Lilith Games v. uCool – Seeking Preliminary Relief in the US

Attached is the order denying a preliminary injunction in Lilith Games v uCool (N.D. Cal., Sept. 23, 2015).  According to the order of Judge Conti, Lilith is a video game developer that released the game Dao Ta Chuan Qi (translated as “Sword and Tower”)  in China in February 2014. Lilith holds Chinese copyright registrations in Sword and Tower’s source code and alleges that it owns the copyrights to that code pursuant to Chinese copyright law. Sword and Tower has enjoyed great commercial success, and as of August 2014, was the leading game in Asia.   Defendant uCool is a video game marketer who allegedly obtained access to Lilith’s copyrighted software code for Sword and Tower and used it to create its own game, Heroes Charge , which it published in the United States in August 2014.

Lilith filed this case in March 18, 2015, four months after talks with uCool had broken down. Lilith argued that a four month delay was justified because Lilith is a small start-up  and was reluctant to become involved in costly litigation until it was necessary, although the court noted “It is unclear what Lilith means by ‘small start-up,’ particularly given that Lilith owns the most popular game in Asia.”

There are a few interesting points in this case worth comparing to Chinese practice:

  1. Application of Law and Recognition of Evidence: The court determined that Lilith “owned valid Chinese copyright registrations and therefore has provided prima facie evidence of copyright ownership under Chinese law.” In addition, it was “undisputed that Lilith is the entity that filed for and obtained the copyright registrations and that these registrations expressly list Lilith as the copyright owner. Thus, Lilith was the developer of the Sword and Tower source code and the copyright for Sword and Tower consequently belongs to Lilith.” The court also noted that “Lilith brings its copyright infringement claim under the Berne Convention, an international agreement governing copyright.”

The court directly  applied Chinese copyright law and the Berne Convention, which are rather unusual.  To its credit, there was no evidence that the court required notarized and/or consularized documentation, as might be required of a US company submitting similar evidence in China.   

  1. Regarding copying, the court concluded that “a finder of fact is likely to conclude that the source code for Heroes Charge is substantially similar to the source code for Sword and Tower,”and that “the evidence shows that the games are almost identical from the user’s standpoint, with only minor modifications.”

Although the court noted that Lilith sought to apply the Berne Convention, the court’s determination of copyright infringement appears squarely based on US practice.  Screen shot comparisons can be found here.

  1. In its trade secret analysis the court noted that “Lilith’s efforts to maintain the confidentially of its source code, while not as rigorous as they could have been, were sufficiently reasonable to maintain the code as a trade secret. Lilith keeps its source code on a secure server and limits access only to those employees who need it to perform their duties. Lilith also encrypts the Sword and Tower source code so that it cannot be easily deciphered. Although Lilith failed to secure confidentiality agreements from all of the employees that had access to the code, Lilith has presented evidence to show that these employees understood Lilith’s code to be confidential business information. Further, there is no evidence to suggest that any of these employees disclosed the code to a third party.”

Difficulties in demonstrating that a trade secret owner has established appropriate measures to protect the confidentiality of a trade secret are one of the obstacles in trade secret litigation in China.   The court’s approach is not unreasonable given that there appeared to be adequate procedures in place, and any gap in protection was not a cause of the leak of confidential information.

  1. Preliminary Injunction “E-Bay” Factors

Although the court determined that there was a strong likelihood that Lilith would succeed on the merits, it denied the motion for a preliminary injunction.  In the court’s view Lilith could not demonstrate that there was adequate imminent injury, either by reason of reputational injury in a market where it had little presence or by difficulties in developing that market through an exclusive distributorship.  The court took note that eight months had passed from when Lilith discovered the alleged copying to when it filed for a preliminary injunction. The court’s apparently suspicious view of Lilith’s argument that it was a small start-up, which accounted for the delay, may also have been a factor in this determination.

These cases are part of a growing trend of Chinese companies using the US courts to address claims of infringement by Chinese, US or third country actors.  There are also several obvious comparisons in recent Chinese cases to this one.  The case may be compared to the preliminary injunction granted by the Guangdong IP court in Blizzard Entertainment and NetEase versus Chengdu Qiyou Limited, involving a US rightsholder.  In that case, I noted the importance of having an active licensee as a co-plaintiff to succeeding in a preliminary injunction matter; the lack of an active licensee may have been a problem with the US case in demonstrating irreparable harm due to difficulties in obtaining an exclusive licensee. 

This is the second recent case brought by a Chinese company seeking a preliminary injunction in the US courts for copyright infringement.  In the earlier CCTV case, the Chinese plaintiffs were granted a preliminary injunction applying US law.    As I noted in the CCTV cases, had the US court applied Chinese law it might have found that no copyright infringement existed at least with respect to sports broadcasting.

Another comparison is with the   Eli Lilly v. Huang Mengwei (黄孟炜) case, where a preliminary injunction was granted in China for a trade secret matter.  However, that case was publicly discussed but never published.  The Lilith case is published, according to US practice, with confidential information removed.   

Perhaps the most interesting comparative aspect of the Lilith case was the delay in initiating litigation by the plaintiff.  Had this case been tried in China, the delays in seeking preliminary injunctions might have been more problematic in light of the expectations of tight time frames, where litigation and IP matters change in “a New York minute.”    After all, in eight months, most IP litigation has been finally adjudicated.

 

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