MDY Industries v. Blizzard Entertainment is a decision of the United States Court of Appeals for the Ninth Circuit about Glider, a program that automatically played the early levels of Blizzard’s online game World of Warcraft (WoW). The court held that a licensee’s breach of a licence term is copyright infringement only where “there must be a nexus between the condition and the licensor’s exclusive rights of copyright”; the WoW Terms of Use ban on bots was a contractual covenant, so Glider users did not infringe and MDY was not secondarily liable.[1] The court nonetheless held MDY liable under section 1201(a)(2) of the Digital Millennium Copyright Act (DMCA) for trafficking in a tool that circumvented Blizzard’s Warden anti-bot technology.[1] The opinion was filed on 2010-12-14 and amended on 2011-02-17; it is reported at 629 F.3d 928.[2]
Background
WoW players had to accept Blizzard’s End User License Agreement and Terms of Use (ToU). Section 4(B) of the ToU provided that players would not “create or use cheats, bots, ‘mods,’ and/or hacks” or third-party software that intercepts or collects information from the game.[1] Michael Donnelly, a WoW player and programmer, developed Glider and sold it through his company MDY from 2005. After Blizzard launched Warden in September 2005, MDY modified Glider to avoid detection and sold a subscription service that offered protection from detection.[1] According to the opinion, Glider had generated gross revenues of $3.5 million from 120,000 licence sales by September 2008.[1]
The dispute
After Blizzard’s counsel threatened suit in October 2006, MDY sought a declaration in the District of Arizona that Glider did not infringe Blizzard’s rights. Blizzard counterclaimed for contributory and vicarious copyright infringement, violation of DMCA sections 1201(a)(2) and (b)(1), and tortious interference with contract.[1] Blizzard’s copyright theory was that players copy the game client into RAM each time they play, and that a player running Glider did so outside the scope of the licence.[1]
The district court found MDY liable for secondary infringement, both DMCA provisions and tortious interference. On 2009-04-01 it entered a stipulated judgment of $6.5 million against MDY and Donnelly and permanently enjoined MDY from distributing Glider.[1]
Decision or outcome
The panel (Judges Canby, Callahan and Ikuta; opinion by Judge Callahan) first applied Vernor v. Autodesk and held that WoW players are licensees, not owners, of the game client, because Blizzard reserved title, restricted transfer and imposed use restrictions. Players could therefore not rely on the essential step defence in 17 U.S.C. § 117(a)(1).[1]
It then distinguished licence “conditions”, whose breach is copyright infringement, from “covenants”, whose breach is actionable only in contract, construing the terms under Delaware law as the agreements provided. Nothing in ToU section 4 conditioned the grant of the licence on compliance, and the section heading did not change that, so the anti-bot terms were covenants.[1] The court added that a term such as the ban on derivative works in ToU section 4(D) would be tied to an exclusive right, while a ban on harassing other players would not, and warned that otherwise a software copyright holder “could designate any disfavored conduct during software use as copyright infringement”.[1] A footnote treated payment as a special case because of its nexus to all commercial copyright licences.[1]
On the DMCA, the court held that Warden effectively controlled access to WoW’s “dynamic non-literal elements” (the game as experienced through Blizzard’s servers) and that MDY violated section 1201(a)(2), rejecting a requirement that the circumvention be linked to infringement. It held there was no section 1201(b)(1) violation because Warden did not protect a right under the Copyright Act.[1] The grant of summary judgment on tortious interference was vacated because of disputed facts, and the claim was held not preempted by the Copyright Act. The judgment was vacated and the case remanded, with the injunction against MDY affirmed only as to section 1201(a)(2).[1]
Significance for software licensing and SAM practice
MDY is the Ninth Circuit’s main statement on when breach of a software licence is copyright infringement rather than breach of contract. The distinction matters because, as the opinion notes, copyright remedies include statutory damages and injunctions and reach downstream parties with no contract, while contract damages are generally limited to actual loss.[1] It also confirmed, following Vernor, that users of licensed software generally cannot rely on the essential step defence.[1] The later Ninth Circuit decision in Doe v. GitHub relied on MDY for the purpose of the DMCA.[2]
Lessons learned
- Use restrictions are not automatically copyright conditions. The court required a nexus between the breached term and an exclusive right such as reproduction or derivative works; a use rule like the bot ban was a covenant enforceable only in contract.[1]
- Drafting decides the category. The court looked for language conditioning the grant on compliance and held that a section heading such as “Limitations on Your Use of the Service” did not make its contents conditions.[1]
- Circumvention is a separate risk. Even though Glider users did not infringe, selling a tool built to evade Warden violated DMCA section 1201(a)(2).[1]