1. World of Warcraft vs Everyone WarCraft

The Guangzhou IP Court recently delivered judgment in the “Everyone WarCraft” case. Blizzard and EaseNet had sued the producer of the game “Everyone WarCraft” for copyright infringement and unfair competition. The court ruled that “Everyone WarCraft: War of Draenor” infringed the copyright of “World of Warcraft” and constituted unfair competition. The court ordered the defendants to stop supplying, operating and disseminating their game and awarded damages of RMB 6 million.

The plaintiffs, Blizzard Entertainment (“Blizzard”) and Shanghai EaseNet Network Technology Development Limited Co. (“EaseNet”) claimed that their World of Warcraft game series was a brand recognized as the world’s No. 1 online game, and that “Everyone WarCraft:War of Draenor”, a game developed by Chengdu Qiyou Technology Co., Ltd.(“Seven Games”),run by Beijing Fenbo Times Internet Technology Co., Ltd.(“Rekoo”) and disseminated by Guangzhou Dongjing Computer Technology Co., Ltd. (“UCWeb”)infringed the plaintiffs’ copyright and constituted unfair competition by using its artwork such as character designs, equipment icons and maps, and its unique elements including game title, decoration and names of characters without the plaintiffs’ permission,.

In respect of copyright infringement, the court determined that the designs of 18 heroes, seven monsters, 20 equipment icons and five extension maps in the plaintiffs’ game “World of Warcraft: Warlords of Draenor” were artworks because they met the minimum requirement for ingenuity, were reproducible and of aesthetic significance. The defendants Seven Games and Rekoo, without permission, reproduced and disseminated characters, equipment icons and maps that were substantially similar to the plaintiff’s artworks and infringed the plaintiffs’ rights of reproduction, authorship and online dissemination. Defendant UCWeb failed to exercise reasonable care in its dissemination of the disputed game on its 9You website, and this constituted contributory infringement.

In respect of unfair competition, the court confirmed that the World of Warcraft series was well-known and the name “World of Warcraft: Warlords of Draenor” distinctively indicated the source of the service. The name was a unique name for a well-known service. The game’s title screen, logon interface and character creation interface were uniquely associated with the plaintiffs’ game, identifying its source, and constituted unique decoration of its well-known service. The defendants competed unfairly by using “Everyone WarCraft: War of Draenor” as the name of their game, plagiarizing the game decoration of the World of Warcraft series, and using the plaintiff’s highly recognized in-game characters without permission .

The Warcraft case expands Chinese judicial exploration of the protection of game decorations and in-game characters and the determination of the amount of damages for infringement.

2. Game decorations: equal treatment of real and virtual by law

Article 5 of the Anti-Unfair Competition Law (“AUCL”) provides protection for the unique decorative features of well-known goods or services. Traditionally, decoration refers to any word, graphic, color or combination attached to any product or services or their packaging. Article 3 of the Interpretation of the Supreme People's Court on Some Issues Concerning the Application of Law in the Trial of Civil Cases Involving Unfair Competition states that, the unique overall appearance of goods or services portrayed by business premises, stock in trade, work uniforms and the like may be categorized as “decoration” under Item (2) of Article 5 of AUCL. This provision broadens the definition of “decoration” to cover both physical decoration and unique overall images, making it possible for a unique game interface to be claimed as a decorative feature of the game.

In practice, cases have emerged in recent years claiming protection from unfair competition for the “unique decoration” of a game composed of game scenes and user interfaces. It is generally believed that a game’s decoration can be defined as the game’s complete visual image which is represented by its user interfaces, scenes, characters, and props. Protection of such decoration ensures the game maintains individuality in the crowded market. Article 5 (2) of AUCL gives protection to goods’ decorations that are unique. According to the Law, the decoration of a game will be protected only if the game is well known and its decoration is separable from its competitors. The “uniqueness” requirement here is similar to the “distinctiveness” requirement under Trademark Law. If a game’s overall visual impression establishes a link between the game and its owner, or plays the role of identifying the source of a product or service, thus giving a competitive edge to the owner, then it constitutes a trademark protected by law. Any use of an identical or similar decoration by others that creates confusion constitutes an act of unfair competition.

In Hearthstone: Heroes of Warcraft, Blizzard Entertainment claimed that the sign of Hearthstone, any single fight scene, 382 cards and specific combos constituted the unique decoration of the game. Given the ambiguity of game decoration at that time, the court did not clarify what was game decoration and simply rejected the plaintiff’s claims on the ground that Hearthstone: Heroes of Warcraft could not be an indicator of its source since it was a fairly new game.

In Everyone Warcraft, Blizzard Entertainment contended that the title screen, logon interface, and character creation interface of World of Craft constituted the unique decoration of the game. In this case, the court elaborated on the definition and scope of a game’s decoration. The court reasoned that, distinct from tangible goods or services in the real world, online games were products in a virtual world. After comparing the two games, the court confirmed that the three interfaces claimed by the plaintiffs were the gateway a player must go through before he/she actually played the game; the title screen was equivalent to a business signboard, and the logon interface and character creation interface were the decoration of business premises. Since the player was only seeing the user interfaces when receiving the service, the court said, these interfaces must be considered to be the unique decoration of the service if the interfaces were unique enough and capable of identifying the producer. Services provided in real and virtual worlds are comparable, and differences in the environments where the services are provided may not justify the denial of protection for an established unique service owned by the virtual service provider. Bridging the gap between real and virtual, this case has provided a new approach to IP protection for online games.

Although the issue of game decoration has been mentioned in several previous cases, the lack of relevant theory and applicable law still poses obstacles to their solution. In the U.S., the user interfaces of an online game have been protected as trade dress for a long time. Thus, the U.S. standards for protecting game user interfaces as trade dress may give us some clues to safeguarding a game’s decoration under AUCL. Originally, trade dress in U.S. law refers to product labeling, packaging and the overall image of a product. In Two Pesos, Inc. v. Taco Cabana, Inc., however, the U.S. Supreme Court extended trade dress protection to cover a broader spectrum by announcing that the rules for the protection of inherently distinctive trade dress were the same as those applied to traditional marks and thus both were entitled to protection under the Lanham Act. To be eligible for trade dress protection, the trade dress must be inherently distinctive, or have acquired secondary meaning, and be nonfunctional. The nonfunctional requirement aims to avoid giving trade dress owners the monopoly of a technical function.

Drawing on the U.S. trade dress system, protection of a game’s decoration is centered around its comprehensive appearance. To be eligible for protection, the decoration must be distinctive and capable of indicating its source. Although two game decorations may be compared by viewing their interfaces or other elements, the cardinal issue is whether the two games’ overall images are similar and mislead consumers. Of course, the decoration of a game, i.e. interfaces, scenes and characters, must be visual, while functional components should not be recognized as elements of the game’s dress.

3. Application of Article 2 of AUCL to protect well-known game characters

In Everyone WarCraft, the plaintiffs claimed merchandising rights to six characters in the “World of Warcraft” series. As merchandising rights are not explicitly stipulated in Chinese law, the plaintiffs claimed that the defendants’ unauthorized use of the names of these well-known characters constituted unfair competition under Article 2 of AUCL.

The court found that the six game characters claimed by the plaintiffs enjoyed such high popularity that they could be used to attract players and drive player demand based on players associating them with the “World of Warcraft” series. These well recognized characters offer the plaintiffs commercial returns and a competitive edge. Although the special names of these characters are not protected by copyright as they are not considered works nor are they registered trademarks , they should be protected under AUCL because the commercial returns and competitive edge they bring are the plaintiffs’ legitimate rights and interests. The court judgment summarized the circumstances where Article 2 of AUCL could be applied: 1. Where a plaintiff seeks protection for legitimate rights and interests, and the protection will not undermine the legislative policy of specific intellectual property laws; 2. The challenged act is not a specified unfairly competitive activity under AUCL; 3. It is necessary to stop the act because it has breached the principles of good faith,generally recognized standards of business ethics, and infringed upon the legitimate rights and interests of the plaintiff.

The circumstances surrounding when Article 2 of AUCL can be applied has been a large point of debate in academic and judicial circles. In his article “Plugging the Black Hole of Article 2 of the Anti-Unfair Competition Law”, Professor Li Yang points out that in some cases involving online business models and business practices, Article 2 of AUCL has almost become a gigantic catch-all, omnipotent black hole. When protection is sought, it is worth considering whether applying Article 2 of AUCL to cover a stretched definition of a competitive relationship, or to simply resort to the Tort Law for accurate weighing of interests. Some individuals argue that certain elements in a game, such as game rules and plots, should not enjoy protection under Article 2 of AUCL even if they are not protected by the Copyright Law; otherwise, the scope of the copyright net will be expanded, unduly encroaching upon the public interest.

It is our understanding that the relationship between AUCL and IP laws is that between general provisions and specific provisions: AUCL serves to supplement where IP laws fail to regulate; Article 2 of AUCL as an umbrella provision could provide additional protection on top of the unfair competition acts set out in AUCL. Specialized IP laws and AUCL have to satisfy different legislative purposes. In addition to supplementing specialized IP laws, AUCL is to keep competition in good order. Ideas, rules or other game elements that do not meet the originality requirements outside the remit of the Copyright Law will automatically fall within the public domain and allow for no monopoly by anyone. However, if someone uses these elements for free-ride purposes and to an improper degree, AUCL should kick in. As specialized IP laws and AUCL are different in terms of legislative intent and standards for determining infringement, no conflicts or contradictions will arise if specialized IP laws and AUCL are applied separately under different circumstances.

Names of in-game characters may give the owner a competitive edge because they contain the owner’s elaborate design and investment. Character names should have protection if they are popular and unique, invoke player association, and generate commercial returns for the owner. However, names of in-game characters are not protected by copyright as they fail to satisfy its originality requirement nor by trademark unless registered , and not by AUCL unless covered by the specific anti-unfair competition activities specified in Articles 5 to 15 of AUCL. In these circumstances, Article 2 of AUCL should be invoked to protect the names of well-known in-game characters and maintain market order if someone uses the names with the intention to take a free ride, objectively cause confusion, and thereby harms the owner.

Game character protection also involves portraits, sounds, images, and matches of characters and their props. Whether and how these elements will be protected is yet to be judicially considered. Legislation is an after the fact measure and established systems are always a double-edged sword, there exists no perfect regime. In dealing with complex market competition, Article 2 of AUCL provides a flexible legal lever though it might be abused and turn into a black hole. In applying Article 2 of AUCL, the use of the good faith principle and generally recognized standards of business ethics will evolve along with social and technological advances and the changing competitive landscape. In this sense, Article 2 of AUCL is not a black hole that needs to be plugged, rather a tool to be understood.

4. Damages: the commercial value of intellectual property

In the copyright infringement and unfair competition lawsuits against Everyone WarCraft, Blizzard claimed economic losses of RMB 5 million in each case. The court awarded damages of RMB 4 million and RMB 2 million . It held that, since the plaintiffs did not provide evidence of actual loss it was impossible to accurately calculate the defendants’ profits from the infringements. the factors used by the court to determine the remedies paid included: how well-known the World of Warcraft series and the works at issue were, the quantity of the infringing works or the severity of the infringement, the intention of the defendants in committing the infringement, Rekoo’s sales revenue from the iOS and Android platforms, the average profit margin in the mobile game sector, the impact of the infringement on the defendants’ profits, and the reasonable expenses the plaintiffs incurred in stopping the infringement.

As it is difficult to determine the amount of damages in IP lawsuits, in most cases discretionary damages are adopted. In its calculation, the court will consider multiple factors, including the malicious intention of the defendant, the severity, and duration of the infringement. In game IP infringement cases, this calculation often depends on the judge’s discretion. Everyone WarCraft is significant in that it laid out the relevant factors that should be considered in calculating damages, and helped to clarify the weight of each factor. This improves the way the commercial value of intellectual property is assessed.

The plaintiffs claimed that the defendants’ total sales revenue from its operation on iOS and Android platforms should be deemed the amount of the defendants’ profit. However, the court held that this was not a direct calculation of the defendants’ profit. Rather, damages should be determined by considering several factors, the most salient of which was the revenue from sales of the impeached game on iOS and Android platforms. Rekoo’s sales revenue from its operation on the iOS platform was around RMB 5.3 million, and would have been over RMB 7.6 million in total when Apple’s 30% commission was included. In determining damages, the court took the commission charged by the platforms into account to arrive at more than RMB 15 million of sales revenue. From the Everyone WarCraft verdict, it was clear that the judge was inclined to refer to total sales revenue when determining the defendant’s profits from infringement.

In Everyone WarCraft, the average profit margin in the sector was another factor considered when calculating the amount of damages. This is reflected in the court’s ruling that the defendants plagiarized the plaintiffs’ works and took advantage of World of Warcraft’s reputation through their marketing, allowing them to save costs in development and marketing to reap a higher-than-average profit margin. Reasoning in the Everyone WarCraft case is universally applicable to IP infringement cases. This is because the infringement has an impact on the profitability of the infringing product, raising its profit margin above the industry standard in a competitive market. Especially, since a game product requires enormous investment in R&D, design, and marketing as a fixed cost, yet the marginal cost is almost zero. Profits from game products are more vulnerable to infringement compared with other products, and plagiarized games piggybacking on the success of others generate more money.

In addition, the court took Rekoo’s unjustifiable refusal to provide financial data relating to their offending game as a key factor in determining the amount of damages. Under China’s Civil Procedure Law, if a piece of documentary evidence is held by a party, then the counterparty that bears the burden of proof may request the court to order that party to produce the evidence; if the party withholds it without a good reason, the court may decide that the evidence claimed by the counterparty is true. Everyone WarCraft reflects the trend of judicial practice regarding the distribution of the burden of proof and its consequences.

In a game product, IP not only represents creativity and technological capability, but also implies immense commercial and market value. Due to the low threshold for market entry, high fixed costs, but the very low imitation cost in the game sector, plagiarism and game cloning is rampant. The Everyone WarCraft case exploring game decoration, the application of Article 2 of AUCL, and the determination of damages is an invaluable guide to IP protection in the game industry.

Editor’s note: this article was simultaneously published on Chinalawinsight.com