and I'm sure you UNITED STATES DISTRICT COURT

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will hear a ton of things about -- from Mr. Genetski or Mr. McGee about our client being the devil -- he's a horrific guy. game. He is interfering with Blizzard's ability to play the He is circumventing their detection schemes so that

makes him malicious in his attempt to try to, you know, interfere with their contracts. Your Honor, what is very clear here is that the State of Arizona has adopted the Restatement. The Restatement is And in the

followed explicitly by the Wagenseller case.

Wagenseller case, your Honor, Wagenseller made it very clear, and I would just like to read the quote really quick from Wagenseller: It is difficult to see anything defensible in a free society in a rule that would impose liability on one who honestly persuades another to alter a contractual relationship. The question here is not whether there is any alteration of the contractual relationship, Your Honor, because that's not really the issue that we contest. The issue here is that all the facts that they have alleged deal with the bad behavior by the end-user regarding the breach itself. What Wagenseller says is that there is no tortious interference when one honestly persuades somebody to breach a contract. And there is no set of facts that Blizzard can raise

that would show that what my client is doing, Your Honor, isn't UNITED STATES DISTRICT COURT

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simply honestly persuading people to purchase his software. He puts it up on the Internet passively. advertise through his affiliates. He may

He may use keyword searches

that draw people to him by using the word "cheat" or "bot" or whatever. And he even knows full well that maybe Blizzard

doesn't like what he is doing. But what he has done, Your Honor, is that he has notified on his Frequently Asked Questions sections that if you buy his software, that Blizzard probably believes that it is a violation of its term -- of the Terms Of Use of its agreement and that you use this at your own risk. might even be suspended over it. He is just simply telling you, use it at your own risk. That is honest persuasion. He is doing no more And, in fact, you

advertising than I am through my firm's web site to draw people to get me -- to use my services. THE COURT: MR. VENABLE: THE COURT: well. MR. VENABLE: Okay. And other than that, Your Honor, I understand that point, Mr. Venable. Okay. You had made that point in your brief as

again, we just don't believe there are any facts that they can raise that would allow the summary judgment by Blizzard to be granted, and I think ours should be granted. infringement. No DMCA violation. No copyright

And certainly, no tortious

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interference with contract. THE COURT: All right. Thank you. Mr. Genetski.

MR. GENETSKI:

Your Honor, I think -- again, the Court I would try to

is obviously very familiar with the briefs.

jump in to the key points and for the sake of time like to start with copyright and try not to cover ground that's already been covered, but just to say that I think Your Honor in some of the questions to Mr. Venable accurately captured our position, that there's a two-part test here. We're talking

only about the direct infringement of the Glider users. I think that the law of the Ninth Circuit is clear that there -- a copy into RAM from a hard drive into RAM of software is a copy under Section 106. The Ninth Circuit does

not distinguish -- and somehow much of MDY's briefing seems to suggest -- make that somehow a lesser right or not entitled to the same sorts of protections. Copying into RAM is copying.

So when Blizzard License Agreement, you'll learn it's TOU, expressly limit and condition a user's right to copy, reproduce. That right includes the right to copy into RAM. It says that the

We're granting a limited conditional license.

"subject to" language that Mr. Venable pointed out we agree. Subject to the conditions in this license, you may make that copy into RAM. If you exceed the scope of those

restrictions, you have forfeited your right to make that copy into RAM. UNITED STATES DISTRICT COURT

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And I think the case that's most on point for our set of facts is the Ticketmaster case which is currently on appeal to the Ninth Circuit. And the reason I believe that that's very instructive and were the Ninth Circuit to affirm that case, I believe it would be close to a controlling authority on this set of facts, because in Ticketmaster what you have is a web site that allows you to download content. If you go as a human being and enter and try to get the best tickets and solve the caption yourself, you're authorized to get the same exact content loaded into your RAM. If, however, you use a bot which gives you the advantage -- and the reason Ticketmaster doesn't want bots is it gives you an advantage to move up in the queue and get the best tickets. So if you use a bot, you forfeited your

authorized access to make that copy in RAM. And we feel that our case is very much the same for many of the same reasons. That Glider users running bots are

gaining advantages over other users to the detriment of those users, to their frustration, and ultimately, to the detriment of my client. THE COURT: Mr. Genetski, if I purchase a copy of

World of Warcraft and I sign on and use the name Michael Vick, copyright violation? MR. GENETSKI: I do not think that would be a

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copyright violation, Your Honor. THE COURT: Why? I do believe there are -- the limits go I believe that under the Ninth

MR. GENETSKI:

to how you use the game client.

Circuit -- Nebula is a district court case, but under the LGS case and other cases -- there is a line here between a condition and a covenant. And we do believe that our -- all the provisions of our EULA and TOU are enforceable. But the provisions in

Sections 4 of the EULA and 4 of the TOU which speak to the limitations on use -- and Mr. Venable has made a big distinction between "use" and "copy" -- in this context and part of my initial comments to you were to make the point that that copying into RAM in connection with the server while you are connected is the use. The Ninth Circuit cases and Nebula speak of limitations on how the work may be used, as opposed to secondary restrictions that don't deal with use of the word. THE COURT: So you would say, if I understand you

correctly, that the EULA grants the license and says you can't violate TOU or you're outside of the scope of what the license really means. You can't violate Section IV of the TOU or

you're outside of the license. It doesn't mean if you violate Section V, you're outside? UNITED STATES DISTRICT COURT

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MR. GENETSKI:

In this case, the provisions that are

at issue are Section IV of the EULA and Section IV of the TOU. THE COURT: You do a lot of citing of Section V, too. I agree, Your Honor. And obviously,

MR. GENETSKI:

the primary provision in the TOU is the prohibition against bots or cheats which there is no dispute of fact that summary judgment that Mr -- that MDY's program is -- falls under that provision. We believe that any time you are running a program at the same time that you are also loading WoW into RAM, at the same time that you're making that copy, that that action is a direct condition on how you may make that copy. THE COURT: How do I -I think it is clear in this case the

MR. GENETSKI:

provisions that are issue are conditions. THE COURT: As I read these two contracts together,

how do I distinguish between the provisions that are a limitation on the license and those that are merely affirmative contract obligations? MR. GENETSKI: look to these tests. Your Honor, I think you have to again And I think Nebula is instructive in

saying that where -- it looked at two provisions; one the number of users that could use the software, and the second, what operating systems the software was authorized to be used in conjunction with. UNITED STATES DISTRICT COURT

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And I think applying that and defining the latter, the operating system to be a condition, and therefore, grounds for infringement and the former to be just a contract provision, I believe that one line that can be drawn are activities that take place "in game" versus activities that take place "out of game." So we, for instance, the Terms Of Use, say that you cannot sell in the real world the -- an account or the characters or goal that you have acquired in the game. However, we know that there are, much to my client's dismay, third-party web sites out there that allow people to do this. That would be a violation of the Terms Of Use, but it

would not be made in conjunction with loading a copy of our game into RAM, as opposed to running a bot or a cheat, which is done simultaneously with the loading into RAM. And Your Honor is correct. I just want to make sure

that I address the point that you raised about content, continuing to load into RAM as you're connected to the servers. New copyrighted content is moved from the hard drive into RAM and I believe that's an undisputed fact in the Statement of Facts. THE COURT: hearing it today. MR. GENETSKI: undisputed. I believe in the record it is But I But it doesn't sound like it from the

They might have had a change of heart. UNITED STATES DISTRICT COURT

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believe that the running of bot, which is happening simultaneously and in conjunction, Glider is also running in RAM. It is interacting with the code of World of Warcraft

simultaneously. And we would submit that that is not a close case; that that falls clearly on the side of a condition that exceeds the scope of the license. THE COURT: your line drawing. Let's say you've got two boys on the block who are avid World of Warcraft users. Boy number A doesn't like the Let me ask you this question just to test

progress that boy number B is making and so he, at an opportune time, steals into that boy's bedroom and disables his computer. When boy A goes back home and fires up World of Warcraft, is he infringing the copyright? Section IV of the TOU says you can't disrupt any other player's use of the game. boy B. He's just done it with respect to

Is he now outside the scope of the license and guilty

of copyright violations? MR. GENETSKI: Honor. I would say no in that case, your

He is not infringing because he's not committing a

violation in conjunction with his loading of the -- his copy into RAM when he is playing. license at that point. He may have taken a -- engaged in mischief a half-hour UNITED STATES DISTRICT COURT He is playing consistent with the

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earlier at his friend's house which his friend may then report him to an in-game GM, which may engender some penalty, but I would not put that on the infringement side of the line. THE COURT: So he has to do the disrupting while he is

using the World of Warcraft software? MR. GENETSKI: I believe that's a fair interpretation

of Nebula and the Ninth Circuit's standard about provisions that affect the manner of use, part and parcel of the license itself. Your Honor, I would like to close out copyright, make sure I answer any questions the Court has on the amicus argument under Section 117. I would just note that the box that Mr. Venable presented does have language on the side, I believe, that indicates that use of the game is subject to a EULA and a Terms Of Use. It has a paper license in the box that indicates that it's licensed software. Certainly, it's undisputed fact that

the first time you loaded it up, you would be presented with the EULA and Terms Of Use which could not be much more clear in our view that Blizzard considers itself retaining ownership of the software and expressly reserving all of its rights, including the right to copy, which is the right to copy into RAM, subject to the terms of the License Agreement. I think Mr. Venable also fairly pointed out that you UNITED STATES DISTRICT COURT

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can reject those terms and get a refund if you don't want to ascribe to the license. We agree with the statement the Court made that the MIA and the Wall Data cases are controlling in the 117 context. They fairly plainly state that 117 can be trumped by a License Agreement and those cases post-dated Section 117. THE COURT: Do you agree that they're all negotiated

licenses as opposed to off-the-shelf licenses? MR. GENETSKI: I do agree that that would be the But I think the clear distinction

distinction in those cases.

between them -- those cases -- that line of cases on the one hand and the Wyse case and the Verner which, you know, interprets Wyse as sort of being a free choice between Wyse and MAI -- is that I understand Verner's argument that the statutory language is similar. But the rights of a first-sale doctrine versus the right to copy are somewhat different. And in this case, in our

EULA we've actually preserved the right, as Mr. Venable notes. It incorporated the right of first-sale doctrine explicitly into the license, which we have not done. We have not

acknowledged that a user retains their 117 right in the license. In fact, we have said you may not copy this, except

as consistent with the license, and again, "copying" includes copying into RAM. I also believe that if you look at the factors that UNITED STATES DISTRICT COURT

Case 2:06-cv-02555-DGC Document 137

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Verner looks at, even if you were to set aside MAI and say we take a free, fresh look, Your Honor is right that the test would be whether the owner of the copyright has made clear that it's subject to a license. And again, there is language. Bold. All caps.

Repeatedly on the front page of the license which is in paper and when you sign on saying it's a license and we're the owner. But I also believe the key restrictions that the courts have looked for when they have looked at these cases are present in the Blizzard EULA and TOU. First of all, I don't think it's a fair characterization to say it's a one-time purchase and you get the software. To be able to use the software, you have to use You have to be able to connect

it for the way it was intended.

the Blizzard server and you have to pay ongoing monthly subscriptions. Blizzard also expressly reserves the right to send out updates to your software, periodically whenever they need to, and you give them the right to make changes to your software pursuant to the license. And I also believe that Blizzard reserves the right to at least constructively repossess the software when they say if you want to forfeit your licens