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

Filing 97

Proposed Findings of Fact by MDY Industries, LLC, Michael Donnelly. (Venable, Lance)

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SONNENSCHEIN NATH & Christian S. Genetski (Pro Hac ROSENTHAL LLP Vice) Scott Stein (AZ Bar No. 022709) Shane M. McGee (Pro Hac Vice) Shaun Klein (AZ Bar No. 018443) 1301 K Street, NW, Suite 600-East 2398 East Camelback Road, Suite 1060 Tower Phoenix, AZ 85016-9009 Washington, DC 20005 Facsimile [phone] Facsimile [phone] Telephone [phone] Telephone [phone] Attorneys for Defendants Vivendi Games, Inc. and Blizzard Entertainment, Inc. UNITED STATES DISTRICT COURT 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. ) )

Case No.: CV06-02555-PHX-DGC

JOINT SUPPLEMENTAL PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW REGARDING INJUNCTIVE RELIEF

The Honorable David G. Campbell

Pursuant to this courts Order Setting Trial dated September 29th, 2008 the parties hereby file the following supplemental findings of fact and conclusions of law addressing permanent injunctive relief.

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I. PROPOSED FINDINGS OF FACT A. Undisputed Findings of Fact The following material facts are admitted by the parties and require no proof: 1. Glider consumes more Blizzard resources than any other bot. In order to combat Glider use, Blizzard diverts resources from game development to combat Glider. 2. The proliferation of Glider has resulted in increased direct costs for Blizzard because it responds to Gliders use by third parties by developing and deploying software, policies and processes; investigating and responding to customer complaints; and locating and disciplining Glider users to combat its effects on WoW and its legitimate users. 3. Blizzard devotes significant resources to mechanisms to stop Glider use that would instead be used to improve the product and the overall gameplay experience. 4. Blizzard devotes programming resources to automatic detection of Glider use - a cost that has increased each time MDY has revised the Glider code to combat these measures. 5. Blizzard spends at least $970,939.60 annually in direct costs addressing the problem of bots in WoW. 6. Blizzard employs a staff of customer service representatives, including ingame "Game Masters" who respond to and assist players with in-game problems and complaints. 7. Blizzard employs the Game Masters to review and respond to the everincreasing numbers of user complaints relating to use of bots. 8. Blizzard employs its Game Masters, who act as in-game moderators to answer customer questions and ensure a fair gaming experience, in the remedial task of attempting to manually detect Glider Use.

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9. Between December 22, 2004 and March 18, 2008, Blizzard received more than 465,000 in-game petitions from users complaining about bots. 10. In this same time period, WoW had in excess of 11 million active players. 11. Several thousand of the in-game petitions specifically mention Glider by name, reflecting its status as the most popular and widely used bot in WoW. 12. Of the petitions that mentioned Glider by name, none of the petitioners could know with certainty that Glider was in fact the culprit or basis of their specific in-game complaint. 13. The petitions from players complaining about bots include only those specifically referencing bots, as opposed to complaints about [the] secondary effects of bots, such as over-farmed areas, in-games sales, and game economy imbalances. 14. Through their complaints, customers have made clear that botting impacts their WoW experience and they do not want other players to be able to use bots. 15. Following the entry of this Courts order finding that MDYs sale, marketing, and support of Glider products constituted secondary copyright infringement and tortious interference, MDY has continued its activities unabated. Specifically, MDY refused to honor Blizzards

demand to cease and desist selling and updating Glider. 16. MDY has continued to release updates for its software designed to circumvent Blizzards latest detection methods. 17. MDY and its employees have made public statements expressing their intent to continue selling and supporting Glider. 18. MDY is still offering MMO Glider for sale on its website, www.mmoglider.com, has continued updating the Glider software, and continues to provide support to users.
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19. When Glider runs, it first authenticates with the MDY server at www.mmoglider.com by negotiating a key exchange to create a secure channel. 20. Once a secure channel is determined, Glider sends the game version, Glider version, and product key to the MDY server at

www.mmoglider.com for validation. 21. If the authentication fails, the MDY server at www.mmoglider.com will not provide Glider with the memory locations of game data--which are necessary to allow Glider to circumvent Blizzards security measures-- and Glider will not run. 22. MDY maintains control of all purchased Glider programs by requiring that they connect to the MDY server at www.mmoglider.com before running. 23. MDY has the ability to disable any copy or all copies of WoW Glider at any time. 24. Each time Blizzard devises a new method to detect Glider and block Glider users access to WoW, MDY makes changes to Glider to avoid detection. 25. MDY encrypts and protects Glider source code so that competitors cannot create their own version of Glider. 26. Blizzard continues to expend resources trying to prevent Glider use.

B. Contested Issues of Fact The following are the material issues of fact to be tried and decided: 27. Whether Michael Donnelly personally participates in and/or directs the ongoing development, marketing and sale of Glider. 28. Whether continued sale and support of Glider, as well as statements on Glider forums to current and potential customers that Glider will
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continue to be supported, continue the conduct this Court has found improper. 29. Whether MDYs ongoing acts of selling Glider has resulted in injuries that include difficult to measure harm to Blizzards reputation and goodwill caused by Glider use. 30. Whether as a result of Glider use, Blizzard has received hundreds of thousands of customer complaints that reflect the deterioration of goodwill from those users that expect Blizzard to prevent cheating and hacking in WoW. 31. Whether at most, several thousand out of the over 11 million active users specifically mentioned Glider by name as a cause of dissatisfaction. 32. Whether the total number of users who have ever played WoW greatly exceeds 11 million. 33. Whether 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. 34. Whether if MDY is allowed to distribute freely the source code, Blizzard will be faced with the possibility that numerous parties around the world would begin infringing its copyright--and doing so without a revenue stream with which to compensate it for damage to WoW. 35. Whether numerous other individuals around the world, many of whom may be difficult to sue in United States courts, would likely be interested in picking up Gliders mantel and continuing to provide an equally successful bot for use in WoW, something that has thus far proved beyond the ability of anyone other than MDY. II. PROPOSED CONCLUSIONS OF LAW The following conclusions of law are proposed by the parties, respectively: A. Blizzard's Proposed Conclusions of Law
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1. Under "§ 502(a) of the Copyright Act," a court may ",,grant temporary and final injunctions on such terms as it may deem reasonable to prevent or restrain infringement of a copyright." MAI Sys. Corp. v. Peak Computer, 991 F.2d 511, 520 (9th Cir. 1993) (quoting 17 U.S.C. § 502(a)). Similarly, "[i]njunctive relief is an appropriate remedy when a claim of tortious interference is involved." Graham v. Mary Kay, Inc., 25 S.W.3d 749, 755 (Tex.-App. Houston 2000). 2. "[A]ccording to well-established principles of equity, a plaintiff seeking a permanent injunction must satisfy a four-factor test before a court may grant such relief." eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006). "A plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction." Id. 3. Courts have routinely granted permanent injunctive relief when liability has been established and there is a threat of continuing violations. MAI Sys. Corp., 991 F.2d at 520; see also A & M Records, Inc. v. Napster, Inc., 114 F. Supp. 2d 896, 925 (N.D. Cal. 2000) (same) reversed in part on other grounds, (citing Micro Star v. Formgen Inc., 154 F.3d 1107, 1109 (9th Cir. 1998)). In copyright cases, courts have traditionally held that irreparable harm is presumed on a showing of success on the merits. LGS Architects, Inc. v. Concordia Homes, 434 F.3d 1150, 1155 (9th Cir. 2006); Micro Star, 154 F.3d at 1109; Sony Music Entertainment v. Global Arts Productions, 45 F. Supp. 2d 1345, 1347 (S.D. Fla. 1999); see also Princeton Univ. Press v. Michigan Document Servs., 99 F.3d 1381, 1392-93 (6th Cir. 1996) (holding the weight of authority supports
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the extension of injunctive relief to future work). Similarly, "irreparable injury is presumed in cases involving tortious interference with business relationships." Special Purpose Accounts Receivable Coop Corp. v.

Prime One Capital Co., 125 F. Supp. 2d 1093, 1105 (S.D. Fla. 2000). Thus, a showing of copyright infringement liability or improper interference with contract and the threat of future violations generally is sufficient to warrant a permanent injunction. Sega Enters. Ltd. v.

MAPHIA, 948 F. Supp. 923, 940 (N.D. Cal. 1996) (quoting 17 U.S.C. § 502) (finding access to equipment that allowed defendant to continue to illegally download and distribute game programs constituted a threat of continued violation); see also, MAI, 991 F.2d at 520; Twentieth Century Fox Film Corp. v. Streeter, 438 F. Supp. 2d 1065, 1073 (D. Ariz. 2006) (granting a permanent injunction upon entry of default judgment against defendant in a copyright infringement action). 4. This Court has conclusively established liability under the DMCA, the Copyright Act, and for tortious interference with contract based on MDYs marketing, sale, and support of Glider. 5. The threat of continued violation of the DMCA, copyright infringement and tortious interference is also clearly established given that MDY has publicly stated that, unless the court issues a permanent injunction, it will continue to sell and support Glider. 6. Damages to reputation and goodwill for any cause of action are generally irreparable injuries that support the issuance of an injunction. See RentA-Center, Inc. v. Canyon Television & Appliance Rental, Inc., 944 F.2d 597, 603 (9th Cir. 1991) ("intangible injuries, such as damage to ongoing recruitment efforts and goodwill, qualify as irreparable harm."); MySpace, Inc. v. Wallace, 498 F. Supp. 2d 1293, 1305 (C.D. Cal. 2007) ("Harm to business goodwill and reputation is unquantifiable and
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considered irreparable.") 7. Blizzard offered evidence of monetary damages attributable 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). 8. A permanent injunction is necessary to prevent further collaboration, tortious interference, and infringement with other parties that may not have the means to pay an eventual judgment. See Rosen Entmt Sys. v. Vision, 343 F. Supp. 2d 908, 920 (C.D. Cal. 2004) ("lack of evidence of [defendants] ability to pay a judgment, favors a finding of irreparable harm.") 9. "In issuing an injunction, the court must balance the equities between the parties and give due regard to the public interest." High Sierra Hikers Ass'n v. Blackwell, 390 F.3d 630, 642 (9th Cir. 2004). 10. Here, the balance of equities weigh in Blizzards favor. MDYs only interest is in the ability to continue producing and selling a product that infringes on Blizzards copyrights and tortiously interferes with its contracts. See e.g. Triad Sys. Corp. v. Southeastern Express Co., 64 F.3d 1330, 1338 (9th Cir. 1995) ("Where the only hardship that the defendant will suffer is lost profits from an activity which has been shown likely to be infringing, such an argument in defense ,,merits little equitable consideration [on an appeal from a preliminary injunction]." (quoting Concrete Machinery Co. v. Classic Lawn Ornaments, Inc., 843 F.2d 600, 612 (1st Cir. 1988)); accord Apple Computer, Inc. v. Franklin Computer Corp., 714 F.2d 1240, 1255 (3d Cir. 1983) (in motion for preliminary injunction, district
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court

should not consider

the

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"devastating effect" of the injunction on the infringer's business). Blizzard, on the other hand, must defend its reputation and the quality of its on-line gaming experience by expending thousands of dollars and hours updating its security devices to combat MDY, all the while risking that it will harm innocent users. 11. Under Ninth Circuit law, "a defendant who knowingly infringes anothers 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 MDY knowingly built a business founded solely on exploiting breaches of Blizzards contracts with its customers. 12. The public interest likewise favors the entry of an injunction barring MDY from continuing to market, sell, and support Glider. As this Court found at summary judgment, none of the seven factors Arizona courts apply when determining propriety of conduct for tortious interference with contract weigh in MDYs favor because MDY exploits Blizzards contracts at the expense of Blizzard and its users. Order at 23. 13. Most of the relevant public, namely the more than 10 million WoW players that do not use Glider, are damaged by this improper conduct and Glider use because MDY assists the players in gaining an advantage over other WoW players; MDY enables players to mine the game for their own financial benefit and in direct violation of the TOU; assists players in avoiding detection by Blizzard, and does so in a way designed to place Blizzard at risk. In fact, MDYs own stated goal is to harm the public interest by making it a ",,bad idea for Blizzard to try to detect Glider" in fear of the "banning or crashing innocent customers." Id. at 24 (internal
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quotations omitted.) 14. MDYs only interest is providing users with a means to breach their contracts with Blizzard while avoiding detection, while Blizzards interest is in maintaining a fair and enjoyable game for all of its users. As MDY itself admits, Glider use is a breach of the EULA and TOU currently in place. An interest in concealing clear breaches of contract and copyright infringement that harm other WoW users is not sufficient to balance out the public interest in preventing disadvantaging and injuring Blizzard and the vast majority of WoWs more than 10 million players. 15. The attached permanent injunction is therefore entered as requested. B. MDY and Michael Donnelly's Proposed Conclusions of Law 1. MDY and Donnelly ("MDY") do not dispute Blizzards Proposed Conclusions of Law as to paragraphs 1 and 2. MDY does, however, dispute the content of the remaining paragraphs 3 through 15. 2. MDY affirmatively states that according to the Supreme Courts decision in Ebay v. MercExchange, Blizzard must establish all four equitable factors in order to obtain a permanent injunction against MDY. The Supreme Court flatly rejected the notion that a presumption of any of the four factors can be made under any circumstances and that all four factors must be proven by the moving party. eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006). 3. To the extent necessary to rebut Blizzards proposed conclusions of law in detail, MDY incorporates by reference its Response to Blizzards Motion for Permanent Injunction filed on August 14, 2008.

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CONCLUSION The parties respectfully request that this Court supplement the pre-trial order to include the above stated findings of fact and conclusions of law addressing permanent injunctive relief

Dated: October 20, 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. Venable, Campillo, Logan & Meaney, P.C.

By /s/Lance C. Venable 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 October 20, 2008, I electronically transmitted the attached document to the Clerks 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 Christian Genetski, Esq. Shane McGee, Esq. Scott Jeremy Stein, Esq. Email Address [e-mail] [e-mail] [e-mail] [e-mail] [e-mail] [e-mail] [e-mail]

/s/ Lance C. Venable