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

Filing 86

REPLY in Support re 84 MOTION for Permanent Injunction or in the Alternative to Amend the Judgment Entered July 14, 2008 filed by Vivendi Games, Inc., Blizzard Entertainment, Inc.. (Genetski, Christian)

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

Doc. 86

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SONNENSCHEIN NATH & ROSENTHAL LLP Scott Stein (AZ Bar No. 022709) Shaun Klein (AZ Bar No. 018443) 2398 East Camelback Road, Suite 1060 Phoenix, AZ 85016-9009 Facsimile [phone] Telephone [phone]

Christian S. Genetski (Pro Hac Vice) Shane M. McGee (Pro Hac Vice) 1301 K Street, NW, Suite 600-East Tower Washington, DC 20005 Facsimile [phone] Telephone [phone]

Attorneys for Defendants Vivendi Games, Inc. and Blizzard Entertainment, Inc.

UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA ) ) 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. ) ) MDY INDUSTRIES, LLC,

Case No.: CV06-02555-PHX-DGC BLIZZARD ENTERTAINMENT, INC. AND VIVENDI GAMES, INC. REPLY IN SUPPORT OF MOTION FOR A PERMANENT INJUNCTION OR IN THE ALTERNATIVE TO AMEND THE JUDGMENT ENTERED JULY 14, 2008

The Honorable David G. Campbell

I.

Introduction In their Response, MDY Industries, LLC and Michael Donnelly (collectively,

"MDY") acknowledge, as they must, that if Blizzard seeks permanent injunctive relief, then MDY cannot argue that it has a legitimate interest in continuing to distribute Glider. Accordingly, MDY seeks to avoid being enjoined by recasting Blizzard's motion for a
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permanent injunction as a motion for a preliminary injunction, then spending the bulk of their response arguing why a preliminary injunction should not be granted. In so doing, MDY misstates the law governing this Court's authority to grant permanent injunctive relief following entry of summary judgment on Blizzard's copyright and tortious interference claims. A preliminary injunction is no longer necessary once a plaintiff's claims have been fully adjudicated on the merits. "The basic function of a preliminary injunction is to preserve the status quo pending a determination of the action on the merits." Chalk v. U.S. Dist. Ct. Cent. Dist. of Cal., 840 F.2d 701, 704 (9th Cir. 1988). In its Order dated July 14, 2008, this Court reached a final adjudication on the merits with regard to Blizzard's tortious interference and copyright claims. Having done so, the law of this Circuit is clear that permanent injunctive relief is appropriate: "[t]here is nothing novel about a permanent injunction issued on summary judgment rather than after trial." Continental Airlines, Inc. v. Intra Brokers, Inc., 24 F.3d 1099, 1102 (9th Cir. 1994) (issuing permanent injunction after entry of summary judgment on liability but prior to trial on damages, and where no existing preliminary injunction was in place). Similarly, a court can issue such injunctive relief prior to adjudicating damage claims, or when the claims at issue have been adjudicated while others remain open.1 Here, where summary judgment has been entered in Blizzard's favor, this Court clearly has the authority to

See generally, MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993) (permanent injunction entered after summary judgment granted only to some claims), cert. dismissed, 510 U.S. 1033 (1994); New W. Corp. v. NYM Co. of Cal., Inc., 595 F.2d 1194, 1198 (9th Cir. 1979). ("Based upon its findings and conclusions, the district court entered a partial summary judgment in which it incorporated its conclusions, entered a permanent injunction preventing appellant from using the trade name or trade-mark `New West' or `New West Magazine' and granted appellee's counterclaim against appellant for such an amount of money damages as might be awarded in a subsequent trial, together with costs and reasonable attorney fees as it might later establish at a hearing on that issue."); Lands Council v. Vaught, 198 F. Supp. 2d 1211, 1254 (E.D. Wash. 2002) (after indicating that because "[p]laintiffs have prevailed on summary judgment on at least one of their claims, the Court now determines if a permanent injunction is warranted," court enters permanent injunction).
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grant the permanent injunctive relief that Blizzard seeks. Thus, MDY's arguments that entry of preliminary injunctive relief is unwarranted have no bearing on Blizzard's motion. II. Michael Donnelly's Individual Liability As an initial matter, MDY contests the applicability of the Court's entry of summary judgment to Michael Donnelly in his individual capacity. As noted in its opening brief, Blizzard understood the Court's Order to apply to both MDY Industries, LLC and to Michael Donnelly, given that both are named as defendants, that Blizzard sought entry of summary judgment against both defendants, and that the Court did not distinguish in its Order between the evidence proffered against MDY Industries, LLC and that against Donnelly. Indeed, the evidence offered in support of summary judgment showed that Donnelly was the singular presence driving MDY's business and nearly exclusively concerned conduct ­ development and marketing of Glider, encouragement of its use, concessions that it violated the World of Warcraft ("WoW") Terms of Use ("TOU") ­ in which Mr. Donnelly personally engaged. (Blizzard SOF ¶¶ 125, 181-83, 235, 239, 246-47.) Both Ninth Circuit and Arizona law clearly recognize that an officer or director of a corporation is also personally liable for actions taken on behalf of the corporation where the officer or director, like Donnelly here, directly participates in and/or benefits from the unlawful activity at issue. "A corporate officer or director is, in general, personally liable for all torts which he authorizes or directs or in which he participates, notwithstanding that he acted as an agent of the corporation and not on his own behalf."2 Here, there is no evidence or testimony that anyone but Donnelly has

Transgo, Inc. v. Ajac Transmission Parts Corp., 768 F.2d 1001, 1021 (9th Cir. 1985) (internal quotations omitted) (corporate officer found personally liable for the corporation's unfair competition where his instrumental role in the tortious activity was proven). Personal liability may also attach for intellectual property infringement, including copyright infringement. Comm. for Idaho's High Desert, Inc. v. Yost, 92 F.3d 814, 824 (9th Cir. 1996) (officers found personally liable for company's trademark infringement); Coogan v. Avnet, Inc., No. CV040621PHXSRB, 2005 WL 2789311, at *7-8 (D. Ariz. 2005) (corporate officer can be held individually liable for copyright infringement where he has right and ability to supervise infringing activity and direct financial interest in the activity);
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performed any of the acts from which liability arose.3 Accordingly, Blizzard respectfully requests that the Court clarify that its entry of summary judgment on its copyright infringement and tortious interference claims extends to Michael Donnelly in his individual capacity. III. Blizzard Has Satisfied eBay's Four-Factor Test Warranting a Permanent Injunction. A. Blizzard Has Suffered Irreparable Harm. Under Ninth Circuit law, irreparable harm is presumed on a successful showing of copyright infringement. LGS Architects, Inc. v. Concordia Homes of Nev., 434 F.3d 1150, 1155 (9th Cir. 2006). MDY's suggestion that the Supreme Court's eBay decision denies that presumption is misguided ­ eBay was a patent case, not a copyright case, and the Ninth Circuit has not extended eBay to the copyright context. In fact, an August 2008 Federal Circuit decision, on appeal from the Northern District of California and applying Ninth Circuit law, presumed irreparable harm after a showing of copyright infringement, in contravention of MDY's argument. Jacobsen v. Katzer, --- F.3d ---, No. 2008-1001, 2008 WL 3395772, at *3 (Fed. Cir. Aug. 13, 2008). Similarly, a district court in this Circuit noted that the eBay case arose: in the context of certain recent developments in the patent field that are wholly inapplicable to this lawsuit. For example, this is simply not a case in which the copyright Sailor Music v. Mai Kai of Concord, Inc., 640 F. Supp. 629, 633 (D.N.H. 1986) ("[T]here is no dispute that Mr. Yee, as sole shareholder, president, treasurer and director of the Mai Kai was the dominant influence in the corporation and developed the policy for provision of live musical entertainment resulting in the copyright infringement. In addition, he certainly had the right and ability to supervise the musical performances, and he certainly profited financially from the musical performances. The performances generated income for the Mai Kai from which he received a monthly salary. Accordingly, Mr. Yee, personally is jointly liable with Mai Kai for the copyright infringement."). Directors may also be held liable under Arizona law if they participate in the corporate affairs causing or contributing to injury. Albers v. Edelson Tech. Partners L.P., 31 P.3d 821, 826 (Ariz. App. 2001) (corporate officer status "does not shield [officers] from personal liability to those harmed as a result of intentionally harmful or fraudulent conduct"); see also Bischofshausen, Vasbinder, and Luckie v. D.W. Jacquays Mining & Equip. Contractors Co., 700 P.2d 902, 908-09 (Ariz. Ct. App. 1985).
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infringement represents `but a small component of the product the companies seek to produce,' such that `legal damages may well be sufficient to compensate for the infringement.' As this Court previously held, StreamCast's entire business was built around the fundamental premise that Morpheus would be utilized to infringe copyrights, including those owned by Plaintiffs.

Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 518 F. Supp. 2d 1197, 1216 (C.D. Cal. 2007) (citation omitted). Like the defendants in those cases, MDY has developed an entire business model centered on one product, Glider, that this Court has determined is useful only in enabling copyright infringement. Under such facts, the historical presumption that injunctive relief is warranted is appropriate. Even in the absence of a presumption, Blizzard plainly will suffer irreparable harm in the absence of injunctive relief. As previously shown, Blizzard offered evidence of monetary damages due to costs of combating Glider and losses of subscription revenue, as well as reputational and goodwill damage caused by customer dissatisfaction with Glider use. See Rent-A-Center, Inc. v. Canyon Television & Appliance Rental, Inc., 944 F.2d 597, 603 (9th Cir. 1991) (intangible injuries and damage to goodwill qualify as irreparable harm). MDY offers several arguments why the substantial harm suffered by Blizzard is not "irreparable," but as shown below, each is unavailing. 1. Blizzard Did Not Delay In Seeking Injunctive Relief

Despite acknowledging that Blizzard has spent many months and significant resources to combat Glider technologically, MDY nonetheless suggests that, in seeking a remedy outside the court before instituting legal proceedings, Blizzard unreasonably delayed taking action against MDY. Beyond the spurious nature of its assertion, the cases MDY cites in support are also inapposite. None of the cases apply Ninth Circuit law, and all but one discuss the preliminary injunction standard, and not the permanent injunction standard.4 In the only decision MDY cites in the permanent injunction
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See, e.g., Citibank, N.A. v. Citytrust, 756 F.2d 273, 276 (2d Cir. 1985) (noting that delay sufficient to bar a preliminary injunction "may not rise to the level of laches
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context, the plaintiff waited five years after filing suit to seek injunctive relief, and the delay was only one factor in the court's decision-making.5 Regardless, Blizzard provided ample evidence in connection with its summary judgment motion that it took repeated measures to combat Glider, and Donnelly admitted that he took action with the specific intent of countering those measures. (Blizzard SOF ¶¶ 145-47; Aug. 14, 2008 Order at 22.) Far from constituting delay, Blizzard's efforts represent an appropriate attempt to resolve the issue without involving the courts. In short, Blizzard has consistently, and actively, defended its rights, and has not delayed in seeking relief from MDY's illicit activities; meanwhile, MDY continues to flout the Court's order by selling and maintaining Glider, resulting in increasing harm to Blizzard as Glider gains in popularity.6 2. WoW's Popularity Does Not Preclude Blizzard From Showing Irreparable Harm

MDY suggests, without offering any support, that the success of WoW somehow precludes a showing of irreparable harm. Injunctive relief, however, is not limited only to plaintiffs whose businesses fail as a result of defendants' wrongful acts. Here, Blizzard has provided undisputed evidence that hundreds of thousands of customers have complained, and that its efforts to combat Glider technologically have proven unavailing.7 Donnelly himself has conceded that bots harm WoW's reputation among

and thereby bar a permanent injunction"). See Sundance, Inc. v. DeMonte Fabricating Ltd., No. 02-73543, 2007 WL 37742 at *2 (court also notes that lost revenues could be attributed to other competitors' actions, and not necessarily defendant's patent infringement). Indeed, as MDY's sales figures demonstrate, Glider use has steadily increased during the pendency of this litigation. (Blizzard SOF ¶¶ 231-33.) MDY's assertion that Blizzard's failure to permanently blacklist users found employing Glider demonstrates a lack of irreparable harm simply misses the mark. Blizzard is entitled to assume that licensees will abide by the terms of the End User License Agreement without taking preemptive measures, and in fact many users frustrated by loss of an account due to Glider use may in fact abide by those terms in the future. (Blizzard Resp. to MDY SOF ¶ 24.)
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users: "`[t]he downside of [botting] is the impact on non-botters in the long-term: if the botting population becomes too big, other players become more aware of them and think badly about the game.'" (Blizzard SOF ¶¶ 241, 208-09.) MDY cannot seriously contend that granting it the right to continue inducing infringements and breaches unchecked will not sully Blizzard's goodwill with WoW players.8 B. The Balance of Hardships and Public Interest Favor Injunctive Relief

MDY cannot avoid injunctive relief simply because an injunction on Glider sales would require it to "shut down its business." (MDY Resp. to Blizzard Mot. for Permanent Inj. ("Resp.") at 10.) Under Ninth Circuit law, "a defendant who knowingly infringes another's copyright cannot complain of the harm that will befall it when properly forced to desist from its infringing activities." Cadence Design Sys., Inc. v. Avant! Corp., 125 F.3d 824, 829 (9th Cir. 1997) (internal quotation marks and citation omitted). MDY is entitled to no equitable consideration where this Court has already found infringement, and that MDY knowingly built a business founded solely on exploiting breaches of Blizzard's contracts with its customers. MDY also confuses public interest with self-interest, suggesting that the public interest does not favor injunctive relief because an injunction would harm MDY's employees. (Resp. at 11-12.) To the contrary, the public interest served by an injunction would be that of the universe of WoW players who would be able to enjoy a game free of the damaging effects of Glider. C. Damages Alone Are Not an Adequate Remedy Here again, although Blizzard is entitled to monetary damages as a result of MDY's infringement and tortious interference, and will demonstrate such damages at trial, MDY overlooks the fact that the full extent of harm to Blizzard's reputation and goodwill is not quantifiable. Moreover, MDY's contention that an injunction might
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Resp. at 7; see MySpace, Inc. v. Wallace, 498 F. Supp. 2d 1293, 1305 (C.D. Cal. 2007) ("Harm to business goodwill and reputation is unquantifiable and considered irreparable.")
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preclude it from continuing to defend the case suggests that MDY may not have the litigation reserves necessary to satisfy a judgment and therefore that a monetary remedy may prove inadequate even for those harms that are quantifiable. IV. Scope Of Injunction Blizzard's requests regarding the form of the injunction constitute only those measures necessary to ensure that the Glider software is not used by MDY, Donnelly, or any third parties to infringe Blizzard's rights. MDY suggests that it should be allowed to continue to develop and maintain Glider "if Glider does not interact with World of Warcraft." (Resp. at 13.) MDY offers no explanation, however, of the need or use for such development and maintenance given that, by Donnelly's own admission, Glider's only current viable use is in conjunction with WoW. Glider serves no identified purpose outside of its interaction with WoW, and as such, any continued development or maintenance can serve only to facilitate infringement. MDY also requests that the Court allow it to transfer the Glider code to third parties, ostensibly so that those "parties can use Glider's underlying technology to develop other software, which is wholly unrelated to World of Warcraft." (Resp. at 14.) Neither Donnelly nor MDY has offered any testimony that Glider's "underlying technology" is useful in combination with any other product, particularly as Donnelly has spent three years adapting Glider to the unique detection mechanisms employed by Blizzard specifically to combat Glider. On the other hand, MDY could, in the absence of injunctive relief, sell or give Glider to a third party or third parties whose purpose would be to continue enabling Glider use with WoW, requiring Blizzard to investigate and bring suits against those parties to enforce the rights already established here. The value of Donnelly's "substantial asset" is far higher to entities that would seek to employ it in conjunction with WoW than to individuals who might hypothetically attempt to use it with some other product. Accordingly, the evidence of record suggests that any distribution of the Glider code would contribute to infringement, and thus should be enjoined.
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MDY also argues that Donnelly should be able to advise others in their development of their own bots.9 Here again, Donnelly offers no evidence of how his Glider knowledge would be useful for anything other than enabling bot usage in WoW without detection. Of course, that knowledge would be valuable to other entities seeking to develop and maintain bots that operate in conjunction with WoW in violation of the TOU (which precludes all bots). Again, Donnelly should not be granted the opportunity to continue to damage Blizzard's interests by monetizing the knowledge he has gained in developing his infringing product and exploiting Blizzard. CONCLUSION For the foregoing reasons, Blizzard requests that the court grant injunctive relief as sought in Blizzard's Motion For a Permanent Injunction.

Dated: August 25, 2008 Shaun Klein SONNENSCHEIN NATH & ROSENTHAL LLP 2398 East Camelback Road, Ste 1060 Phoenix, AZ 85106-9009 Telephone: [phone] Facsimile: [phone]

Respectfully submitted, /s/ Christian S. Genetski Christian S. Genetski Shane M. McGee 1301 K Street, NW, Ste 600E Washington, DC 20005 Facsimile [phone] Telephone [phone]

Attorneys for Defendants Blizzard Entertainment, Inc. and Vivendi Games, Inc.

MDY suggests, without support, that an injunction preventing Donnelly from advising others on bot development, might violate its First Amendment rights. (Resp. at 14.) However, a narrowly tailored injunction, targeting only commercial speech such as Donnelly's professional advice, would not infringe those rights. See, e.g., United States v. Smith, 657 F. Supp. 646, 659 (W.D. La. 1986) (granting injunction against deceptive advice inviting users to break law for financial gain), aff'd, 814 F.2d 1086 (5th Cir. 1987).
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CERTIFICATE OF SERVICE I hereby certify that on August 25, 2008, 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 Lance C. Venable Joseph Richard Meaney Public Knowledge Connie Jo Mableson Email Address [e-mail] [e-mail] [e-mail] [e-mail]

/s/ Christian S. Genetski