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BLUE PLANET SOFTWARE, INC. v. GAMES INTERNATIONAL

BLUE PLANET SOFTWARE, INC. and ALEXEY L. PAJITNOV, Plaintiffs,
v.
GAMES INTERNATIONAL, LLC and ELORG COMPANY, LLC Defendants.



The opinion of the court was delivered by: SIDNEY STEIN, District Judge

OPINION and ORDER

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 decidely 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 injunction*fn1 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 litigation and a balance of hardships tipping decidedly in the movant's favor.'" MyWebGrocer, LLC v. Hometown Info, Inc., 375 F.3d 190, 192 (2d Cir. 2004) (quoting Merkos L'inyonei Chinuch, Inc. v. Otsar Sifrei Lubavitch, Inc., 312 F.3d 94, 96 (2d Cir. 2002)). This standard applies for matters involving trademarks, see, e.g., Sunward Electronics, Inc. v. McDonald, 362 F.3d 17, 24 (2nd Cir. 2004) and copyrights, see, e.g., My WebGrocer, 375 F.3d at 192-93. III. The Assignment and The Conflicting Document Trail

  A. The Assignment of Rights

  In 1986, sometime after the creation of Tetris, Pajitnov assigned — perhaps through more than one grant — the intellectual property rights to Tetris to his employer CCAS for a certain time period, the length of which the parties contest. As noted above, the issue is whether that grant of rights was for only ten years — as plaintiffs contend — or were they granted in perpetuity — as defendants contend. Four categories of documents form the paper trail that postdates and refers to this illusive grant: (1) subsequent affirmations by parties to that grant confirming its substance, (2) contractual agreements between parties that either directly or collaterally reference the scope of the grant (3) subsequent letters from parties referring to the substance of the grant, and (4) subsequent copyright and trademark registrations to which the law attaches presumptions of ownership.

  B. The Conflicting Affirmations, Agreements, and Letters

  The spate of affirmations, agreements, and letters — with their conflicting terms — are best analyzed only after the text of each is fully set forth for ease of comparison.

  1. The Documents

  The earliest document — Pajitnov's "Affirmation By the Creator and Author of the Game `TETRIS'" signed by the same on March 17, 1989 ("the March 1989 Affirmation") — offers the initial instance in which a party memorialized the assignment of rights at issue. (Pajitnov Decl. Ex. A).*fn2 The final paragraph of the March 1989 Affirmation states:
I [Pajitnov] confirm that I granted the Computer Center of the USSR Academy of Sciences the exclusive rights in the Game Tetris including the trademark, all copyright and other rights (with the sole exclusion-the right to use the trademark Tetris for products not related to the game) in the beginning of 1986 for a period of 10 years. On the basis of this grant of rights, the Computer Center of the USSR Academy of Sciences, in conformity with the Soviet Legislation in force, legally is the owner of the right and license for selling the program product — the Game Tetris on the world market.
(Id.) (emphases added). Besides the obvious limitation in time affirmed to have been placed upon the grant, at least two other features become relevant in this action that will later be discussed in depth. First, "merchandising rights" — as the parties refer to the right to use the Tetris trademark in connection with other "products not related to the game" — were affirmed to have been explicitly excluded from the grant. Second, this document presents the first piece of evidence illuminating the parties' intent as to the meaning of the term "owner" as used in their course of dealing. That meaning — from an internal analysis of this document alone — appears to be different than the most common meaning of an owner — someone in possession for perpetuity — because the document confirms the CCAS as "the owner" despite only confirming a grant of ten years. Every subsequent document need be viewed in light of this ten year time span that began in 1986.

  Five days after that affirmation, Soviet Elorg entered into the contract with Nintendo ("the Nintendo License") to license to Nintendo for five years "the exclusive rights to manufacture, market, distribute, sell, and sub-license the Game all over the world for play on Home Video Game Systems." (Defs' Memo. Supp. Ex. 4, Preamble ¶ 3). Signed on March 22, 1989 by representatives of Soviet Elorg, Nintendo, and the CCAS, as well as by Pajitnov, it set forth that Soviet Elorg as "Licensor" "has all exclusive rights to the game . . . its program or software, its design script and its audiovisual work, including but not limited to copyrights, trademarks and other related rights in said Game." (Id. ¶ 2) (emphasis added).

  Roughly one month later — on April 20, 1989 — Belikov, as an officer of Soviet Elorg, swore via an annexed declaration to the truth of a letter addressed to John J. Kirby, then counsel for Nintendo and counsel for plaintiffs on these motions for preliminary injunctions.*fn3 (Pajitnov Decl. Ex. C). In that letter, Belikov writes in relevant part:
[Pajitnov] granted his employer, the [CCAS], the exclusive rights in the Tetris game, including all trademarks, copyrights and other rights, in early 1986 for a period of 10 years. The sole exception to this grant of rights was the right to use the Tetris trademark [merchandising]. In early 1987 the [CCAS] authorized Elorg to represent it in licensing Tetris on the world market.
(Id. at 1) (emphasis added). Belikov concluded the letter: "This letter is complitely [sic] truthful and absolutely correct." (Id. at 4). At some point probably in 1989,*fn4 the Director of CCAS wrote a letter to Belikov stating that the CCAS is "the owner of the exclusive rights and licenses" for Tetris and that Soviet Elorg is its agent. (Martin Decl. Ex. 3, ¶ 1). Comparing those two documents, it becomes evident that Belikov subsequently described the scope of the grant differently from what the CCAS Director has stated; i.e., Belikov in April of 1989 confined the grant to ten years even though the letter he received simply stated that CCAS was "the owner." Some seven months after the ink on the March 1989 Affirmation had dried, Pajitnov and a representative of the CCAS co-signed an "Assignment Agreement" on October 16, 1989 ("the Merchandising Assignment") in which Pajitnov assigned to the CCAS the merchandising rights previously excluded from the March 1989 Affirmation. (Id. Ex. 5). The Merchandising Assignment states in relevant part:
[F]or sufficient, good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: . . . Assignor [Pajitnov] does hereby sell, assign, and transfer to Assignee [CCAS] all of his merchandising rights to the personal computer, hand-held, arcade and home video game versions of Tetris as well as the merchandising ...

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