Blue Planet Software, Inc. v. Games Intern., LLC

• Decision Date: 07 September 2004
• Docket Number: No. 03 CIV.8904 SHS.,03 CIV.8904 SHS.
• Citation: 334 F.Supp.2d 425
• Parties: BLUE PLANET SOFTWARE, INC. and Alexey L. Pajitnov, Plaintiffs, v. GAMES INTERNATIONAL, LLC and Elorg Company, LLC Defendants.
• Court: U.S. District Court — Southern District of New York

Page 425

334 F.Supp.2d 425

BLUE PLANET SOFTWARE, INC. and Alexey L. Pajitnov, Plaintiffs, v. GAMES INTERNATIONAL, LLC and Elorg Company, LLC Defendants.

No. 03 CIV.8904 SHS.

United States District Court, S.D. New York.

September 7, 2004.

COPYRIGHT MATERIAL OMITTED

John J. Kirby, Jr., Latham & Watkins, New York City, for Plaintiffs.

Glenn D. Bellamy, Greenebaum Doll & McDonald PLLC, Cincinnati, OH, Steven A. Smith, Mark Norman Mutterperl, Fulbright & Jaworski, L.L.P., New York City, for Defendants.

OPINION and ORDER

STEIN, District Judge.

INTRODUCTION

In this action arising over the intellectual property rights to the popular video game Tetris, the parties have brought cross-motions for preliminary injunctions to enjoin the other from interfering in the movant's purported ownership rights to Tetris until the dispute over those rights is resolved. Specifically, all parties agree that the intellectual property associated with Tetris is suffering irreparable harm; yet each of the parties asserts that they are both likely to succeed on the merits or that they have raised serious questions as to the merits to make them fair ground for litigation and a balance of the hardships tips decidedly in their favor. For the reasons set forth below, including this Court's finding that the assignment of rights, and the documents supporting that assignment, are ambiguous, plaintiffs' motion for a preliminary injunction is denied and defendants' motion for a preliminary injunction is granted in part and denied in part.

DISCUSSION

I. Factual Background: The Tetris Story

The Tetris story swells with contradictory tales that describe the scope of unrecorded grants of intellectual property rights, and conflicting writings that inconsistently memorialize those grants. Yet the ultimate question for this Court's resolution is straightforward: who now owns the intellectual property rights to Tetris?

While employed by the Computer Center of the Academy of Sciences of the U.S.S.R. ("CCAS"), plaintiff Alexey Pajitnov created, named, and developed Tetris in 1984 and 1985, now recognized as one of the most popular video games in the world "in which the goal is to manipulate seven geometric shapes and fit them together to form solid lines of blocks as they `fall' from the top of the video screen." (Pajitnov Decl. ¶ 2, 4-6). As Tetris gained in popularity globally, Pajitnov, as a citizen of the U.S.S.R., was unable to benefit commercially from his creation, but had the option to allow the Soviet government to exploit it. (Id. ¶ 7). Pajitnov did just that in 1986 by making at least one grant of his rights to the Soviet government. The government agency to which Pajitnov assigned the rights to Tetris was the CCAS, his employer. (Id. ¶ 8). The almost mysterious scope of that assignment is a central issue in this case to be discussed at length infra; still, the dispute may be succinctly described: plaintiffs assert that the grant was limited to ten years expiring at the end of 1995, while defendants argue that Pajitnov in fact granted his rights to Tetris in perpetuity.

Following that initial assignment of rights to CCAS, the same Computer Center then assigned its rights (whatever rights Pajitnov had in fact granted) to the then export agency of the Soviet Union, V/O Electronorgtechnica ("Soviet Elorg"), to enable Soviet Elorg to act as CCAS's licensing agent for transactions abroad. (Pajitnov Decl. ¶ 2, 8). Defendants assert that they are the successors-in-interest of Soviet Elorg; defendants also independently claim they are the assignees of the Tetris intellectual property rights of Soviet Elorg, irrespective of their status as successors-in-interest.

After the authorization to Soviet Elorg to handle international licenses, Soviet Elorg granted Nintendo Entertainment Systems ("Nintendo") in March 1989 an exclusive worldwide license for five years (plus a one-year extension option) to produce and distribute the Tetris program on Nintendo and other home video game systems. See Tengen, Inc. v. Nintendo Co., Ltd., Civil Action No. C-89-1334 FMS (N.D.Cal.); (Defs' Mem. Supp. Prelim. Inj. ("Defs' Mem. Supp.") at Ex. 4, ¶¶ 10.1 — 10.2). As part of the agreement between Nintendo and Soviet Elorg, Nintendo was required to file U.S. trademark and copyright registrations for the Tetris game "in the name of Soviet Elorg." (Nagae Decl. ¶ 6; Defs' Mem. Supp. Ex. 4 ¶ 8.3).

The current dispute began to manifest itself toward the end of Nintendo's license term which approximately coincided with the expiration of the alleged overall ten-year limit on the original grant as claimed by Pajitnov. As the expiration of the Nintendo license and the underlying alleged ten-year limit drew near, both Pajitnov and Soviet Elorg prepared to retake control over the Tetris property rights in accordance with their respective views on the duration of the original grant by Pajitnov.

Pajitnov entered into an exclusive licensing agreement with Henk Rogers' Japanese Company, Bullet-Proof Software, to take effect after the expiration of the ten-year period at the end of 1995; meanwhile, Soviet Elorg continued to assert its prospective rights after the same time. In an apparent resolution of the conflicting claims, Rogers and Nikolai Belikov, an officer of Soviet Elorg, reached an agreement aimed at resolving the dispute. (Pls' Mem. Supp. Prelim. Inj. ("Pl's Mem. Supp.") at 9-10; Rogers Decl ¶ 11; Pajitnov Decl. ¶ 19). Rather than litigate, Pajitnov and Rogers agreed with Belikov to create a new company that would possess the respective ownership rights that each party contended they possessed. (Id.). That new company was called The Tetris Company, L.L.C. ("TTC"), governed by the Limited Liability Company Agreement of The Tetris Company, L.L.C. ("TTC Agreement"). (Defs' Mem. Supp. Ex. 14). The TTC Agreement provides, inter alia, that if any member elects to withdraw, the remaining member or members "shall have the option of either dissolving the Company or purchasing ... the withdrawing Member's Interest." (Id. ¶ 12.1).

In order to form this new company, each side created new corporate entities through which it would control the shared company: Rogers created Blue Planet Software, Inc. ("BPS") and the rights that Pajitnov had granted to Rogers were further transferred to BPS, and Belikov formed defendant Elorg L.L.C. of Delaware ("Elorg USA") and Games International, Inc. ("Games"). (Rogers Decl. ¶ 11, Pajitnov Decl. ¶ 19). In turn, Pajitnov — through BPS — joined with Elorg USA — through Games — to form TTC "as a mechanism to exploit Tetris and share the licensing revenues from Tetris." (Rogers Decl. ¶ 11). Each side maintained a 50% interest. (Id.).

Though the parties agree upon the facts surrounding the formation of TTC, they maintain opposing views of what role each side played as part owners. Rogers contends that BPS "almost exclusively" performed all quality assurance, game design, and research and development. (Rogers Decl. ¶ 12). Yet defendants maintain that Elorg was "solely responsible for quality control of the products sold by Nintendo." (Defs' Mem. Supp. Prelim. Inj. at 3, Ex. 4 ¶ 3.2). Ultimately, the mutual arrangement failed; BPS withdrew from TTC pursuant to the TTC Agreement because of conditions "detrimental to BPS and Mr. Pajitnov and detrimental to the preservation of the Tetris name and mark...." (Id., Ex. 13, 14; Rogers Decl. ¶ 14-15).

Subsequent to BPS's withdrawal, each side allegedly acted in a manner that its adversaries contend is now causing the Tetris mark irreparable harm. On the one hand, plaintiffs assert that "Games has recently contacted virtually all of the companies that have licensed rights to Tetris and wrongly asserted that Mr. Pajitnov has no right, title, and interest in the Tetris game or mark and that BPS has no rights to license the Tetris game or mark ..." and that such actions "are causing confusion among the Tetris licensees and damage to the Tetris intellectual property." (Rogers Decl. ¶ 16). Additionally, TTC sent a letter to one licensee stating that "you deal with Henk Rogers/Blue Planet Software at your own risk." (Id. Ex. E). Plaintiffs further assert that defendants' actions have "cast a substantial cloud on title to the property," alleging significant economic harm including threats to terminate and actual terminations of licensing deals for Tetris specifically "due to the dispute over the ownership of Tetris between Games and BPS ..." and the inability to negotiate new licensing deals for Tetris. (Id. at ¶¶ 21-25).

On the other hand, defendants claim that BPS interfered with their claimed rights. Defendants point out that BPS sent out letters to Tetris licensees informing them that TTC is being dissolved and that "[i]n the future you may license the Tetris trademark and copyright from Blue Planet Software, Inc" and that Pajitnov "is the rightful owner of all `Tetris' copyrights and trademarks." (Defs' Memo. Supp. Ex. 15). After TTC responded to BPS' first letter to Tetris licensees, BPS sent out another letter to the licensees rebutting TTC's statements and affirming BPS's rights to Tetris. (Id. Ex. 18). Moreover, defendants allege that plaintiffs have distributed copies of the Complaint in this action to the licensees, which defendants contend violates the confidentiality provision of the TTC Agreement. (Id. Ex. 14 ¶ 14.3).

The parties remain bitterly at odds as to who is the rightful owner of the Tetris intellectual property rights. Yet all agree that the Tetris rights are suffering irreparable harm and that a resolution is required. (Pls' Letter to the Court on June 25, 2004; Defs' Letter to the Court on June 28, 2004).

II. Legal Standard

A party moving for a preliminary injunction must show "`(1) irreparable harm in the absence of the injunction¹ and (2) either (a) a likelihood of success on the merits or (b) sufficiently serious questions going to the merits to make them a fair ground for...