Continuing the trend in recent years of injunctions becoming harder and harder to obtain, the Northern District of California denied a motion for a preliminary injunction where the defendant has allegedly copied the plaintiff’s video game source code. Despite finding a strong likelihood of success on the merits, the judge rejected the plaintiff’s bid for a preliminary injunction because there was insufficient evidence of irreparable harm to the plaintiff, and because the balance of equities tilted in the defendant’s favor.
According to Lilith Games (Shanghai) Co. Ltd. v. uCool, Inc., Case No. 15-cv-01267-SC (N.D. Cal. Sept. 23, 2015), Lilith released the game Sword and Tower in China in 2014 and in the U.S. earlier this year. uCool gained access to the source code and allegedly copied it to create the game Heroes Charge, which was published in the United States in 2014. According to Lilith, uCool copied 240,000 lines of code, in addition to much of the aesthetic of the game. The copying was so egregious that Lilith’s copyright notice was displayed at a certain point in the uCool game. However, because uCool’s game had been published in the United States first, many consumers viewed Sword and Tower as a copy, which allegedly harmed the market ability of Lilith’s game.
In determining the preliminary injunction, the court found that Lilith was likely to succeed on the merits of its copyright (and trade secret) claim. The court inferred access from the fact that Lilith’s copyright notice appeared in the uCool game. As to substantial similarity, the court found that the literal elements (source code) were substantially similar based on the copyright notice and the fact that a side-by-side comparison of the source code showed uCool’s code to be “identical … or insignificantly modified.” The court also found that the non-literal elements were substantially similar because the organization of the source code (file structure, algorithm sequences, etc.) were similar—this was sufficient to find substantial similarity even if the user interface was different. That said, there was sufficient evidence of the “striking similarities between the games’ protected elements such as the visual appearance of characters and settings” to support a finding of likelihood of success. A couple of examples provided by Lilith:
Click here to view image.
Nonetheless, the court determined that denying the injunction would result in no irreparable harm to Lilith. Damage to Lilith’s reputation (being seen as an infringer) was insufficient as Lilith had done little to build its reputation outside of Asia, and uCool’s game was not alleged to be inferior to Lilith’s such that consumers would believe Lilith was putting out low-quality games. Moreover, the inability to secure exclusive distribution in the U.S. was insufficient because Lilith had secured nonexclusive distribution and the difference in value between the types of distribution could be remedied through monetary damages.
Moreover, the court found that the balance of the equities favored uCool because uCool would be forced to take down its most popular game, “threatening uCool’s viability as a company.” The Court decided such harm would be irreparable. The Court also gave weight to Lilith’s four-month delay in bringing suit, which Lilith claimed was because it did not know litigation was necessary until it failed to obtain an exclusive distribution agreement. uCool apparently invested millions into advertising the game during those four months, including a Super Bowl ad.
As a result, the Court denied the injunction. While such an outcome might seem like a case in which the defendant’s misconduct actually helped it avoid an injunction at this stage, uCool still faces significant risk in litigation. Of course, whether the harm to Lilith is something that can be fully redressed by a monetary reward is debatable. After all, it seems certain that Sword and Tower will never get off the ground in the States, and Lilith has lost two years of building a reputation and a customer base—it is not really clear how one calculates that solely in financial terms.
Ultimately, Lilith Games (Shanghai) Co. Ltd. v. uCool, Inc. provides an example of the extent to which the law of preliminary injunctions is ever-changing. As the Court noted, Lilith’s showing of likelihood of success on the merits would have required an injunction in the past. But since the Supreme Court’s eBay and Winter decisions, courts will only grant injunctions in limited circumstances. Plaintiffs must become adept at articulating the irreparable harm beyond generalized statements of loss of reputation or business opportunities. Addressing the issues as they come to light, with court action if necessary, is also important. “No harm, no foul” has become “No irreparable harm, no injunction.”