By Tom Graves
The Ninth Circuit case MDY Industries v. Blizzard Entertainment has recently been cited as a major shift in the law pertaining to copyright licenses, and as a particular threat to the open source software model. Although these concerns are probably overstated, the Blizzard case does bring into focus several important aspects of copyright licensing. In this article I will attempt to highlight some of these aspects, and to demonstrate how licenses can be drafted or updated to deal with them.
The Blizzard case involved MDY’s creation of a software “bot” that allowed players of Blizzard’s online game World of Warcraft to advance to higher levels through automated play. Blizzard sued MDY for copyright infringement, but the court ruled 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,” and found that the use of MDY’s “bot” in the World of Warcraft environment was not connected to Blizzard’s exclusive rights in its software under copyright law.
It is this requirement of a nexus between the license breach and the exclusive rights granted to a copyright holder that has been cited as a new development in the law. However, as reference to Jacobsen v. Katzer illustrates, this is not actually a new development, but merely a clarification using new language. In Jacobsen, Katzer and another defendant modified and distributed Jacobsen’s software code, but did not include the notices required by Jacobsen’s license. The Federal Circuit held that the defendants violated conditions that limited the scope of the software license, and could therefore be held liable for copyright infringement as opposed to merely breach of contract.
The key to reconciling Blizzard and Jacobsen lies in equating Jacobsen’s “condition limiting the scope of the license” with Blizzard’s “condition with a nexus to the licensor’s exclusive rights of copyright.” This equation is no stretch if we understand Jacobsen’s “scope” to refer strictly to the license as it pertains to the licensor’s copyright (i.e. the extent to which a licensor is licensing all or some portion of the bundle of the exclusive rights granted to a copyright owner by the Copyright Act). If we are firmly in the context of copyright licenses, this interpretation is fairly straightforward. Once we are outside this context, says Blizzard, the remedies for copyright infringement are inappropriate.
The Blizzard court would likely have reached the same conclusion in Jacobsen as the Federal Circuit, but instead of stating the requirement of a “condition limiting the scope” of the license, it would have explicitly required a “nexus between the condition and the licensor’s exclusive rights of copyright.” In the Jacobsen context, this would mean finding a nexus between (a) requiring the inclusion of certain notices when modifying and distributing the licensed work, and (b) the copyright owner’s exclusive rights to create derivative works of and to distribute a copyrighted work. As the requirement of notices in the license specifies the manner of modification and distribution permitted (thus “limiting the scope of the license”), this nexus seems fairly direct.
In contrast, using MDY’s “bot” in the World of Warcraft context in no way implicates the exclusive rights granted to a copyright holder under the Copyright Act. The “bot” in no way changes the manner in which a World of Warcraft player copies Blizzard’s software (copying being the only exclusive right granted to Blizzard under copyright law that is exercised by a World of Warcraft player under Blizzard’s license). The “bot” may modify the overall game environment, but that environment (as opposed to the fixed software code) is not the subject of an enforceable copyright.
In reconciling the opinions of Blizzard and Katzer, two main issues come to the fore. First, Blizzard’s explicit language requiring a “nexus between the condition and the licensor’s exclusive rights of copyright” does invite varying interpretations of the word “nexus.” For example, must there be a “direct” nexus, or will an “indirect” nexus suffice? As the Blizzard court was the first to employ this precise language, the malleability of the standard remains to be seen. For now, following a literal reading of the Blizzard opinion, it would seem that any nexus is sufficient.
Second, an interesting question arises when a copyright license is drafted to automatically terminate in the event of a breach. Whether or not a breach itself constitutes copyright infringement (or contains a “nexus between the condition and the licensor’s exclusive rights of copyright”), an automatic termination provision would presumably cause all subsequent copying and distribution of the copyrighted work to be acts of copyright infringement. Because the license at issue in Blizzard did not contain an automatic termination provision, the court did not address this point.
In terms of how these cases should influence the drafting of copyright licenses, at least two important strategies emerge. One, ensure that the license grant provision includes the preliminary language “provided that licensee complies with all the terms and conditions of this license agreement.” If employed correctly, this type of language can cast a wide net, capturing as “conditions limiting the scope of the license” all terms that might be construed by a court to contain a “nexus” with the exclusive rights of the licensor as a copyright holder.
The second strategy suggested by these cases is to include an automatic termination provision in the event of a breach. Although those violations that do not contain a nexus with the exclusive rights granted by the Copyright Act will not constitute infringements, automatic termination will take away an ex-licensee’s defense against an infringement action in the event of further copying, distribution, etc.
Keep in mind that there may be circumstances in which conditional language and automatic termination are not desirable. Always consult with your attorney to make sure your copyright licenses are designed to operate in the way you intend them to. 629 F.3d 928 (9th Cir. 2011).  Open Source Licensing and the Viability of the Free Software Movement, Sean Hogle (Landslide Volume 3, Number 6, July/August 2011).  Id.  535 F.3d 1373 (Fed. Cir. 2008).  See 17 U.S.C.A. § 106.
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