Stephen S. Wu-- SL: Legal Writer,, (408) 573-5737, 50 W. San Fernando St., Ste. 750, San Jose, CA 95113

Bethesda Softworks Loses Fallout Case

It isn’t very often that a video game case ends up in a decision of a federal appellate court. So, I read with some interest the recent (unpublished) decision in Bethesda Softworks, L.L.C. v. Interplay Entertainment Corp., No. 11-1860, 2011 WL 5084587 (4th Cir. Oct. 26, 2011) (per curiam). Bethesda had feuded with Interplay concerning trademark issues in a couple of federal district court opinions. The appellate decision, however, concerned Bethesda’s copyright claims against Interplay. Bethesda had sought a preliminary injunction against Interplay, lost in the district court, and took an immediate appeal. The court of appeals affirmed. The court of appeals’ decision concerned the standard for preliminary injunctive relief and emphasized that irreparable harm to the copyright owner cannot be presumed merely because of a likelihood of success on the merits.
Interplay had originally developed the post-apocalyptic role playing game Fallout through its Black Isle Studios division. Interplay later sold the rights to Fallout to Bethesda, but obtained a license back to develop an MMORPG. The suit concerned Interplay’s continued right to use what is now Bethesda’s content.

Bethesda sought a preliminary injunction in the district court to stop Interplay’s further development of Fallout, which was denied. The appeal four issues. First, the agreement between the parties contained a stipulation saying that a breach of the agreement would entitle Bethesda to an injunction. Was that stipulation of the parties biding on the district court? The court of appeals said no, the agreement does not bind the district court, and the district court was free to find a lack of irreparable harm, which it did. Showing irreparable harm is a necessary condition of obtaining a preliminary injunction.

Second, would Interplay’s impending insolvency establish irreparable harm to Bethesda? The court said that under the circumstances, Interplay’s financial condition did not establish irreparable harm to justify an injunction. The injunctive relief sought by Bethesda would not have preserved Interplay’s assets. Accordingly, Interplay’s financial condition could not itself warrant a finding of irreparable harm.

Third, Bethesda argued that at the preliminary injunction stage, a finding of likelihood of success on the merits leads to a presumption of irreparable injury, citing old cases to that effect. The court of appeals rejected that argument in light of the Supreme Court’s case on permanent injunctive relief, eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006). The court applied eBay’s reasoning about permanent (post-verdict) injunctions to this preliminary injunction proceeding to say that success on the merits does not automatically warrant an injunction in favor of the rights holder.

Finally, Bethesda claimed the district court misapplied the standard for preliminary injunctive relief in a copyright case. It characterized the district court of requiring too much specificity in identifying the infringed elements of the work and specific, tangible harm from infringement of each such element. The court of appeals looked at the district court’s decision differently. It agreed with the district court that since Interplay had not yet published the game, the project remained strictly internal, and Bethesda had a right to withhold permission from a Fallout MMORPG, there was no irreparable harm meriting an injunction.

While the Bethesda decision concerned an unusual set of business circumstances leading to the dispute, and concerned a popular game, ultimately the court’s decision turned on some less interesting, but still important, procedural issues. A trial is upcoming in the district court, though. Consequently, the appellate court decision is not the final word in this case, and it will be interesting to see which side wins the trial.