videogames

File First, Litigate Later? Procedural Fencing explored in Epic Tech, LLC v. Arno Res., LLC

Blog, Law and Entertainment

Vince Lombardi, the famed NFL Coach already knew this when he stated, “winning isn’t everything, it’s the only thing.”

Well, when it comes to the Fifth Circuit, it does not favor races to the courthouse.

The parties and predecessors in this case have been engaged in various disputes regarding a gaming software agreement (Software Agreement) since the early 2000s. In August of 2004, Custom Games Design (Games Design) and Gateway Gaming, LLC (Gateway) entered into the Software Agreement. Here, Games Design agreed to develop games and give Gateway a license to use its proprietary software (Software). If Gateway refused to make payments, hire current Games Design employees, or solicit Games Design employees within 180 days of termination, the Software Agreement was terminated. 

By February of 2017, the original parties to the Software Agreement had dramatically altered. Gateway dissolved in January of 2013 transferring its assets to Epic Tech, LLC; Winter Sky, LLC and Frontier Software Systems, LLC (collectively referred to as Epic Tech). While Gaming Design entered into a licensing agreement with Arno Resources (Arno) granting, conveying and assigning all of its rights, title and interest to Software including the right to bring suit arising out of its misuse. 

In May of 2013, Arno’s legal counsel sent a demand letter to Epic Tech alleging unauthorized use of the Software.  Although the demand letter asserted Arno would pursue all remedies available both at law and equity, it also noted a potential discussion surrounding settlement possibilities.

Instead of replying to Arno’s demand letter by May 22, 2020, Epic Tech replied with a declaratory judgement action in Travis Country District Court. In its action, Epic Tech argued the Software Agreement terminated December 31, 2005; Gateway previously purchased rights to all Software development, and Arno’s claims were released by a previous settlement agreement.[1] In an effort to preserve its rights, Arno filed suit in the Northern District of Georgia alleging violations to the Georgia Uniform Deceptive Trade Practices Act, civil conspiracy, and aiding and abetting a breach of contract through fraud and injunctive relief. [2]

Arno opines the court should use its discretion to dismiss Epic Tech’s action under the anticipatory exception to the first-to-file rule. By filing an action after receipt of a demand letter, Arno proclaims Epic Tech’s suit was improperly filed and deprived Arno of its chosen forum. Epic Tech protests noting its efforts were merely to eliminate a baseless claim under Texas law and the first-to-file rule should apply. Under the Federal Declaratory Judgement Act (Act), a federal court may declare rights and other legal obligations of any interested party (28 U.S.C. §2201(a)).  Under the Act, Congress creates an opportunity, not a duty, to grant appropriate relief to qualifying litigants. 

When two cases are pending before two federal courts, the first-to-file rule states the subsequent case may be dismissed if the issues raised by the cases substantially overlap.[3] Cases do not have to be identical. Rather, substantial overlap exists when the core issue is the same or if a majority of the evidence brought would be identical.[4] The Fifth Circuit generally notes the court where the action was first filed is appropriate when the subsequent case filed involves substantially similar issues.  However, the Fifth Circuit will deviate from the first-to-file rule when a declaratory judgment is filed in anticipation of a suit, creating an opening for forum shopping and depriving a potential plaintiff of their chosen forum (the Anticipatory Filing Exception). 

To apply the Anticipatory Filing Exception, the court looked to Paragon[5] where the court failed to apply the first-to-file rule when a party filed a declaratory action in lieu of responding to a demand letter. Similarly, the court did not apply the first-to-file rule in Bedrock Logistics [6] when a party filed a suit in federal court four days after receiving a settlement offer. Here, Arno’s pre-suit demand letter enclosed a draft of a yet to be filed Georgia complaint  if the case was not settled and noted the possibility of discission settlement options. The court did not find evidence of Epic Tech engaging in improper or abusive tactics. Even so, the court found Epic Tech’s declaratory judgement was anticipatory and deprived Arno from filing suit in the Northern District Court of Georgia. 

Although Epic Tech was the first to file in their respective district court, this case shows “winning doesn’t always mean being first.” [7]

[1] Epic Tech v. Arno Resources, D-1-GN-20-02870 (261st Dist. Ct., Travis County, Tex. May 29, 2020). 

[2] Arno v. Epic Tech, No 1:20 CV-2540-CAO (N.D. Ga. June 17, 2020).

[3]  Cadle Co. v. Whataburger of Alice, Inc., 174 F.3d 599, 603 (5th Cir. 1999).

[4] Int’l Fid. Ins. Co. v. Sweet Little Mexico Corp., 655 F.3d 671,678 (5th Cir. 2011). 

[5] 2008 U.S. Dist. Lexis 6565, 2008 WL 3890495 at *1-5

[6] 2017 U.S. Dist. LEXIS 65432, 2017 WL 1547013, at *5

[7] Bonnie Blair 

Video Games and the Law

Blog, Law and Entertainment

There’s a lot of extra time to play video games. I think I have spent the past couple of days playing Super Smash Bros. . . in fact I am playing some right now. . .

Before quarantine I wasn’t familiar with Fornite, NBA 2k or any other video game. However, it might be the end of live sports games for a while so I figured I’d grab my own personal controller and see what things are all about.

At the intersection of law and this new found love entertainment comes an exciting case out of North Carolina.

U.S. District Judge Terrence W. Boyle of the Eastern Division of North Carolina held Michael Heidbreder must proceed his case by arbitration pursuant to the End User License Agreement (“EULA”) with Fornite developer, Epic Games.

Michael Heidbreder, a Missouri resident filed a punitive class action alleging Epic Games’ vulnerable security allowed hackers to charge fraudulent in-game purchases to his debit card between November 2018 and January 2019. Heidbreder brought both statutory and common law claims including negligence, breach of implied contract and violation of state consumer-protection and data-breach statutes.

In October, Epic Games moved to compel Heidbreder’s claims to arbitration, pursuant to the EULA. Features to the arbitration provision include: “ (1) an agreement to arbitrate on an individual basis only; (2) delegation clause granting the arbitrator the power to determine whether a specific dispute is governed by the arbitration clause; (3) a venue selection clause giving user the choice of venue between their home state or North Caroline; (4) Epic Games’ agreement to pay arbitration fees under $10,000, share costs after $10,00 and not seek attorney fee’s against users and (5) a 30 -day opt-out provision, giving users a 30 day window after agreeing to the End User License Agreement to opt out of arbitration provision.”

Heidbreder presented three compelling, yet unsuccessful arguments.

First, he asserts his minor son lacked contractual capacity to agree to the EULA. Judge Boyle rejected this argument noting “under the basic principles of principal-agent law” his son acted as Heidbreder’s agent giving him both actual and apparent authority to agree.

Second, Heidbreder argues privacy related matters are outside the scope of arbitration. According to common law, when the parties contract delegates the arbitrability question too an arbitrator, a court may not override the contract.” Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 529 (2019). Therefore, the arbitrator, rather than the court, determines the scope of these provisions.

Lastly, Heidbreder claims the class action waiver, arbitration clause and class action clause are unconscionable because Epic Games is applying the agreement retroactively. Judge Boyle acknowledges yet quibbles Heidbreder’s last argument noting the terms at issue “are common terms in modern contracts that have been recently sanctioned by the courts and can hardly be considered substantively unconscionable.”

This case appears to be successful for Epic Games. However, this “game” could face a turn for the worse if parents stop allowing their children to make in-game purchases using their credit card information. However, with extending stay-at-home orders and uncertainty about school returning in the fall, I highly doubt this would happen.

What’s your favorite video game during COVID-19?

Until next time,

Lauryn <3