IP Law Daily $18M copyright infringement/DMCA verdict against game developers upheld
Thursday, July 18, 2019

$18M copyright infringement/DMCA verdict against game developers upheld

By John W. Scanlan, J.D.

Although the district court observed that the Seventh Circuit had not interpreted Sec. 1202(b) of the DMCA, it decided to follow the practice of other circuits in finding a "dual scienter" requirement in that subsection.

Several developers and distributors of games used in slot machines and other physical games played in casinos violated the Digital Millennium Copyright Act (DMCA) and infringed copyrights owned by the creator of various artwork, images, and thematic elements used in the games, the U.S. District Court for the Northern District of Illinois ruled in denying several post-trial motions filed by the defendants. The ruling let stand a jury finding in favor of the artwork creator and awarding it about $18 million (GC2 Inc. v. International Game Technology, June 15, 2019, Kennelly, M.).

IGT Holding owns IGT NV, which produces and sells games played in physical casinos. IGT Holding formerly owned Doubledown Interactive LLC, which develops and distributes digital slot machine games. Masque Publishing sells digital casino games and licensed art from IGT Holding. GC2 Inc. created artwork and videos for several wagering games, including six at issue in the present suit. GC2 licensed some artwork to IGT Holding for use in its slot machines. A 2007 contract between them, which the court noted was intended to settle several disputes and wind up their relationship, allowed IGT NV to retain a perpetual license for the artwork licensed for the physical land-based machines, but reserved GC2’s right to use the artwork for internet gaming and other purposes. IGT later began developing online games through its subsidiary Doubledown. According to GC2, it offered versions of the six games to consumers and licensed their artwork to Masque, which sold CD/DVD versions as well as download versions to consumers.

GC2 filed suit in 2016, alleging that several defendants infringed its copyrights by creating and distributing the games at issue. IGT Holding, IGT NV, Doubledown, and Masque were the only defendants remaining by the time of trial. The jury found in favor of GC2 on its claims for direct, vicarious, and copyright infringement and for violations of the DMCA. Under GC2’s theory of liability, each time the games were updated—and uploaded to servers accessible by players—constituted a separate violation of the DMCA. The jury agreed with this theory and found 696 separate instances of each of four types of DMCA violations; the court found the four types overlapped and merged them into a cumulative 696 violations associated with the games Coyote Moon and Pharaoh’s Fortune. The jury found that 75 percent of the profits earned on the infringing games were due to GC2’s copyrighted materials and awarded $16.275 million in actual damages and disgorged profits for the copyright infringement counts and another $1.74 million in statutory damages for the 696 DMCA violations. The defendants moved for partial judgment as a matter of law on the DMCA claims; for a new trial, remittitur, and/or to alter the verdict; and for attorney fees. GC2 moved for a permanent injunction, supplemental damages, and attorney fees, costs, and interest.

DMCA intent and knowledge. There was sufficient evidence from which a jury could find that the defendants had met the dual scienter requirements under the DMCA—that they "knowingly" undertook their violative actions with the "intent to" or "knowledge" or "having reasonable grounds to know" that its actions would "induce, enable, facilitate, or conceal" infringement. The court disagreed with the defendants’ assertion that GC2 was required to provide direct rather than circumstantial evidence of their knowledge or intent. Additionally, because the second scienter requirement was forward looking, GC2 was required only to make an affirmative showing that the defendants were aware or had reasonable grounds to be aware of the probable future impact of their actions.

DMCA removal claims. The court denied IGT Holding and IGT NV judgment as a matter of law on the substantive DMCA removal claims. The defendants argued that the artwork used in the online games was no longer original work after they modified it and, thus, the removal of copyright management information did not violate the statute. However, the "original work" language did not appear in the statute, only in opinions focusing on different language. The caselaw did not support their argument that the statute did not apply to collaborative or derivative works. They also argued that GC2 could not claim that the defendants removed this information within the meaning of the DMCA because the defendants, not GC2, had placed GC2’s logo on the artwork used on the land-based machines. This argument lacked support in the statute, the court found, and would lead to the absurd result that a copyright owner that contracted with another entity to manufacture its products could not use the DMCA’s removal provisions.

New trial/remittitur. Each of the defendants’ arguments for a new trial or remittitur regarding damages for infringement was forfeited because they failed to object at trial. Even if they had properly objected, GC2 was not required to call its damages rebuttal expert at trial and there was sufficient evidence without that expert’s testimony to rebut the defendants’ expert on apportionment. GC2’s closing argument that the jury could consider the defendants’ failure to provide a full account of aspects of the infringing works beyond the disputed artwork contributed to their profits did not mislead the jury but was rather a "fair" characterization of the statutory burden. Finally, the defendants did not show that a single purportedly misleading sentence during GC2’s closing argument about the impact of consumer surveys affected the verdict, given the accurate testimony regarding the surveys given during the trial.

Neither were the defendants entitled to a new trial or amendment of the DMCA verdict. They argued that they were surprised during the closing arguments by GC2’s new theory of liability that they would be liable for a separate violation each time they updated the Doubledown Casino app, but they were clearly aware as of the pretrial conference that GC2 intended to argue that the act of uploading the copyrighted materials constituted a DMCA violation, and witnesses testified during trial regarding the number of new games uploaded each month and that each new game upload package contained a copy of the disputed artwork. The defendants’ attempt to draw a distinction between reuploads of the artwork for this game and uploads related to launching new games was not tenable, the court said. The jury followed the court’s instructions and permissibly found, based on the evidence, that the defendants had committed 696 DMCA violations, rather than accepting the defendants’ argument that reuploads did not count as additional violations because they were substantially similar to the original uploads. The damages awarded for the DMCA violations did not improperly duplicate the damages awarded for the copyright violations because the Copyright Act and the DMCA created separate causes of action to protect different interests, and courts have ruled that damages may be awarded for both. GC2 was entitled to opt for statutory damages even if it could not adequately support actual damages.

Further relief. GC2 was entitled to a permanent injunction requiring the defendants to destroy any infringing materials and prohibiting them for using GC2’s artwork for various electronic games or for any uses other than licensed land-based gaming machines as specified in the 2007 agreement. The balance of the hardships favored GC2 rather than the defendants. The games were still on the defendants’ servers and were accessible on websites affiliated with the defendants. GC2’s intellectual property rights are infringed by ongoing and future injuries that may not be easily compensated, such as damage to GC2’s reputation from poor quality reproductions of its artwork. By contrast, the only hardship affecting defendants would be replacing brochures with infringing artwork in existing CD/DVD cases produced by Masque, which the court excluded from the injunction.

However, GC2 had forfeited its right to supplemental damages. GC2 made a strategic decision at trial not to put on its evidence of the defendants’ future profits. The court observed that GC2 benefited on the apportionment issue by not putting its damages expert on trial but must also bear the consequences. The court awarded prejudgment interest for the actual damages and disgorged profits awarded for copyright infringement, but not for the statutory damages award for the DMCA violations. Finally, both sides were denied their requests for attorney fees.

This case is No. 1:16-cv-08794.

Attorneys: John E. Petite (Greensfelder, Hemker and Gale, PC) for GC2 Inc. Eric Neal Macey (Novack and Macey LLP) for International Game Technology and DoubleDown Interactive LLC.

Companies: GC2 Inc.; International Game Technology; DoubleDown Interactive LLC

MainStory: TopStory Copyright TechnologyInternet IllinoisNews

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