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Not Reported in F.Supp.2d, 2008 WL 2757357 (D.Ariz.), 89 U.S.P.Q.2d 1015

(Cite as: 2008 WL 2757357 (D.Ariz.))

MDY Industries v. Blizzard Entertainment, Inc.

No. CV-06-2555-PHX-DGC.

July 14, 2008.
DAVID G. CAMPBELL, District Judge.
Blizzard Entertainment, Inc. and Vivendi Games, Inc. (collectively, “Blizzard”) are the creators and operators of a multiplayer online role-playing game known as World of Warcraft (“WoW”). WoW was released in November of 2004. WoW players control characters within a virtual universe, exploring the landscape, fighting monsters, performing quests, building skills, and interacting with other players and computer-generated characters. As players succeed, they acquire in-game assets, experience, and power. Players can advance from level 1 to level 60 with the basic game, and through level 70 with an expansion module.
Blizzard owns the copyright for WoW software. The software consists of two components: the “game client” software and the “game server” software. A user can obtain the game client software by purchasing a copy at a retail store or downloading a copy from the WoW website. The user plays WoW by loading the game client software on his personal computer and accessing the game server software through an online account for which he pays a monthly fee.
Use of WoW is governed by an End User License Agreement (“EULA”) and Terms of Use Agreement (“TOU”). These agreements are displayed on a player's computer screen when the game client software is loaded and the player seeks online access to the game servers. Players are required to agree to the terms of the EULA and TOU before proceeding to play the game.FN1
FN1. The record contains several different versions of the EULA and TOU. The parties agreed at oral argument that the most recent versions-the February 2, 2007 EULA and the October 16, 2006 TOU-are the operative agreements for purposes of the summary judgment motions. See Dkt. # 41-8, 42. The Court therefore will not address the earlier versions.
WoW has been enormously successful. Blizzard asserts, and MDY does not dispute, that WoW is the largest and most successful multiplayer online game in the world. WoW currently has some 10,000,000 active players and generates more than $1.5 billion in revenue annually.
Michael Donnelly is the founder of MDY Industries, LLC (“MDY”). Donnelly created, and MDY owns, a software program known as WowGlider (“Glider”). Glider is a computer program known as a “bot”-a word derived from “robot.” Glider plays WoW for its owner while the owner is away from his or her computer. Glider thereby enables the owner to advance more quickly within WoW than would otherwise be possible. MDY began selling Glider to WoW users in June of 2005. To date, it has sold some 100,000 copies.
Blizzard contends that Glider diminishes the value of WoW and causes Blizzard to lose customers and revenue. Blizzard asserts that WoW is a carefully balanced competitive environment where players compete against each other and the game to advance through the game's various levels and to acquire game assets. Blizzard claims that Glider upsets this balance by enabling some payers to advance more quickly and unfairly, diminishing the game experience for other players. Blizzard also contends that Glider enables its users to acquire an inordinate number of game assets-sometimes referred to as “mining” or “farming” the game-with some users even selling those assets for real money in online auction sites, an activity expressly prohibited by the TOU. Dkt. # 41. Ex. 8, ¶ 8.
MDY, by contrast, claims that Glider enhances the game playing experience of its users and even enables some disabled users to play WoW. MDY contends that Glider users constitute a small fraction of WoW players and that the effect of Glider on WoW is minimal. MDY characterizes itself as an innovator and entrepreneur, and claims that Blizzard seeks improperly to use the copyright laws to squelch competition and stifle innovation.
On the morning of October 25, 2006, representatives of Blizzard appeared at Donnelly's home and informed him that the sale and use of Glider violated Blizzard's rights in WoW. The representatives stated that they would file a lawsuit against Donnelly and MDY the next day in California federal court if MDY did not agree to stop selling Glider. Donnelly declined, and later that day filed this action in Arizona. See Dkt. # 1.
MDY's amended complaint seeks a declaratory judgment that Glider does not infringe rights owned by Blizzard. Dkt. # 5. Blizzard filed a counterclaim and third-party complaint asserting seven claims: tortious interference with contract, contributory copyright infringement, vicarious copyright infringement, violation of the Digital Millennium Copyright Act (“DMCA”), trademark infringement, unfair competition, and unjust enrichment. Dkt. # 10.
The parties have now filed motions for summary judgment. Blizzard seeks summary judgment on the claims for contributory and vicarious copyright infringement, violation of the DMCA, and tortious interference with contract (Counts I-IV). Dkt. # 39. MDY seeks summary judgment on all claims except trademark infringement (Count V). Dkt. # 45. The parties have fully briefed the issues (Dkt.39, 45, 54, 57, 69-70) and the Court heard oral argument on June 26, 2008 (Dkt.# 78). For reasons stated below, the Court will grant the motions in part and deny them in part.FN2
FN2. The Court will grant summary judgment on Blizzard's unfair competition claim (Count VI). Blizzard does not oppose MDY's motion on that claim. Dkt. # 54 at 2 n. 1.
I. Summary Judgment Standard.

Summary judgment may be granted if “there is no genuine issue as to any material fact” and “the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). A party seeking summary judgment “always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Only disputes over facts that might affect the outcome of the suit will preclude the entry of summary judgment, and the disputed evidence must be “such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

II. Blizzard's Copyright Infringement Claims (Counts II and III).

Section 106 of the Copyright Act grants the owner of a copyright the exclusive right to “copy” the copyrighted work; that is, to make a copy of the work, to prepare derivative works based on the work, or to distribute copies of the work to the public. 17 U.S.C. § 106(1)-(3); see S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1085 n. 3 (9th Cir.1989) (“copying” is shorthand for the copyright owner's exclusive rights). Section 501 of the Act provides that “[a]nyone who violates any of the exclusive rights of the copyright owner as provided by section[ ] 106 ... is an infringer of the copyright[.]” 17 U.S.C. § 501(a). Copyright plaintiffs must therefore satisfy two requirements to establish direct infringement: (1) they must show that they own the allegedly infringed copyright, and (2) they must show that the alleged infringer has violated at least one of the exclusive rights granted under section 106. See A & M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1013 (9th Cir.2001).

A person commits contributory copyright infringement “by intentionally inducing or encouraging direct infringement.” MGM Studios Inc. v. Grokster, Ltd., 545 U.S. 913, 930, 125 S.Ct. 2764, 162 L.Ed.2d 781 (2005). A person commits vicarious infringement “by profiting from direct infringement while declining to exercise a right to stop or limit it[.]” Id. Blizzard alleges that users of WoW are licensees who are permitted to copy the copyrighted game client software only in conformance with the EULA and TOU, and that when users launch WoW using Glider, they exceed the license in the EULA and TOU and create infringing copies of the game client software. Dkt. # 10 ¶¶ 80-83, 91-92. MDY is liable for contributory copyright infringement, Blizzard claims, because it materially contributes to this direct infringement by Glider users. MDY allegedly does so by developing and selling Glider with the knowledge that Glider users will create infringing copies. Id. ¶¶ 85-87. MDY is liable for vicarious copyright infringement, Blizzard asserts, because it has the ability to stop the Glider-caused infringing activity and derives a financial benefit from that activity. Id. ¶¶ 93-95.
MDY does not dispute that it promotes the use of Glider in connection with WoW, that it controls Glider, or that it profits from Glider. MDY instead contends that it is not liable for contributory or vicarious copyright infringement because Glider users do not infringe Blizzard's copyright. Dkt. # 45 at 7-12. If Glider users violate terms of the EULA and TOU, MDY argues, they are merely breaching a contract, not infringing a copyright. Id. MDY also asserts a copyright misuse defense and an ownership defense under 17 U.S.C. § 117. Dkt.57, 69.FN3
FN3. The Court permitted the public interest group Public Knowledge to file an amicus brief in this case (Dkt.74-75), and required Blizzard to respond to its arguments (Dkt.76-77). Public Knowledge and the other parties have provided many helpful legal arguments. They also make various policy arguments. Although the Court appreciates these policy arguments and has benefitted from their excellent presentation, the Court is not a policy-making body. The Court's obligation is to apply the law, particularly the law of the Ninth Circuit. As will be seen below, many of the issues in this case are governed by established Ninth Circuit law. No matter how persuasive arguments might be for positions contrary to Ninth Circuit law, this Court is not free to depart from that law.
A. Do Users of Glider Infringe Blizzard's Copyright?

MDY does not dispute that Blizzard owns a valid copyright in the WoW game client and game server software. Nor does MDY dispute that the game client software, which typically is located on the hard drive of a player's personal computer, is copied from the hard drive to the computer's random access memory (“RAM”) when WoW is played.

Ninth Circuit law holds that the copying of software to RAM constitutes “copying” for purposes of section 106 of the Copyright Act. MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511, 518-19 (9th Cir.1993). Thus, if a person is not authorized by the copyright holder (through a license) or by law (through section 117, which will be discussed below) to copy the software to RAM, the person is guilty of copyright infringement because the person has exercised a right (copying) that belongs exclusively to the copyright holder.
MDY contends that users of Glider do not infringe Blizzard's copyright because they are licensed to copy the game client software to RAM. MDY claims that WoW players acquire this license when they purchase the game client software and load it on the hard drives of their personal computers. MDY claims that contrary provisions of the EULA and TOU, such as express prohibitions on the use of bots, are mere terms of contract, not limitations on the scope of the license granted by Blizzard. Thus, although Blizzard may assert a claim against Glider users for breach of contract, MDY argues, it cannot assert the more powerful claim of copyright infringement.FN4
FN4. Breach of contract damages generally are limited to the value of the actual loss caused by the breach. See 24 Richard A. Lord, Williston on Contracts § 65:1 (4th ed.2007). Copyright damages, by contrast, include the copyright owner's actual damages and any additional profits of the infringer, or statutory damages as high as $150,000 per infringed work. 17 U.S.C. § 504; see Frank Music Corp. v. MGM, Inc., 772 F.2d 505, 512 n. 5 (9th Cir.1985). Courts may also impose injunctive relief, seize infringing articles, and award costs and attorneys' fees. 17 U.S.C. §§ 502, 503, 505.
“Generally, a copyright owner who grants a nonexclusive license to use his copyrighted material waives his right to sue the licensee for copyright infringement and can sue only for breach of contract.” Sun Microsystems, Inc. v. Microsoft Corp., 188 F.3d 1115, 1121 (9th Cir.1999) (Sun I” ) (citations omitted). “If, however, a license is limited in scope and the licensee acts outside the scope, the licensor can bring an action for copyright infringement.” Id. To prevail on a copyright infringement claim, therefore, a plaintiff who has granted a license must establish that the license terms are “limitations on the scope of the license rather than independent contractual covenants,” and that the defendant's actions exceed the scope of the license. Id. at 1122.
1. Is the EULA Limited in Scope?

The use of WoW is governed by two agreements-the EULA and the TOU. Players must affirmatively consent to these agreements before playing WoW. The first paragraph of the EULA states: “IF YOU DO NOT AGREE TO THE TERMS OF THIS AGREEMENT, YOU ARE NOT PERMITTED TO INSTALL, COPY, OR USE THE GAME.” Dkt. # 42 at 2 (capitalization in original). The next paragraph provides that “[a]ny and all uses of the [game client software] are governed by the terms” of the EULA, that the game client software is “distributed solely for use by authorized end users according to the terms” of the EULA, and that “[a]ny use, reproduction, modification or distribution of the [game client software] not expressly authorized by the terms of the [EULA] is expressly prohibited.” Id.

Section 1 of the EULA specifically addresses the license granted by Blizzard. With emphasis on particular provisions, the section reads as follows:
Grant of Limited Use License. If you agree to this License Agreement, computer software (hereafter referred to as the “Game Client”) will be installed on your hardware. If your hardware meets the minimum requirements, the installation of the Game Client will enable you to play the Game by accessing your account with the Service (your “Account”). Subject to your agreement to and continuing compliance with this License Agreement, Blizzard hereby grants, and you hereby accept, a limited, non-exclusive license to (a) install the Game Client on one or more computers owned by you or under your legitimate control, and (b) use the Game Client in conjunction with the Service for your non-commercial entertainment purposes only. All use of the Game Client is subject to this License Agreement and to the [TOU], both of which you must accept before you can use your Account to play the Game.
Id. at 3 (emphasis added).
Several parts of this section are worth noting. The title-“Grant of Limited Use License”-makes clear that the license is limited, as does the later reference to a “limited, non-exclusive license.” The grant of the limited license is expressly made “[s]ubj ect to your agreement to and continuing compliance with this License Agreement.” The section further provides that “[a]ll use of the Game Client is subject to” the EULA and the TOU. Thus, the very portion of the contract that grants a license to use the game client software also makes clear that the license is limited.
2. Are Key Provisions of the EULA and TOU Limitations on the Scope of the License or Separate Contractual Covenants?

Having determined that the Blizzard license is limited, the Court must construe the EULA and TOU to determine whether the provisions violated by the use of Glider are themselves “limitations on the scope of the license, which would mean that [the users] had infringed the copyright by acting outside the scope of the license; or whether the terms [are] merely separate contractual covenants, which would make this a contract dispute[.]” Sun I, 188 F.3d at 1119. Blizzard argues that Glider users violate portions of section 4 of the TOU (subsections 4(B)(ii) and 4(B)(iii)) and portions of section 5 (subsections 5(B)(6) and 5(B)(8)). Dkt. # 39 at 6-7. The Court will address these sections. FN5

FN5. Blizzard also argues, although with less force, that Glider users violate sections 4(B)(ii) and 4(B)(iv) of the EULA. Section 4(B)(ii) prohibits exploiting the game client software for any commercial purpose, and section 4(B)(iv) prohibits unauthorized connections to the game. Dkt. # 42 at 4. Section 4(A) provides that failure to comply with the terms of section 4 results in the immediate and automatic termination of the EULA. Id. The Court will not grant summary judgment based on section 4 of the EULA because the language of the section is ambiguous and Blizzard has presented no legal authority in support of license provisions that “self-destruct” when users commit certain violations.
As an initial matter, the Court concludes that limitations on the license granted by Blizzard may be found in both the EULA and the TOU. Section 1 of the EULA, which grants the limited license, expressly states that users are subject to both the EULA and the TOU. Dkt. # 42 at 3. These contracts must therefore be read together. As already noted, both agreements must be accepted before a user can play WoW.
The EULA and TOU contain no provision that explicitly lays out the scope of the Blizzard limited license. The Court concludes, however, that the limitations on scope are found in section 4 of the TOU. The provisions of section 4 generally are designed to preserve and protect Blizzard's proprietary interests in its software and game, including its copyright interests. Dkt. # 41 at 4. Subsection A of section 4 prohibits users from intercepting, emulating, or redirecting the proprietary components of the game, activities that would include the exclusive copying and distribution rights possessed by Blizzard under section 106 of the Copyright Act. Subsection B prohibits users from modifying files that are part of the game, an activity akin to the creation of derivative works-another right possessed exclusively by Blizzard as copyright holder. Subsection C prohibits users from disrupting the game or others players' use of the game. Subsection D reserves Blizzard's exclusive right under section 106 of the Act to create derivative works. Id.
The provisions of section 4 thus make clear that although users are licensed to play WoW and to use the game client software while playing, they are not licensed to exercise other rights belonging exclusively to Blizzard as the copyright holder-copying, distributing, or modifying the work. The provisions are limits on the scope of the license granted by Blizzard.FN6
FN6. Section 4 is titled “Limitations on Your Use of the Service.” Id. The title thus reflects an intent to create limitations on use. Although the title refers to “the Service,” a term that is defined to mean the online portion of the WoW game (Dkt. # 41 at 2), the Service cannot be accessed or used without the game client software and the EULA expressly makes the license of the game client software subject to the terms of the TOU. Dkt. # 42 at 2. The Court thus views the title of section 4 as consistent with the interpretation of that section as a limitation on the license granted by Blizzard.
Section 5 of the TOU is different. It is titled “Rules of Conduct.” Id. at 4. The subsections of section 5 are titled “Rules Related to Usernames and Guild Designations” (§ 5(A)), “Rules Related to ‘Chat’ and Interaction With Other Users” (§ 5(B)), and “Rules Related to Game Play” (§ 5(C)). Section 5 thus sets rules for the game, whereas section 4 establishes limits more clearly designed to preserve Blizzard's copyright interests. The section 5 rules also regulate relatively minor matters such as the use of celebrity names (§ 5(A)(4)) or offensive language (§ 5(A) (2)) for WoW characters. Section 5 establishes game rules by contract.
When the EULA and TOU are considered in their entirety, the Court concludes that section 4 of the TOU establishes limitations on the scope of the license and section 5 sets rules of the game as independent contract terms. A single contract clearly can contain both types of provisions. See Netbula, LLC v. Storage Tech. Corp., No. C06-07391 MJJ, 2008 WL 228036, at *5 (N.D.Cal. Jan.18, 2008) (concluding that one clause of an agreement was a contractual covenant while another clause was a limitation on the scope of the license).
3. Do Users of Glider Act Outside the Scope of The License?

Users of Glider clearly violate the prohibition in section 4(B) (ii) of the TOU against the use of “bots” or any “third-party software designed to modify the [WoW] experience[.]” Dkt. # 41-8 at 4. Players who use Glider to mine WoW for game assets also violate section 4(B)(iii). When WoW users employ Glider, therefore, they act outside the scope of the license delineated in section 4 of the TOU. Copying the game client software to RAM while engaged in this unauthorized activity constitutes copyright infringement. See MAI, 991 F.2d at 518-19 (copying software to RAM constitutes “copying” for purposes of section 106 of the Copyright Act); Ticketmaster LLC v. RMG Techs., Inc., 507 F.Supp.2d 1096, 1108 (C.D.Cal.2007) (use of bot violated TOU and gave rise to copyright infringement).

MDY relies on the Federal Circuit's decision in Storage Technology Corp. v. Custom Hardware Engineering & Consulting, Inc., 421 F.3d 1307 (Fed.Cir.2005), to argue that “uses” which violate a license constitute copyright infringement only when the uses themselves infringe one of the exclusive rights granted by the Copyright Act. Dkt. # 57 at 6-7. The Court is not convinced that Storage Technology should be read so narrowly. It is obvious that a person cannot be liable for copyright infringement without committing an act of infringement. Thus, where a license is at issue, the person must not only act outside the scope of the license, but must also engage in an act that infringes upon the exclusive rights granted the copyright holder by section 106 of the Act. This much is clear from both Ninth Circuit law and Storage Technology. But to the extent MDY suggests that the act that causes the person to fall outside the scope of the license and the act that constitutes copyright infringement must be one and the same, MDY has cited no Ninth Circuit authority. Nor does this proposition make logical sense. If A grants a software license to B on the express condition that the license will remain in effect only so long as B makes monthly payments to A, and B then stops making payments to A, any subsequent copying of the software to RAM by B would constitute copyright infringement-a conclusion with which MDY's counsel agreed during oral argument. This would be true even though the act that took B outside the scope of the license-nonpayment-is different from the act that constitutes infringement-subsequent copying of the software. The Court cannot accept MDY's assertion, at least as a matter of Ninth Circuit law, that the act that takes one outside the scope of the license and the act that constitutes infringement must be one and the same.
Even if MDY's proposition were true, however, it would not change the result in this case. The act that violates the EULA and TOU and takes Glider users outside the scope of Blizzard's limited license is the use of Glider to play WoW, and the use of Glider to play WoW necessarily includes copying the game client software to RAM. Thus, the act that exceeds the scope of the license and the act that violates Blizzard's copyright are the same.
4. MDY's Other Arguments.

MDY does not dispute that the requirements for contributory and vicarious copyright infringement are met if the use of Glider constitutes infringement. MDY does contend, however, that certain factual disputes preclude summary judgment in favor of Blizzard on the contributory and vicarious infringement claims. Dkt. # 57 at 11.

MDY first contends that there is a dispute as to whether Blizzard has ever terminated a license pursuant to the terms of the EULA. Id. But MDY has presented no argument or legal authority to suggest that Glider users infringe Blizzard's copyright only if Blizzard affirmatively terminates the limited license. Users may infringe if they engage in an act of copying that is outside the scope of the limited license granted by Blizzard. Whether Blizzard has ever terminated a license is therefore immaterial.
MDY next contends that there is a factual issue as to whether “the EULA or TOU precluded ‘bots.’ ” Id. There is no such issue. As MDY itself acknowledges, the operative version of the TOU expressly prohibits bots. Dkt. # 58 ¶ 67; see Dkt. # 41-8 at 4 (§ 4(B)(ii)).
MDY also asserts a factual dispute as to whether the violations of the TOU were “within the reasonable expectations of MDY or its customers as required under Arizona law.” Dkt. # 57 at 11. This purported dispute is immaterial because both the EULA and TOU are governed by Delaware law. See Dkt. # 42 at 8-9 (EULA § 14(f)); Dkt. # 41-8 at 14 (TOU § 16(F)). Moreover, any person reading the TOU clearly would understand that a licensee is not authorized to play WoW using Glider.
Finally, MDY claims that a dispute exists as to whether the RAM copying Blizzard alleges here is the same as the RAM copying in MAI. But whether the loading of software into RAM constitutes “copying” for purposes of copyright law is a legal, not a factual, question, and has been answered by MAI: “[T]he loading of software into RAM creates a copy under the Copyright Act.” 991 F.2d at 519. MDY cites no case to the contrary.
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