CALLAHAN, Circuit Judge:
Blizzard Entertainment, Inc. ("Blizzard") is the creator of World of Warcraft ("WoW"), a popular multiplayer online role-playing game in which players interact in a virtual world while advancing through the game's 70 levels. MDY Industries, LLC and its sole member Michael Donnelly ("Donnelly") (sometimes referred to collectively as "MDY") developed and sold Glider, a software program that automatically plays the early levels of WoW for players.
In November 2004, Blizzard created WoW, a "massively multiplayer online role-playing game" in which players interact in a virtual world. WoW has ten million subscribers, of which two and a half million are in North America. The WoW software has two components: (1) the game client software that a player installs on the computer; and (2) the game server software, which the player accesses on a subscription basis by connecting to WoW's online servers. WoW does not have single-player or offline modes.
WoW players roleplay different characters, such as humans, elves, and dwarves. A player's central objective is to advance the character through the game's 70 levels by participating in quests and engaging in battles with monsters. As a player advances, the character collects rewards such as in-game currency, weapons, and armor. WoW's virtual world has its own economy, in which characters use their virtual currency to buy and sell items directly from each other, through vendors, or using auction houses. Some players also utilize WoW's chat capabilities to interact with others.
Each WoW player must read and accept Blizzard's End User License Agreement ("EULA") and Terms of Use ("ToU") on multiple occasions. The EULA pertains to the game client, so a player agrees to it both before installing the game client and upon first running it. The ToU pertains to the online service, so a player agrees to it both when creating an account and upon first connecting to the online service. Players who do not accept both the EULA and the ToU may return the game client for a refund.
Donnelly is a WoW player and software programmer. In March 2005, he developed Glider, a software "bot" (short for robot) that automates play of WoW's early levels, for his personal use. A user need not be at the computer while Glider is running. As explained in the Frequently Asked Questions ("FAQ") on MDY's website for Glider:
Glider does not alter or copy WoW's game client software, does not allow a player to avoid paying monthly subscription dues to Blizzard, and has no commercial use independent of WoW. Glider was not initially designed to avoid detection by Blizzard.
The parties dispute Glider's impact on the WoW experience. Blizzard contends that Glider disrupts WoW's environment
In summer 2005, Donnelly began selling Glider through MDY's website for fifteen to twenty-five dollars per license. Prior to marketing Glider, Donnelly reviewed Blizzard's EULA and client-server manipulation policy. He reached the conclusion that Blizzard had not prohibited bots in those documents.
In September 2005, Blizzard launched Warden, a technology that it developed to prevent its players who use unauthorized third-party software, including bots, from connecting to WoW's servers. Warden was able to detect Glider, and Blizzard immediately used Warden to ban most Glider users. MDY responded by modifying Glider to avoid detection and promoting its new anti-detection features on its website's FAQ. It added a subscription service, Glider Elite, which offered "additional protection from game detection software" for five dollars a month.
Thus, by late 2005, MDY was aware that Blizzard was prohibiting bots. MDY modified its website to indicate that using Glider violated Blizzard's ToU. In November 2005, Donnelly wrote in an email interview, "Avoiding detection is rather exciting, to be sure. Since Blizzard does not want bots running at all, it's a violation to use them." Following MDY's anti-detection modifications, Warden only occasionally detected Glider. As of September 2008, MDY had gross revenues of $3.5 million based on 120,000 Glider license sales.
Blizzard claims that from December 2004 to March 2008, it received 465,000 complaints about WoW bots, several thousand of which named Glider. Blizzard spends $940,000 annually to respond to these complaints, and the parties have stipulated that Glider is the principal bot used by WoW players. Blizzard introduced evidence that it may have lost monthly subscription fees from Glider users, who were able to reach WoW's highest levels in fewer weeks than players playing manually. Donnelly acknowledged in a November 2005 email that MDY's business strategy was to make Blizzard's anti-bot detection attempts financially prohibitive:
In August 2006, Blizzard sent MDY a cease-and-desist letter alleging that MDY's website hosted WoW screenshots and a Glider install file, all of which infringed Blizzard's copyrights. Donnelly removed the screenshots and requested Blizzard to clarify why the install file was infringing, but Blizzard did not respond. In October 2006, Blizzard's counsel visited Donnelly's home, threatening suit unless MDY immediately ceased selling Glider and remitted all profits to Blizzard. MDY immediately commenced this action.
On December 1, 2006, MDY filed an amended complaint seeking a declaration that Glider does not infringe Blizzard's copyright or other rights. In February 2007, Blizzard filed counterclaims and third-party claims against MDY and Donnelly for, inter alia, contributory and vicarious copyright infringement, violation of DMCA § 1201(a)(2) and (b)(1), and tortious interference with contract.
In July 2008, the district court granted Blizzard partial summary judgment, finding that MDY's Glider sales contributorily and vicariously infringed Blizzard's copyrights and tortiously interfered with Blizzard's contracts. The district court also granted MDY partial summary judgment, finding that MDY did not violate DMCA § 1201(a)(2) with respect to accessing the game software's source code.
In September 2008, the parties stipulated to entry of a $6 million judgment against MDY for the copyright infringement and tortious interference with contract claims. They further stipulated that Donnelly would be personally liable for the same amount if found personally liable at trial. After a January 2009 bench trial, the district court held MDY liable under DMCA § 1201(a)(2) and (b)(1). It also held Donnelly personally liable for MDY's copyright infringement, DMCA violations, and tortious interference with contract.
On April 1, 2009, the district court entered judgment against MDY and Donnelly for $6.5 million, an adjusted figure to which the parties stipulated based on MDY's DMCA liability and post-summary judgment Glider sales. The district court permanently enjoined MDY from distributing Glider. MDY's efforts to stay injunctive relief pending appeal were unsuccessful. On April 29, 2009, MDY timely filed this appeal. On May 12, 2009, Blizzard timely cross-appealed the district court's holding that MDY did not violate DMCA § 1201(a)(2) and (b)(1) as to the game software's source code.
We review de novo the district court's (1) orders granting or denying summary judgment; (2) conclusions of law after a bench trial; and (3) interpretations of state law. Padfield v. AIG Life Ins., 290 F.3d 1121, 1124 (9th Cir.2002); Twentieth Century Fox Film Corp. v. Entm't Distrib., 429 F.3d 869, 879 (9th Cir.2005); Laws v. Sony Music Entm't, Inc., 448 F.3d 1134, 1137 (9th Cir.2006). We review the district court's findings of fact for clear error. Twentieth Century Fox, 429 F.3d at 879.
We first consider whether MDY committed contributory or vicarious infringement (collectively, "secondary infringement") of Blizzard's copyright by selling Glider to WoW players.
As a copyright owner, Blizzard possesses the exclusive right to reproduce its work. 17 U.S.C. § 106(1). The parties agree that when playing WoW, a player's computer creates a copy of the game's software in the computer's random access memory ("RAM"), a form of temporary memory used by computers to run software programs. This copy potentially infringes unless the player (1) is a licensee whose use of the software is within the scope of the license or (2) owns the copy of the software. See Sun Microsystems, Inc. v. Microsoft Corp., 188 F.3d 1115, 1121 (9th Cir.1999) ("Sun I"); 17 U.S.C. § 117(a). As to the scope of the license, ToU § 4(B), "Limitations on Your Use of the Service," provides:
By contrast, if the player owns the copy of the software, the "essential step" defense provides that the player does not infringe by making a copy of the computer program where the copy is created and used solely "as an essential step in the utilization of the computer program in conjunction with a machine." 17 U.S.C. § 117(a)(1).
We consider whether WoW players, including Glider users, are owners or licensees of their copies of WoW software. If WoW players own their copies, as MDY contends, then Glider users do not infringe by reproducing WoW software in RAM while playing, and MDY is not secondarily liable for copyright infringement.
In Vernor v. Autodesk, Inc., we recently distinguished between "owners" and "licensees" of copies for purposes of the essential step defense. Vernor v. Autodesk, Inc., 621 F.3d 1102, 1108-09 (9th Cir.2010); see also MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511, 519 n. 5 (9th Cir. 1993); Triad Sys. Corp. v. Se. Express Co., 64 F.3d 1330, 1333, 1335-36 (9th Cir.1995); Wall Data, Inc. v. Los Angeles County Sheriff's Dep't, 447 F.3d 769, 784-85 (9th Cir.2006). In Vernor, we held "that a software user is a licensee rather than an owner of a copy where the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user's ability to transfer the software; and (3) imposes notable use" restrictions. 621 F.3d at 1111 (internal footnote omitted).
Applying Vernor, we hold that WoW players are licensees of WoW's game client software. Blizzard reserves title in the software and grants players a non-exclusive, limited license. Blizzard also imposes transfer restrictions if a player seeks to transfer the license: the player must (1) transfer all original packaging and documentation; (2) permanently delete all of the copies and installation of the game client; and (3) transfer only to a recipient who accepts the EULA. A player may not sell or give away the account.
Blizzard also imposes a variety of use restrictions. The game must be used only for non-commercial entertainment purposes and may not be used in cyber cafes and computer gaming centers without Blizzard's
Since WoW players, including Glider users, do not own their copies of the software, Glider users may not claim the essential step defense. 17 U.S.C. § 117(a)(1). Thus, when their computers copy WoW software into RAM, the players may infringe unless their usage is within the scope of Blizzard's limited license.
"A copyright owner who grants a nonexclusive, limited license ordinarily waives the right to sue licensees for copyright infringement, and it may sue only for breach of contract." Sun I, 188 F.3d at 1121 (internal quotations omitted). However, if the licensee acts outside the scope of the license, the licensor may sue for copyright infringement. Id. (citing S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1087 (9th Cir.1989)). Enforcing a copyright license "raises issues that lie at the intersection of copyright and contract law." Id. at 1122.
We refer to contractual terms that limit a license's scope as "conditions," the breach of which constitute copyright infringement. Id. at 1120. We refer to all other license terms as "covenants," the breach of which is actionable only under contract law. Id. We distinguish between conditions and covenants according to state contract law, to the extent consistent with federal copyright law and policy. Foad Consulting Group v. Musil Govan Azzalino, 270 F.3d 821, 827 (9th Cir.2001).
A Glider user commits copyright infringement by playing WoW while violating a ToU term that is a license condition. To establish copyright infringement, then, Blizzard must demonstrate that the violated term — ToU § 4(B) — is a condition rather than a covenant. Sun I, 188 F.3d at 1122. Blizzard's EULAs and ToUs provide that they are to be interpreted according to Delaware law. Accordingly, we first construe them under Delaware law, and then evaluate whether that construction is consistent with federal copyright law and policy.
A covenant is a contractual promise, i.e., a manifestation of intention to act or refrain from acting in a particular way, such that the promisee is justified in understanding that the promisor has made a commitment. See Travel Centers of Am. LLC v. Brog, No. 3751-CC, 2008 Del. Ch. LEXIS 183, *9 (Del. Ch. Dec. 5, 2008); see also Restatement (Second) of Contracts § 2 (1981). A condition precedent is an act or event that must occur before a duty to perform a promise arises. AES P.R., L.P. v. Alstom Power, Inc., 429 F.Supp.2d 713, 717 (D.Del.2006) (citing Delaware state law); see also Restatement (Second) of Contracts § 224. Conditions precedent are disfavored because they tend to work forfeitures. AES, 429 F.Supp.2d at 717 (internal citations omitted). Wherever possible, equity construes ambiguous contract provisions as covenants rather than conditions. See Wilmington Tr. Co. v. Clark, 325 A.2d 383, 386 (Del.Ch.1974). However, if the contract is unambiguous, the court construes it according to its terms. AES, 429 F.Supp.2d at 717 (citing 17 Am.Jur.2d Contracts § 460 (2006)).
Applying these principles, ToU § 4(B)(ii) and (iii)'s prohibitions against
To recover for copyright infringement based on breach of a license agreement, (1) the copying must exceed the scope of the defendant's license and (2) the copyright owner's complaint must be grounded in an exclusive right of copyright (e.g., unlawful reproduction or distribution). See Storage Tech. Corp. v. Custom Hardware Eng'g & Consulting, Inc., 421 F.3d 1307, 1315-16 (Fed.Cir.2005). Contractual rights, however, can be much broader:
Id. at 1316. Consistent with this approach, we have held that the 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. See, e.g., Sun I, 188 F.3d at 1121-22 (remanding for infringement determination where defendant allegedly violated a license term regulating the creation of derivative works).
Here, ToU § 4 contains certain restrictions that are grounded in Blizzard's exclusive rights of copyright and other restrictions that are not. For instance, ToU § 4(D) forbids creation of derivative works based on WoW without Blizzard's consent. A player who violates this prohibition
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.
We conclude that for a licensee's violation of a contract to constitute copyright infringement, there must be a nexus between the condition and the licensor's exclusive rights of copyright.
It follows that because MDY does not infringe Blizzard's copyrights, we need not resolve MDY's contention that Blizzard commits copyright misuse. Copyright misuse is an equitable defense to copyright infringement, the contours of which are still being defined. See Practice Mgmt. Info. Corp. v. Am. Med. Ass'n, 121 F.3d 516, 520 (9th Cir.1997). The remedy for copyright misuse is to deny the copyright holder the right to enforce its copyright during the period of misuse. Since MDY does not infringe, we do not consider whether Blizzard committed copyright misuse.
We thus reverse the district court's grant of summary judgment to Blizzard on its secondary copyright infringement
After MDY began selling Glider, Blizzard launched Warden, its technology designed to prevent players who used bots from connecting to the WoW servers. Blizzard used Warden to ban most Glider users in September 2005. Blizzard claims that MDY is liable under DMCA § 1201(a)(2) and (b)(1) because it thereafter programmed Glider to avoid detection by Warden.
Warden has two components. The first is a software module called "scan.dll," which scans a computer's RAM prior to allowing the player to connect to WoW's servers. If scan.dll detects that a bot is running, such as Glider, it will not allow the player to connect and play. After Blizzard launched Warden, MDY reconfigured Glider to circumvent scan.dll by not loading itself until after scan.dll completed its check. Warden's second component is a "resident" component that runs periodically in the background on a player's computer when it is connected to WoW's servers. It asks the computer to report portions of the WoW code running in RAM, and it looks for patterns of code associated with known bots or cheats. If it detects a bot or cheat, it boots the player from the game, which halts the computer's copying of copyrighted code into RAM.
Congress enacted the DMCA in 1998 to conform United States copyright law to its obligations under two World Intellectual Property Organization ("WIPO") treaties, which require contracting parties to provide effective legal remedies against the circumvention of protective technological measures used by copyright owners. See Universal City Studios, Inc. v. Corley, 273 F.3d 429, 440 (2d Cir.2001). In enacting the DMCA, Congress sought to mitigate the problems presented by copyright enforcement in the digital age. Id. The DMCA contains three provisions directed at the circumvention of copyright owners' technological measures. The Supreme Court has yet to construe these provisions, and they raise questions of first impression in this circuit.
The first provision, 17 U.S.C. § 1201(a)(1)(A), is a general prohibition against "circumventing a technological measure that effectively controls access to a work protected under [the Copyright Act]." The second prohibits trafficking in technology that circumvents a technological measure that "effectively controls access" to a copyrighted work. 17 U.S.C. § 1201(a)(2). The third prohibits trafficking in technology that circumvents a technological measure that "effectively protects" a copyright owner's right. 17 U.S.C. § 1201(b)(1).
The district court assessed whether MDY violated DMCA § 1201(a)(2) and (b)(1) with respect to three WoW components. First, the district court considered the game client software's
The district court granted MDY partial summary judgment as to Blizzard's § 1201(a)(2) claim with respect to WoW's literal elements. The district court reasoned that Warden does not effectively control access to the literal elements because WoW players can access the literal elements without connecting to a game server and encountering Warden; they need only install the game client software on their computers. The district court also ruled for MDY following trial as to Blizzard's § 1201(a)(2) claim with respect to WoW's individual non-literal elements, reasoning that these elements could also be accessed on a player's hard drive without encountering Warden.
The district court, however, ruled for Blizzard following trial as to its § 1201(a)(2) and (b)(1) claims with respect to WoW's dynamic non-literal elements, or the "real-time experience" of playing WoW. It reasoned that Warden effectively controlled access to these elements, which could not be accessed without connecting to Blizzard's servers. It also found that Glider allowed its users to circumvent Warden by avoiding or bypassing its detection features, and that MDY marketed Glider for use in circumventing Warden.
We turn to consider whether Glider violates DMCA § 1201(a)(2) and (b)(1) by allowing users to circumvent Warden to access WoW's various elements. MDY contends that Warden's scan.dll and resident components are separate, and only scan.dll should be considered as a potential access control measure under § 1201(a)(2). However, in our view, an access control measure can both (1) attempt to block initial access and (2) revoke access if a secondary check determines that access was unauthorized. Our analysis considers Warden's scan.dll and resident components together because the two components have the same purpose: to prevent players using detectable bots from continuing to access WoW software.
One of the issues raised by this appeal is whether certain provisions of § 1201 prohibit circumvention of access controls when access does not constitute copyright infringement. To answer this question and others presented by this appeal, we address the nature and interrelationship of the various provisions of § 1201 in the overall context of the Copyright Act.
We begin by considering the scope of DMCA § 1201's three operative provisions, §§ 1201(a)(1), 1201(a)(2), and 1201(b)(1). We consider them side-by-side, because "[w]e do not . . . construe statutory phrases in isolation; we read statutes as a whole. Thus, the [term to be construed] must be read in light of the immediately following phrase. . . ." United States v. Morton, 467 U.S. 822, 828, 104 S.Ct. 2769, 81 L.Ed.2d 680 (1984); see also Padash v. I.N.S., 358 F.3d 1161, 1170 (9th Cir.2004) (we analyze the statutory provision to be construed "in the context of the governing statute as a whole, presuming congressional intent to create a coherent regulatory scheme").
"We begin, as always, with the text of the statute." Hawaii v. Office of Hawaiian Affairs, ___ U.S. ___, 129 S.Ct. 1436, 1443, 173 L.Ed.2d 333 (2009) (quoting Permanent Mission of India to United Nations v. City of New York, 551 U.S. 193, 197, 127 S.Ct. 2352, 168 L.Ed.2d 85 (2007)). Section 1201(a)(1)(A) prohibits "circumvent[ing]
§ 1201(a)(2) § 1201(b)(1) (A) (A) is primarily designed or produced is primarily designed or produced for the purpose of for the purpose ofcircumventing a technological measure circumventing protection afforded by a technological measure that effectively controls access that effectively protects toa work protected under this title; a right of a copyright owner; (B) (B) has only limited commercially significant has only limited commercially significant purpose or use other than purpose of use other than to circumvent a technological measure to circumvent protection afforded by a technological measure that effectively controls access that effectively protects a to a work protected under this title; right of a copyright owner under this title in a work or portion thereof; (C) (C) is marketed by a person or another acting is marketed by that person or another acting in concert with that person in concert with that person with that person's knowledge for use with that person's knowledge for use in circumventing in circumventing protection afforded by a technological measure that a technological measure that effectively controls access to effectively protects a a work protected under this title. right of a copyright owner under this title in a portion or work thereof."
(emphasis added).
For the reasons set forth below, we believe that § 1201 is best understood to create two distinct types of claims. First, § 1201(a) prohibits the circumvention of any technological measure that effectively controls access to a protected work and grants copyright owners the right to enforce that prohibition. Cf. Corley, 273 F.3d at 441 ("[T]he focus of subsection 1201(a)(2) is circumvention of technologies designed to prevent access to a work"). Second, and in contrast to § 1201(a), § 1201(b)(1) prohibits trafficking in technologies that circumvent technological measures that effectively protect "a right of a copyright owner." Section 1201(b)(1)'s prohibition is thus aimed at circumventions of measures that protect the copyright itself: it entitles copyright owners to protect their existing exclusive rights under the Copyright Act. Those exclusive rights are reproduction, distribution, public performance, public display, and creation of derivative works. 17 U.S.C. § 106. Historically speaking, preventing "access" to a protected work in itself has not been a right of a copyright owner arising from the Copyright Act.
Our construction of § 1201 is compelled by the four significant textual differences between § 1201(a) and (b). First, § 1201(a)(2) prohibits the circumvention of
Second, as used in § 1201(a), to "circumvent a technological measure" means "to descramble a scrambled work, to decrypt an encrypted work, or otherwise to avoid, bypass, remove, deactivate, or impair a technological measure, without the authority of the copyright owner." 17 U.S.C. § 1201(a)(3)(A). These two specific examples of unlawful circumvention under § 1201(a) — descrambling a scrambled work and decrypting an encrypted work — are acts that do not necessarily infringe or facilitate infringement of a copyright.
The third significant difference between the subsections is that § 1201(a)(1)(A) prohibits circumventing an effective access control measure, whereas § 1201(b) prohibits trafficking in circumventing devices, but does not prohibit circumvention itself because such conduct was already outlawed as copyright infringement. The Senate Judiciary Committee explained:
S.Rep. No. 105-90, at 11 (1998). This difference reinforces our reading of § 1201(b) as strengthening copyright owners' traditional rights against copyright infringement and of § 1201(a) as granting copyright owners a new anti-circumvention right.
Fourth, in § 1201(a)(1)(B)-(D), Congress directs the Library of Congress ("Library") to identify classes of copyrighted works for which "noninfringing uses by persons who are users of a copyrighted work are, or are likely to be, adversely affected, and the [anti-circumvention] prohibition contained in [§ 1201(a)(1)(A)] shall not apply to such users with respect to such classes of works for the ensuing 3-year period." There is no analogous provision in § 1201(b). We impute this lack of symmetry to Congress' need to balance
Our reading of § 1201(a) and (b) ensures that neither section is rendered superfluous. A violation of § 1201(a)(1)(A), which prohibits circumvention itself, will not be a violation of § 1201(b), which does not contain an analogous prohibition on circumvention. A violation of § 1201(a)(2), which prohibits trafficking in devices that facilitate circumvention of access control measures, will not always be a violation of § 1201(b)(1), which prohibits trafficking in devices that facilitate circumvention of measures that protect against copyright infringement. Of course, if a copyright owner puts in place an effective measure that both (1) controls access and (2) protects against copyright infringement, a defendant who traffics in a device that circumvents that measure could be liable under both § 1201(a) and (b). Nonetheless, we read the differences in structure between § 1201(a) and (b) as reflecting Congress's intent to address distinct concerns by creating different rights with different elements.
Although the text suffices to resolve the issues before us, we also consider the legislative history in order to address the parties' arguments concerning it. Our review of that history supports the view that Congress created a new anticircumvention right in § 1201(a)(2) independent of traditional copyright infringement and granted copyright owners a new weapon against copyright infringement in § 1201(b)(1). For instance, the Senate Judiciary Committee report explains that § 1201(a)(2) and (b)(1) are "not interchangeable": they were "designed to protect two distinct rights and to target two distinct classes of devices," and "many devices will be subject to challenge only under one of the subsections."
Id. The Senate Judiciary Committee proffered an example of § 1201(a) liability with no nexus to infringement, stating that if an owner effectively protected access to a copyrighted work by use of a password, it would violate § 1201(a)(2)(A)
Id. at 12. The House Judiciary Committee similarly states of § 1201(a)(2), "The act of circumventing a technological protection measure put in place by a copyright owner to control access to a copyrighted work is the electronic equivalent of breaking into a locked room in order to obtain a copy of a book." See H.R.Rep. No. 105-551, pt. 1, at 17 (1998). We note that bypassing a password and breaking into a locked room in order to read or view a copyrighted work would not infringe on any of the copyright owner's exclusive rights under § 106.
We read this legislative history as confirming Congress's intent, in light of the current digital age, to grant copyright owners an independent right to enforce the prohibition against circumvention of effective technological access controls.
Our review of the legislative history supports our reading of § 1201: that section (a) creates a new anticircumvention right distinct from copyright infringement, while section (b) strengthens the traditional prohibition against copyright infringement.
The Federal Circuit has adopted a different approach to the DMCA. In essence, it requires § 1201(a) plaintiffs to demonstrate that the circumventing technology infringes or facilitates infringement of the plaintiff's copyright (an "infringement nexus requirement"). See Chamberlain Group, Inc. v. Skylink Techs., Inc., 381 F.3d 1178, 1203 (Fed.Cir.2004); Storage Tech. Corp. v. Custom Hardware Eng'g & Consulting, Inc., 421 F.3d 1307 (Fed.Cir.2005).
The seminal decision is Chamberlain, 381 F.3d 1178 (Fed.Cir.2004). In Chamberlain, the plaintiff sold garage door openers ("GDOs") with a "rolling code" security system that purportedly reduced the risk of crime by constantly changing the transmitter signal necessary to open the door. Id. at 1183. Customers used the GDOs' transmitters to send the changing signal, which in turn opened or closed their garage doors. Id.
Plaintiff sued the defendant, who sold "universal" GDO transmitters for use with plaintiff's GDOs, under § 1201(a)(2). Id. at 1185. The plaintiff alleged that its GDOs and transmitters both contained copyrighted computer programs and that its rolling code security system was a technological measure that controlled access to those programs. Id. at 1183. Accordingly, plaintiff alleged that the defendant — by selling GDO transmitters that were compatible with plaintiff's GDOs — had trafficked in a technology that was primarily used for the circumvention of a technological measure (the rolling code security system) that effectively controlled access to plaintiff's copyrighted works. Id.
The Federal Circuit rejected the plaintiff's claim, holding that the defendant did not violate § 1201(a)(2) because, inter alia, the defendant's universal GDO transmitters did not infringe or facilitate infringement of the plaintiff's copyrighted computer programs. Id. at 1202-03. The linchpin of the Chamberlain court's analysis is its conclusion that DMCA coverage is limited to a copyright owner's rights under the Copyright Act as set forth in § 106 of the Copyright Act. Id. at 1192-93. Thus, it held that § 1201(a) did not grant copyright owners a new anti-circumvention right, but instead, established new
Id. at 1195 (emphasis added). Chamberlain concluded that § 1201(a) created a new cause of action linked to copyright infringement, rather than a new anti-circumvention right separate from copyright infringement, for six reasons.
First, Chamberlain reasoned that Congress enacted the DMCA to balance the interests of copyright owners and information users, and an infringement nexus requirement was necessary to create an anti-circumvention right that truly achieved that balance. Id. at 1196 (citing H.R.Rep. No. 105-551, at 26 (1998)). Second, Chamberlain feared that copyright owners could use an access control right to prohibit exclusively fair uses of their material even absent feared foul use. Id. at 1201. Third, Chamberlain feared that § 1201(a) would allow companies to leverage their sales into aftermarket monopolies, in potential violation of antitrust law and the doctrine of copyright misuse. Id. (citing Eastman Kodak Co. v. Image Tech. Servs., 504 U.S. 451, 455, 112 S.Ct. 2072, 119 L.Ed.2d 265 (1992) (antitrust); Assessment Techs. of WI, LLC v. WIREdata, Inc., 350 F.3d 640, 647 (7th Cir.2003) (copyright misuse)). Fourth, Chamberlain viewed an infringement nexus requirement as necessary to prevent "absurd and disastrous results," such as the existence of DMCA liability for disabling a burglary alarm to gain access to a home containing copyrighted materials. Id.
Fifth, Chamberlain stated that an infringement nexus requirement might be necessary to render Congress's exercise of its Copyright Clause authority rational. Id. at 1200. The Copyright Clause gives Congress "the task of defining the scope of the limited monopoly that should be granted to authors . . . in order to give the public appropriate access to their work product." Id. (citing Eldred v. Ashcroft, 537 U.S. 186, 204-05, 123 S.Ct. 769, 154 L.Ed.2d 683 (2003) (internal citation omitted)). Without an infringement nexus requirement, Congress arguably would have allowed copyright owners in § 1201(a) to deny all access to the public by putting an effective access control measure in place that the public was not allowed to circumvent.
Finally, the Chamberlain court viewed an infringement nexus requirement as necessary for the Copyright Act to be internally consistent. It reasoned that § 1201(c)(1), enacted simultaneously, provides that "nothing in this section shall affect rights, remedies, limitations, or defenses to copyright infringement, including fair use, under this title." The Chamberlain court opined that if § 1201(a) creates liability for access without regard to the remainder of the Copyright Act, it "would
Accordingly, the Federal Circuit held that a DMCA § 1201(a)(2) action was foreclosed to the extent that the defendant trafficked in a device that did not facilitate copyright infringement. Id.; see also Storage Tech., 421 F.3d 1307 (same).
While we appreciate the policy considerations expressed by the Federal Circuit in Chamberlain, we are unable to follow its approach because it is contrary to the plain language of the statute. In addition, the Federal Circuit failed to recognize the rationale for the statutory construction that we have proffered. Also, its approach is based on policy concerns that are best directed to Congress in the first instance, or for which there appear to be other reasons that do not require such a convoluted construction of the statute's language.
Were we to follow Chamberlain in imposing an infringement nexus requirement, we would have to disregard the plain language of the statute. Moreover, there is significant textual evidence showing Congress's intent to create a new anticircumvention right in § 1201(a) distinct from infringement. As set forth supra, this evidence includes: (1) Congress's choice to link only § 1201(b)(1) explicitly to infringement; (2) Congress's provision in § 1201(a)(3)(A) that descrambling and decrypting devices can lead to § 1201(a) liability, even though descrambling and decrypting devices may only enable non-infringing access to a copyrighted work; and (3) Congress's creation of a mechanism in § 1201(a)(1)(B)-(D) to exempt certain non-infringing behavior from § 1201(a)(1) liability, a mechanism that would be unnecessary if an infringement nexus requirement existed.
Though unnecessary to our conclusion because of the clarity of the statute's text, see United States v. Gallegos, 613 F.3d 1211, 1214 (9th Cir.2010), we also note that the legislative history supports the conclusion that Congress intended to prohibit even non-infringing circumvention and trafficking in circumventing devices. Moreover, in mandating a § 1201(a) nexus to infringement, we would deprive copyright owners of the important enforcement tool that Congress granted them to make sure that they are compensated for valuable non-infringing access — for instance, copyright owners who make movies or music available online, protected by an access control measure, in exchange for direct or indirect payment.
The Chamberlain court reasoned that if § 1201(a) creates liability for access without regard to the remainder of the Copyright Act, it "would clearly affect rights and limitations, if not remedies and defenses." 381 F.3d at 1200. This perceived tension is relieved by our recognition that § 1201(a) creates a new anti-circumvention right distinct from the traditional exclusive rights of a copyright owner. It follows that § 1201(a) does not limit the traditional framework of exclusive rights created by § 106, or defenses to those rights such as fair use.
Though we need no further evidence of Congress's intent, the parties, citing Chamberlain, proffer several other arguments, which we review briefly in order to address the parties' contentions. Chamberlain relied heavily on policy considerations to support its reading of § 1201(a). As a threshold matter, we stress that such considerations cannot trump the statute's plain text and structure. Gallegos, 613 F.3d at 1214. Even were they permissible considerations in this case, however, they would not persuade us to adopt an infringement nexus requirement. Chamberlain feared that § 1201(a) would allow companies to leverage their sales into aftermarket monopolies, in tension with antitrust law and the doctrine of copyright misuse.
Chamberlain also viewed an infringement nexus requirement as necessary to prevent "absurd and disastrous results," such as the existence of DMCA liability for disabling a burglary alarm to gain access to a home containing copyrighted materials. 381 F.3d at 1201. In addition, the Federal Circuit was concerned that, without an infringement nexus requirement, § 1201(a) would allow copyright owners to deny all access to the public by putting an effective access control measure in place that the public is not allowed to circumvent. 381 F.3d at 1200. Both concerns appear to be overstated,
We agree with the district court that MDY's Glider does not violate DMCA § 1201(a)(2) with respect to WoW's literal elements
Since a player need not encounter Warden to access WoW's individual non-literal elements, Warden does not effectively control access to those elements.
Our conclusion is in accord with the Sixth Circuit's decision in Lexmark International v. Static Control Components, 387 F.3d 522 (6th Cir.2004). In Lexmark, the plaintiff sold laser printers equipped with an authentication sequence, verified by the printer's copyrighted software, that ensured that only plaintiff's own toner cartridges could be inserted into the printers. Id. at 530. The defendant sold microchips capable of generating an authentication sequence that rendered other manufacturers' cartridges compatible with plaintiff's printers. Id.
The Sixth Circuit held that plaintiff's § 1201(a)(2) claim failed because its authentication sequence did not effectively control access to its copyrighted computer program. Id. at 546. Rather, the mere purchase of one of plaintiff's printers allowed "access" to the copyrighted program. Any purchaser could read the program code directly from the printer memory without encountering the authentication sequence. Id. The authentication sequence thus blocked only one form of access: the ability to make use of the printer. However, it left intact another form of access: the review and use of the computer program's literal code. Id. The Sixth Circuit explained:
Id. at 547.
Here, a player's purchase of the WoW game client allows access to the game's literal elements and individual non-literal elements. Warden blocks one form of access to these elements: the ability to access them while connected to a WoW server. However, analogously to the situation in Lexmark, Warden leaves open the ability to access these elements directly via the user's computer. We conclude that Warden is not an effective access control measure with respect to WoW's literal elements and individual non-literal elements, and therefore, that MDY does not violate § 1201(a)(2) with respect to these elements.
We conclude that MDY meets each of the six textual elements for violating § 1201(a)(2) with respect to WoW's dynamic non-literal elements. That is, MDY (1) traffics in (2) a technology or part thereof (3) that is primarily designed, produced, or marketed for, or has limited commercially significant use other than (4) circumventing a technological measure (5) that effectively controls access (6) to a copyrighted work. See 17 U.S.C. § 1201(a)(2).
The first two elements are met because MDY "traffics in a technology or part thereof" — that is, it sells Glider. The third and fourth elements are met because Blizzard has established that MDY markets Glider for use in circumventing Warden, thus satisfying the requirement of § 1201(a)(2)(C).
The fifth element is met because Warden is an effective access control measure. To "effectively control access to a work," a technological measure must "in the ordinary course of its operation, require[ ] the application of information, or a process or a treatment, with the authority of the copyright owner, to gain access to the work." 17 U.S.C. § 1201(a)(3)(B). Both of Warden's two components "require[ ] the application of information, or a process or a treatment . . . to gain access to the work." For a player to connect to Blizzard's servers which provide access to WoW's dynamic non-literal elements, scan. dll must scan the player's computer RAM and confirm the absence of any bots or cheats. The resident component also requires a "process" in order for the user to continue accessing the work: the user's computer must report portions of WoW code running in RAM to the server. Moreover, Warden's provisions were put into place by Blizzard, and thus, function "with the authority of the copyright owner." Accordingly, Warden effectively controls access to WoW's dynamic non-literal elements.
Blizzard may prevail under § 1201(b)(1) only if Warden "effectively protect[s] a right" of Blizzard under the Copyright Act. Blizzard contends that Warden protects its reproduction right against unauthorized copying. We disagree.
First, although WoW players copy the software code into RAM while playing the game, Blizzard's EULA and ToU authorize all licensed WoW players to do so. We have explained that ToU § 4(B)'s bot prohibition is a license covenant rather than a condition. Thus, a Glider user who violates this covenant does not infringe by continuing to copy code into RAM. Accordingly, MDY does not violate § 1201(b)(1) by enabling Glider users to avoid Warden's interruption of their authorized copying into RAM.
Second, although WoW players can theoretically record game play by taking screen shots, there is no evidence that Warden detects or prevents such allegedly infringing copying.
The district court granted Blizzard summary judgment on its claim against MDY for tortious interference with contract ("tortious interference") under Arizona law and held that Donnelly was personally liable for MDY's tortious interference. We review the district court's grant of summary judgment de novo. See Canyon Ferry Rd. Baptist Church of East Helena, Inc. v. Unsworth, 556 F.3d 1021, 1027 (9th Cir.2009). We view the evidence in the light most favorable to non-movant MDY in determining whether there are any genuine issues of material fact. Id. Because we conclude that there are triable issues of material fact, we vacate and remand for trial.
To recover for tortious interference under Arizona law, Blizzard must prove: (1) the existence of a valid contractual relationship; (2) MDY's knowledge of the relationship; (3) MDY's intentional interference in inducing or causing the breach; (4) the impropriety of MDY's interference; and (5) resulting damages. See Safeway Ins. Co. v. Guerrero, 106 P.3d 1020, 1025 (Ariz.2005); see also Antwerp Diamond Exch. of Am., Inc. v. Better Bus. Bur. of Maricopa County, Inc., 130 Ariz. 523, 637 P.2d 733, 740 (1981).
Blizzard satisfies four of these five elements based on undisputed facts. First, a valid contractual relationship exists between Blizzard and its customers based on the operative EULA and ToU. Second, MDY was aware of this relationship: it does not contend that it was unaware of the operative EULA and ToU, or unaware that using Glider breached their terms. In fact, after Blizzard first attempted to ban Glider users, MDY modified its website to notify customers that using Glider violated the ToU. Third, MDY intentionally interfered with Blizzard's contracts. After Blizzard used Warden to ban a majority of Glider users in September 2005, MDY programmed Glider to be undetectable by Warden. Finally, Blizzard has proffered evidence that it was damaged by MDY's conduct.
Thus, Blizzard is entitled to summary judgment if there are no triable issues of material fact as to the fourth element of its tortious interference claim: whether MDY's actions were improper. To determine whether a defendant's conduct was improper, Arizona employs the seven-factor test of Restatement (Second) of Torts § 767. See Safeway, 106 P.3d at 1027; see also Wagenseller v. Scottsdale Mem'l Hosp., 147 Ariz. 370, 710 P.2d 1025, 1042-43 (1985), superseded in other respects by A.R.S. § 23-1501. The seven factors are (1) the nature of MDY's conduct, (2) MDY's motive, (3) Blizzard's interests with which MDY interfered, (4) the interests MDY sought to advance, (5) the social interests in protecting MDY's freedom of action and Blizzard's contractual
The parties have presented conflicting evidence with respect to these two most important factors. Blizzard's evidence tends to demonstrate that MDY helped Glider users gain an advantage over other WoW players by advancing automatically to a higher level of the game. Thus, MDY knowingly assisted Glider users to breach their contracts, and then helped to conceal those breaches from Blizzard. Blizzard's evidence also supports the conclusion that Blizzard was negatively affected by MDY's Glider sales, because Glider use: (1) distorts WoW's virtual economy by flooding it with excess resources; (2) interferes with WoW players' ability to interact with other human players in the virtual world; and (3) strains Blizzard's servers because bots spend more continuous time in-game than do human players. Finally, Blizzard introduced evidence that MDY's motive was its three and a half to four million dollar profit.
On the other hand, MDY proffered evidence that it created Glider in 2005, when Blizzard's ToU did not explicitly prohibit bots.
Blizzard argues that it seeks to provide its millions of WoW players with a particular role-playing game experience that excludes bots. It contends, as the district court determined, that MDY's interest depends on inducing Blizzard's customers to breach their contracts. 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. We further note that, if the fact-finder decides that Blizzard did not ban bots at the time that MDY created Glider, the fact-finder might conclude that MDY had a legitimate interest in continuing to sell Glider. Again, the parties' differing
MDY's Glider sales are the but-for cause of Glider users' breach of the operative ToU. Moreover, Blizzard and MDY are not competitors in the online role-playing game market; rather, MDY's profits appear to depend on the continued popularity of WoW. Blizzard, however, chose not to authorize MDY to sell Glider to its users. Even accepting that these factors favor Blizzard, we do not think that they independently warrant a grant of summary judgment to Blizzard. As noted, we cannot hold that five of the seven "impropriety" factors compel a finding in Blizzard's favor at this stage, including the two (nature of MDY's conduct and MDY's motive) that the Arizona courts deem most important. Accordingly, we vacate the district court's grant of summary judgment to Blizzard.
MDY contends that Blizzard's tortious interference claim is preempted by the Copyright Act. The Copyright Act preempts state laws that confer rights equivalent to the exclusive rights of copyright under 17 U.S.C. § 106 (i.e., reproduction, distribution, public display, public performance, and creation of derivative works). 17 U.S.C. § 301(a). However, the Copyright Act does not preempt state law remedies with respect to "activities violating legal or equitable rights that are not equivalent to any of the exclusive rights [of copyright]." 17 U.S.C. § 301(b)(3).
Whether, in these circumstances, tortious interference with contract is preempted by the Copyright Act is a question of first impression in this circuit. However, we have previously addressed a similar tortious interference cause of action under California law and found it not preempted. See Altera Corp. v. Clear Logic, Inc., 424 F.3d 1079, 1089-90 (9th Cir.2005). In so holding, we relied on the Seventh Circuit's analysis in ProCD, 86 F.3d 1447, which explained that because contractual rights are not equivalent to the exclusive rights of copyright, the Copyright Act's preemption clause usually does not affect private contracts. Altera, 424 F.3d at 1089; see ProCD, 86 F.3d at 1454 ("A copyright is a right against the world. Contracts, by contrast, generally affect only their parties; strangers may do as they please, so contracts do not create `exclusive rights.'"). The Fourth, Fifth, and Eighth Circuits have also held that the Copyright Act does not preempt a party's enforcement of its contractual rights. See Nat'l Car Rental Sys., Inc. v. Comp. Assoc. Int'l, Inc., 991 F.2d 426, 433 (8th Cir.1993); Taquino v. Teledyne Monarch Rubber, 893 F.2d 1488, 1501 (5th Cir.1990); Acorn Structures, Inc. v. Swantz, 846 F.2d 923, 926 (4th Cir.1988).
This action concerns the anti-bot provisions of ToU § 4(b)(ii) and (iii), which we have held are contract-enforceable covenants rather than copyright-enforceable conditions. We conclude that since Blizzard seeks to enforce contractual rights that are not equivalent to any of its exclusive rights of copyright, the Copyright Act does not preempt its tortious interference claim. Cf. Altera, 424 F.3d at 1089-90. Accordingly, we hold that Blizzard's tortious interference claim under Arizona law is not preempted by the Copyright Act,
The district court found that Donnelly was personally liable for MDY's tortious interference with contract, secondary copyright infringement, and DMCA violations. We vacate the district court's decision because we determine that MDY is not liable for secondary copyright infringement and is liable under the DMCA only for violation of § 1201(a)(2) with respect to WoW's dynamic non-literal elements. In addition, we conclude that summary judgment is inappropriate as to Blizzard's claim for tortious interference with contract under Arizona law. Accordingly, on remand, the district court shall reconsider the issue of Donnelly's personal liability.
Each side shall bear its own costs.
We find the Second Circuit's view to be the sounder construction of the statute's language, and conclude that § 1201(a)(2) does not require a plaintiff to show that the accused device enables third parties to access the work without the copyright owner's authorization. Thus, Blizzard has satisfied the "circumvention" element of a § 1201(a)(2) claim, because Blizzard has demonstrated that it did not authorize MDY to circumvent Warden.
