Playing World of Warcraft, the world’s most popular massively multiplayer online role-playing game (MMORPG), can be, well, a drag. As the parents, teachers and spouses of gamers know all too well, playing through the 70 or more levels of the game in order to amass desired virtual currency, weapons and armor can be extremely time-consuming. So some gamers have resorted to the use of bots (automated game-playing software robots) to make their way more quickly from the more tedious early levels of the game to the more interesting upper levels. Michael Donnelly developed WoW bot software (Glider) for his own use and it worked so well that he decided to sell it to other gamers. And that worked well, too. In a few years, Donnelly (incorporated as MDY Industries) had gross revenues of $3.5 million from sales of Glider licenses.

For Blizzard Entertainment, the distributor of WoW software and the operator of the servers that enable online game play, bots are, well, a drag. Other gamers complain that they constitute cheating, and Blizzard potentially loses revenue when gamers finish the game sooner rather than later. So Blizzard added a provision to the WoW Terms of Use prohibiting the use of bots and similar third-party software. WoW also deployed a software solution, WoW Warden, that checks gamers’ computers for prohibited software and prevents their access to the server if it is present. Warden works only so-so at blocking Glider-using players, though, and it costs a lot of money to deploy and maintain.

So Blizzard also sent its lawyers to Donnelly’s home to personally demand that he cease selling the Glider program. (Whether he called them Worgen and tried to repel them with his Corpse-Impaling Spike is not part of the record.) Donnelly subsequently filed an action seeking a declaratory judgment that his sale of the Glider program did not infringe Blizzard’s copyrights, and Blizzard responded with counterclaims under copyright law, the Digital Millennium Copyright Act and state law.

Game on.

The dispute between MDY and Blizzard raises a multiplicity of interesting issues under copyright law and the DMCA, issues on which the U.S. Court of Appeals for the Ninth Circuit ruled last month in MDY Industries, LLC v. Blizzard Entertainment, Inc. (9th Cir. Dec. 14, 2010). The ruling was largely, although not completely, favorable to Blizzard, but either way it is an important ruling for content and software licensors who seek to control their use of their copyrighted works.

Recall that the case was argued on the same day, and before the same panel, as Vernor v. Autodesk (which we blogged about previously), in which the court defined the circumstances under which a purchaser of software is a licensee, not an owner of a copy, for purposes of the copyright first sale doctrine. That ruling comes into play in MDY v. Blizzard; in a slam-dunk application of Vernor, the court found that the WoW gamers are licensees, not owners of a copy of their WoW software, But in this post, we’ll look at a different issue addressed by the court: whether gamers who use the Glider software in violation of Blizzard’s ToU are infringing Blizzard’s copyrights. That was an essential question, because if the gamers were not directly infringing Blizzard’s copyrights, then MDY and Donnelly could not be held secondarily liable for copyright infringement for selling them the means by which to infringe, i.e., the Glider software.

MDY and Donnelly conceded that the use of Glider by WoW players violated the ToU, but they argued that Glider users were not infringers. Rather, they argued, the ToU’s prohibition against the use of bots is a covenant, not a license condition, and a breach of a covenant gives rise only to a claim for breach of contract, not copyright infringement.

The appeals court agreed with MDY and Donnelly, holding that “a potential for infringement exists only where the licensee’s action (1) exceeds the license’s scope (2) in a manner that implicates one of the licensor’s exclusive statutory rights.” The use of Glider did not implicate any of Blizzard’s exclusive rights, the court found, because its use did not, for example, either alter or copy the WoW software. For there to be infringement, the court concluded, there must be a “nexus” between the license condition and an exclusive right of copyright:

Were we to hold otherwise, Blizzard — or any software copyright holder — could designate any disfavored conduct during software use as copyright infringement, by purporting to condition the license on the player’s abstention from the disfavored conduct. The rationale would be that because the conduct occurs while the player’s computer is copying the software code into RAM in order for it to run, the violation is copyright infringement. This would allow software copyright owners far greater rights than Congress has generally conferred on copyright owners.

So, the appeals court overruled the district court’s grant of summary judgment in favor of Blizzard on its claims of contributory and vicarious copyright infringement.

Interestingly, in a footnote, the court raises a point not at issue in the case: whether the continued use of a licensed work without making required payments constitutes copyright infringement. The court comments that such a licensee:

… arguably may commit copyright infringement by continuing to use the licensed work while failing to make required payments, even though a failure to make payments otherwise lacks a nexus to the licensor’s exclusive statutory rights. We view payment as sui generis, however, because of the distinct nexus between payment and all commercial copyright licenses, not just those concerning software.

Well, maybe ALL commercial copyright licenses don’t have a nexus with payment – consider the case of open source licenses. In Jacobsen v. Katzer (Fed.Cir. 2008) (discussed here), the Federal Circuit rejected the argument that an open source license was not enforceable under copyright law because the licensed software was distributed free of charge. Further, the court held that a provision in an open source license requiring the inclusion of author, license and copyright information if the software was modified and redistributed was a condition enforceable under copyright law, not a mere covenant. The appeals court relied upon language in the license identifying the attribution requirements as a condition, and a general policy favoring the enforcement of open source licenses. The result in Jacobsen v. Katzer, if not its reasoning, is probably consistent with MDY v. Blizzard, as the rights which were being conditioned were the right to modify and distribute the software, rights that are unquestionably exclusive rights of the copyright holder.

Back to MDY v. Blizzard. Although MDY and Donnelly escaped liability for copyright infringement, the court’s ruling had the effect of boosting Blizzard’s related state law claim that MDY tortiously interfered with its contracts with WoW licensees, because, the court ruled, the Copyright Act does not preempt a breach of contract claim that is not equivalent to any exclusive right of copyright. But while the district court had granted summary judgment against MDY and Donnelly on the breach of contract claims, the Ninth Circuit reversed the entry of judgment, finding that there were outstanding material issues of fact on one of the elements of such a claim: whether MDY’s actions were “improper” under the seven-factor test of Restatement (Second) of Torts Section 767. Accordingly, among the issues to be considered on remand are “the social interests in protecting MDY’s freedom of action and Blizzard’s contractual interests,” about which the court commented:

Blizzard argues that it seeks to provide its millions of WoW players with a particular role-playing game experience that excludes bots. *** In contrast, MDY argues that Glider is an innovative, profitable software program that has positively affected its users’ lives by advancing them to WoW’s more interesting levels. MDY has introduced evidence that Glider allows players with limited motor skills to continue to play WoW, improves some users’ romantic relationships by reducing the time that they spend playing WoW, and allows users who work long hours to play WoW.

Glider has a positive effect on gamers’ romantic lives? That should be an interesting trial on the merits.

In our next post, we will examine the Ninth Circuit’s DMCA-related rulings in MDY v. Blizzard.