Valve Corp. v. Sierra Entertainment Inc.

• Court: U.S. District Court — Western District of Washington
• Writing for the Court: Zilly
• Citation: Valve Corp. v. Sierra Entertainment Inc., 431 F.Supp.2d 1091 (W.D. Wash. 2004)
• Decision Date: 14 December 2004
• Docket Number: No. C02-1683Z.,C02-1683Z.
• Parties: VALVE CORPORATION, a Washington corporation, Plaintiff, v. SIERRA ENTERTAINMENT INC., (Aka Sierra on Line Inc.), a Delaware corporation; Vivendi Universal Games, Inc., a Delaware corporation; and Vivendi Universal, S.A., a French foreign corporation, Defendants. Sierra Entertainment Inc., (Aka Sierra on Line Inc.), a Delaware corporation; and Vivendi Universal Games, Inc., a Delaware corporation; Counter-Claimants, v. Valve Corporation, a Washington corporation; Gabe Newell and Lisa Mennet Newell, husband and wife and the marital community composed thereof; and Scott Lynch and Julie Lynch, husband and wife and the marital community composed thereof, Counterclaim Defendants.

431 F.Supp.2d 1091

VALVE CORPORATION, a Washington corporation, Plaintiff, v. SIERRA ENTERTAINMENT INC., (Aka Sierra on Line Inc.), a Delaware corporation; Vivendi Universal Games, Inc., a Delaware corporation; and Vivendi Universal, S.A., a French foreign corporation, Defendants.

Sierra Entertainment Inc., (Aka Sierra on Line Inc.), a Delaware corporation; and Vivendi Universal Games, Inc., a Delaware corporation; Counter-Claimants, v. Valve Corporation, a Washington corporation; Gabe Newell and Lisa Mennet Newell, husband and wife and the marital community composed thereof; and Scott Lynch and Julie Lynch, husband and wife and the marital community composed thereof, Counterclaim Defendants.

No. C02-1683Z.

United States District Court, W.D. Washington, at Seattle.

December 14, 2004.

COPYRIGHT MATERIAL OMITTED

Jason P. Holtman, Karl Justin Quackenbush, Preston Gates & Ellis, Seattle, WA, for Plaintiff and Counterclaim Defendants.

Annette L. Hurst, Blake J. Lawit, Derrick H. Robinson, Jason M. Skaggs, Jeffrey T. Norberg, John E. Eichhorst, John D. O'Connor, Kimberly A. Bliss, Linda Q. Foy, Martin R. Glick, Sarah M. King, Simon J. Frankel, Howard Rice Nemerovski Canady Falk & Rabkin, San Francisco, CA, Michael Ramsey Scott, Sarah A. Dunne, Hillis Clark Martin & Peterson, Seattle, WA, for Defendants and Counter — Claimants.

ORDER

ZILLY, District Judge.

This matter came before the Court on Defendants' Motion for Partial Summary Judgment Re Cyber-Café Rights, docket no. 143, by Sierra Entertainment, Inc. ("Sierra") and Vivendi Universal Games, Inc. ("VUG"), and Plaintiff's Cros-Motion for Partial Summary Judgment Re Cyber-Café Rights, docket no. 165, by Valve Corporation ("Valve"); and Defendants' Motion for Partial Summary Judgment Re Contractual Limitation of Liability, docket no. 144, by Sierra/Vivendi, and Plaintiffs Cross-Motion for Partial Summary Judgment Re Contractual Limitation of Liability, docket no. 162, by Valve.

The Court held oral argument on November 18, 2004, and took the matter under advisement. The Court issued a brief Order on November 22, 2004, informing the parties of its decision. See Order, docket no. 226. This Order sets forth the reasons for the Court's prior Order of November 22, 2004, docket no. 226.

BACKGROUND

Plaintiff Valve is in the business of developing computer games, including "Half-Life," "Counter-Strike," "Blue Shift," "Gunman," and "Team Fortress" (hereinafter "Valve games"). See First Am. Compl., docket no. 40, at 2, ¶ 4. Defendant Sierra publishes computer software and games, including several Valve titles. Id., at 2, ¶ 5. Sierra is a wholly owned subsidiary of VUG. Id., at 2, ¶ 5. VUG is a subsidiary of Vivendi Universal, SA, a French corporation. Id. at 2, ¶¶ 5-6.

On March 29, 2001, Valve entered into a Software Publishing Agreement (the "2001 Agreement") with Sierra and its affiliates ("Sierra/Vivendi"). Holtman Decl., docket no. 164, at 8-110. The 2001 Agreement granted Sierra/Vivendi a license "to reproduce, use, distribute, and license" Valve Games in the "Retail Channel" solely as "Retail Packaged Product." First Am. Compl., docket no. 40, pg. 3, ¶ 9; see Holtman Decl., docket no. 164, at 30. Valve is the copyright holder for Valve games published by Sierra/Vivendi, including Half-Life ("HL"), Counter-Strike ("CS"), Counter-Strike: Condition Zero ("CS:CZ"), Half-Life 2 ("HL2"), and Counter-Strike: Source ("CS:S").

A. 2001 Agreement — License Granted to Sierra/Vivendi.

The parties' first cross-motions for partial summary judgment, docket nos. 143 and 165, raise the issue of cyber-cafe licensing. The parties dispute whet her the 2001 Agreement allows Sierra/Vivendi to distribute Valve games to cyber-cafes. The 2001 Agreement grants:

a worldwide, perpetual license to manufacture or cause to be manufactured, reproduce or cause to be reproduced, use, distribute (directly or indirectly), or have distributed, market, advertise, publicly display and perform in connection with such marketing and advertising, rent, lease and license such product and Foreign Translations thereof ... solely as Retail Packaged Product.

Holtman Decl., docket no. 164, at 30 (2001 Agreement, ¶ 3.5.1). The 2001 Agreement defines Retail Packaged Product as:

a version of a Product, Add-On Product, Foreign Translation or Platform Extension that: (a) is distributed on only tangible media (e.g. on a CD-ROM); (b) includes as part of the purchase price, the right to receive Sierra product support for a limited period of time (however, Valve and Sierra may mutually agree to include applications thereon which are not so supported); (c) is distributed in packaging of the type typical of game software in the Retail Channel; and (d) is distributed in the Retail Channel.

Id. at 14 (2001 Agreement, pg. 4). The 2001 Agreement defines the Retail Channel as:

"brick and mortar" retail outlets; Internet retailers that carry any of electronics, software, games, toys and/or gifts, Internet auction sites; and all other channels now or during the term hereof commonly referred to in the retail trade as "retail outlets" and distributors and resellers to such "retail outlets".

Id. at 12 (2001 Agreement, pg. 3). The 2001 Agreement does not define "retail outlets." The 2001 Agreement provides that the "parties retain all rights not expressly granted herein," id. at 31 (2001 Agreement, ¶ 3.9,1), and for interpretation, construction, and enforcement under Washington law. Id. at 43 (2001 Agreement, ¶ 9.10).

Valve alleges that Sierra/Vivendi distributed Valve games to cyber-cafes in the United States and abroad. First Am. Compl., docket no. 40, pg. 3, ¶ 11. Cybercafés are "for-profit multi-player facilities" that provide the general public with access to computers and video games for a fee. Id. Cyber-cafés are also referred to as "net cafés" or "location based entertainment" centers, and are a popular place for playing computer games around the world. Dunkle Decl., docket no. 163, at ¶¶ 3-5; Holtman Decl., docket no. 164, at 227-228 (Roeder Dep. at 50-51).

Sierra/Vivendi does not dispute that it distributed Valve games to cyber-cafes, but argues that its distribution was within the scope of the 2001 Agreement. Valve contends Sierra/Vivendi exceeded the scope of its license and infringed Valve's copyrights by distributing Valve games to cyber-cafés. First Am. Compl., docket no. 40, pg. 3, ¶ 11.

B. 2001 Agreement — Limitation of Liability.

The parties' second cross-motions for partial summary judgment, docket nos. 144 and 162, raise the issue of limitation on liability under the 2001 Agreement. The Agreement provides as follows:

8.2 Limitation on Liability. EXCEPT AS PROVIDED IN SECTION 8.1 AND EXCEPT FOR A BREACH OF THE EXCLUSIVITY PROVISIONS HEREOF, NEITHER PARTY WILL BE LIABLE TO THE OTHER UNDER OR IN CONNECTION WITH THIS AGREEMENT FOR SPECIAL, INCIDENTAL, CONSEQUENTIAL, OR PUNITIVE DAMAGES OF ANY NATURE, FOR ANY REASON, INCLUDING WITHOUT LIMITATION, THE BREACH OF THIS AGREEMENT OR ANY TERMINATION OF THIS AGREEMENT, WHETHER SUCH LIABILITY IS ASSERTED ON THE BASIS OF CONTRACT, TORT, OR OTHERWISE, EVEN IF THE OTHER PARTY HAS BEEN WARNED OF THE POSSIBILITY OF SUCH DAMAGES.

Holtman Decl., docket no. 164, at 41 (2001 Agreement, ¶ 8.2). Valve's Complaint seeks damages, including damages for lost profits and loss of good will, resulting from Vivendi's alleged copyright infringement and breach of contract. See First Am. Compl., docket no. 40, at 6-8, ¶¶ 23-40; see also Supp. Compl., docket no. 108, at 4, ¶ 15-21.

DISCUSSION

Summary judgment is appropriate where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. FED. R. CDT P. 56(c). The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once the moving party has met this burden, the opposing party must show that there is a genuine issue of fact for trial. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The opposing party must present significant and probative evidence to support its claim or defense. Intel Corp. v. Hartford Acc. & Indem. Co., 952 F.2d 1551, 1558 (9th Cir. 1991). For purposes of these motions, reasonable doubts as to the existence of material facts are resolved against the moving party and inferences are drawn in the light most favorable to the opposing party. Addisu v. Fred Meyer, Inc., 198 F.3d 1130, 1134 (9th Cir.2000).

The interpretation of a contract is a matter of law properly decided on summary judgment. United States v. King Features Entm't, Inc., 843 F.2d 394, 398 (9th Cir.1988); see also Syrovy v. Alpine Res., Inc., 68 Wash.App. 35, 39, 841 P.2d 1279 (1992) ("Whether a contract is ambiguous and the legal effect of a contract are, in general, questions of law."). In interpreting an agreement between the parties, the Court should effectuate the intent of the parties as expressed, and not "foist upon the parties a contract they never made." Seattle Prof. Empl. Assoc. v. Boeing Co., 92 Wash.App. 214, 220, 963 P.2d 204 (1998).

I. Cyber-Café Rights

The 2001 Agreement grants Sierra/Vivendi the right to rent, lease, or distribute Valve Games as "Retail Packaged Product" in the "Retail Channel." Valve argues Sierra/Vivendi exceeded the scope of its license by distributing to cyber-cafés because (1) cyber-cafés are not part of the "retail channel," and (2) cyber-café distribution is not distribution of "retail packaged product." Sierra/Vivendi counters that cyber-cafes are "retail outlets" in the retail channel, and that it has a future plan for distribution of "retail packaged product."

A. Retail Channel.

Sierra/Vivendi is authorized to distribute Valve games in the "retail channel." The retail channel is defined as:

"brick and mortar" retail outlets; Internet retailers that...