Part 1
[blockquote]MR. MARBURY: So, the other condition is fullscale development and it is also clear that they have not engaged infull scale Development of this MMO. The witness we believe will testifyconsistently with his deposition, that they have approximately 20people working, or at least he thought there were 20 people working inBulgaria on this project when he visited back in March of 2009. We willput on testimony that that is far, far less than what you need to makeone of these in full scale development. Based on our own experience inthe MMO field, you need more than a hundred people working on this tobe in full scale development. And, in fact, to confirm that testimonywe will share with the Court Interplay's own budget documents that showthat their initial budget on this required them to use well north of 50people, and that was a scaled down version.
So, I think it's pretty clear that there's been no fullscale development at any time by this company, or by Masthead. Thiscompany has seven employees right now. They can't do it, and it appearsthat the Bulgarian company, who is already busy with another game,isn't doing it.
So, with those two conditions not met, those rightsautomatically are exterminated, or terminated, and that's what theparties agreed to. So that's the trademark license agreement issue onthe MMO.
THE COURT: But in terms of preliminaryinjunctive relief on that, if they're not doing it and they don't havethe financing, what is it that you need in terms of preliminaryinjunctive relief?
MR. MARBURY: Well, Your Honor, they claim that they're doing it. They've testified --
THE COURT: They haven't put it up on theweb though. I mean, this is where the two sort of blur. They took itdown. They're not advertising to anybody that they're developing it.What is it you need them to stop immediately, as opposed to once youprevail?
MR. MARBURY: Well, Your Honor, they aredeveloping it and they intend to develop and they intend to exploit it,and they would like to advertise it, and there's nothing in place rightnow to prevent them. There is no order from the Court to prevent themfrom advertising that they're doing aFallout brand.
And so you understand the marketplace, a lot of thisindustry is driven by the blogs. There are an enormous number of blogsout there where people post either wild speculation or a company's planor their discussions about Fallout and other games. In fact, there arespecific websites specifically for Fallout. So there is an enormousamount of discussion out there about how the company is develop aFallout, how Interplay is developing a Fallout MMO. So, it is --they're out there. The marketplace is aware of it. They're developingit and they tend to explicit. That's damaging to my client.
More to the point, Your Honor, when the parties entered intothe trademark license agreed specifically, they negotiated and agreedthat at the two year marker there would be some sort of determinationmade about whether they had the rights to go forward and continue to dothis development or not. That two year time limit has expired.
The parties also agreed that because of the unique andspecial character of the IP that we own, that we be, shall be entitledto injunctive and equitable relief. So the parties already negotiatedfor some sort resolution in year two, and we are obviously seven monthspast year two. But to the extent that they continue to do this, thatimpacts our brand and it impacts, you know, the marketplace.
They've already expressed that they are continuing today towork on this project. And so what we're going to end up doing isfighting about this two years down the road, or three years down theroad, if they actually do launch. So that's the immediacy of the issuefor us, that we've negotiated for a to year cap and they failed tocomply and it's time for us to be able to clear the air in themarketplace so they know, so the market place is clear that Interplaydoesn't have the rights to the Fallout MMO.
Also, Your Honor, try to make another point, one of the keysto success in the software industry is clarity, clarity of rights,rights and title. These games, as I have described, take many years todevelop. And to the extent that we are, we're not in the process ofdeveloping our own Fallout MMO right now. We're doing something else.But to the extent that the rights have been terminated, we would havean interest in developing it at some point and in order to do that weneed clarity about what the rights are and what they're not.
We're not developing it now because we don't have a rulingfrom a court that we have the rights to do it. But we need that clarityfor our own business purposes as well. So what we're seeking is what webargained for, which is at April, 2009, you have either, the company iseither, you know, going at this in a appropriate matter, fully fundedand going full scale with it with a lunch or not, because, Your Honor,again, if they launch, there's a royalty stream there for us, right. Ifthey don't launch, we've got an asset that's not depreciating but it'snot being used. So either they use it and we get a royalty stream, orwe get it back and we find another way to use it. But to the extentthat this drags on that royalty stream's not being exploited either byus directly or by Interplay --
THE COURT: How does a PreliminaryInjunction help, because it's only preliminary? It could be differentat the end. I mean, it doesn't help clarify the situation. APreliminary Injunction is designed to sort of freeze the status quo sothat we can have a breathing space to get something decided. That's notgoing to clarifying anything. And if they're not actually going tolaunch, they're doing it at their own risk to develop it, if theycontinue to do that, because ultimately a court may decide that theydidn't have the right to do it because of their default by last April.
MR. MARBURY: Well, Your Honor --
THE COURT: A Preliminary Injunction does not get you any clarity.
MR. MARBURY: Well, Your Honor, I will tellyou that in their SEC filings Interplay has disclosed that they're outthere trying to raise money today, or at least in their last quarterlyreport, they're trying to raise money based on exploiting the brand andthe IP that they have. So Interplay is out there using the Falloutmark, trying to raise money, and that impacts my client directly.
They don't have the rights to do that, Judge. They're underfunded. They're using a company out there that has no experience inlunch MMOs, that everybody knows hasn't ever done anythingsuccessfully. They've never launched a game in their career atMasthead. So that's impacting the Fallout brand, which we have investedan awful lot of money in, Your Honor.
It's a very value brand for us, and to the extent thatthere's dilution of that, that's not something that is easilyquantified. As you know, trademark, you know, in good will, verychallenging to quantify. So the longer that it goes, on the moredilution, or the more weakness, the more discussions online, the harderit is for our client. So that's why we think we're entitled toinjunctive relief. We bargained for it. They agreed that we shall beentitled to equitable relief in the agreements. They haven't met theconditions. I think it's pretty clear, Judge.
So, you know, our burden here is to make a clear showing,Judge, of a number of things. One, that we're likely to succeed on themerits, two that we're likely to suffer irreparable harm, and I thinkthat's satisfied both by the facts of the case and the presumption atlaw for trademark infringement being irreparable harm. The balance ofthe equity --
THE COURT: Here's where their Motion on theSubject Matter Jurisdiction helps you, I hope, to focus also. You'retalking about a presumption of harm on a trademark. On the trademarklicense agreement issue, that's a closer call on whether it's just abreach of contract or something else. So, you talk to me aboutpresumption. I am not, I don't, I'm remaining silent because I don'twant you to think that I accept the proposition that even if you showlikelihood of success on the TLA issue in terms of breach of thatagreement, that it necessarily implicates irreparable harm.
MR. MARBURY: Understood, Your Honor.Understood. We think the balance of the equities tip in our favorclearly, and that the public has a strong interest in not justprotecting valid trademarks and other IP rights, and not just enforcingthe agreements that we entered into at arms length, but also to preventcustomer confusion in the marketplace. So that's what we intend to showhere today, Your Honor, and we appreciate your time and attention.
THE COURT: Okay. Mr. Gersh, you can make a brief opening, I guess, and help set the scene for what I'm about to listen to.
MR. GERSH: Thank you, very much, YourHonor. Your Honor, I would like to address one point that you raised atthe end which I think is very crucial to this entire issue, and that isbriefly you raised the subject matter jurisdiction.
THE COURT: Um hum.
MR. GERSH: And the irreparable harm comingout of the contract and the presumption. I still believe, as we said inour papers, that overriding, the first thing that you have to decide ishas there been a breach of contract, and I still think that it's asubject matter jurisdiction. I'd still ask the Court to consider it,even though you're not going to do it this morning, because I believethat the cart has been put before the horse here.
Until you decide whether there's been a breach of contract,which is more a state law issue in the cases that we raised, you can'tget to whether there has been trademark infringement. The Maryland casewe cited I think is right on point. The Illinois case is even clearer.That's all I'd like to say.
THE COURT: I did read them over. Theproblem I have with your assertion is the counts four and five of thecomplaint. As I understand the law now, if on the face of a complaintit clearly invokes the federal statute and rights available underfederal statute, that that's enough. Because if what you're asking meto do is in essence to go determine the merits of an underlyingdispute, then the subject matter jurisdiction merges too much into themerits, and we're not going to decide it on a threshold basis.
I have to look at the well pleaded complaint, and I havehere counts four and five, never mind what one and two and three evenwould be, or even later. Well, the common law one is Delaware law, noteven federal. But that's why I'm fairly satisfied at this point, frommy look at it last night, that they have done what they needed to do toinvoke the subject matter jurisdiction at this juncture. But, again, Iwill look at it more carefully. You have certainly educated me to lookat that in a lot of ways, but you had to find, you had to go long andhard to find another case after Gibraltar that you think is even close,because I think when you fairly look at the face of a complaint, thisone does have those two counts. Okay.
MR. GERSH: Just for clarification, and I doagree with Your Honor. In fact, I wish we had brought this to YourHonor's attention earlier. We just found it. I've been doing this for30 years and don't consider this little nuance between the breach ofcontract, and we did come across the cases just yesterday, which is whywe pointed out, and it is quite a nuance.
And I think that when you look at Gibraltar, the only thingthat Gibraltar talks about is that it does say they didn't pleadtrademark infringement.
THE COURT: It was an arbitration compelling.
MR. GERSH: Correct. They tried to bootstrapit basically, and under the Federal Arbitration Act. But in theIllinois case, they made it very, very clear that no matter what youcall it, if it is a breach of contract, and that is your thresholdissue, and these are contract claims, it is a breach of contract andthat state courts are just as well available to deal with the contractpart of the claim, and you cannot turn a breach of contract into atrademark infringement and invoke subject matter jurisdiction in afederal court.
THE COURT: Exactly. If all we were dealinghere with was the trademark license agreement dispute, that is whetheryou have the right to continue to try to develop the MMO, this would bea much tougher question. But as he said today, when we have the TrilogyThree and the -- I'm sorry, the Fallout Three or the Fallout Trilogy,where even if you have the right to go ahead and do something, if whatyou're doing is naming it in a way that causing confusion, I'm talking,that's trademark, not breach of contract.
Whether you submitted it or didn't submit it is really nottissue and that, I think, is where they get into federal subject matterjurisdiction without question, because that's not just breach ofcontract, that's something else.
MR. GERSH: And that's kind of where wediverge, and because you never get to the issue of trademarkinfringement unless you find there's been a breach of contract youdon't get there at all, because if we didn't breach the contract, asthey allege, then we did not, we cannot possibly have infringed becausewe had, our clients had the rights. So you never get there, and that isthe distinction that I think is very crucial to the consideration.
It's not that -- It's not that we have a competing trademarkcase where you have somebody that comes along and said "I like yourmark. I'm going to use it," and they copy it and steal it. That isn'tour case.
This situation is different. Interplay had the rights touse this, and the only basis that they bring a trademark infringementcase before Your Honor today is because they're contending we havebreached the agreement and therefore we're infringing the trademark,and that's the problem.
You have to determine the breach before you get toinfringement. If you find, if the Court finds there is in breach, younever get there. We didn't steal the mark. We didn't come along and useit differently. We used Fallout because we had the right to use Fallout.
THE COURT: You had the right to you Fallout. The question is do you have the right to use Fallout Trilogy.
MR. GERSH: And, if I might, that would be an issue of whether or not we breached the contract by not submitting it.
THE COURT: Whether that's a pre-existing product.
MR. GERSH: That's correct.
THE COURT: Which I understand, but all of thejudges and all of the writers indicate what we've got here is somethingthat is not easy to compartmentalize.
MR. GERSH: I appreciate that. Thank you.
THE COURT: I read it. I looked at it. We'regoing forward. At some point, if I have more of a concern I will,obviously you will be among the first to know.
MR. GERSH: Thank you, Your Honor. Your Honor, I think what I'll address is a couple of things that Mr. Marbury raised.
Interplay had the rights to use the mark, as I haveindicated. Interplay used the marks that it has been using in the past,in the same manner in which they had been using them. They had useFallout Trilogy previously. Mr. Marbury has indicated that Mr. Caentestified at his deposition Fallout Trilogy had been used in France.They were given a complete list of all of the companies that were usingour mark at the time of the closing.
Interplay has done nothing but to continue to usethat whichit had used previously, and they did not have to submit those forapproval. And, in fact, over a two year period did not submit any ofthe marks for approval.
The only issue, as Mr. Marbury seems toindicate now, is Fallout Trilogy. Not that we didn't have the right touse Fallout, Fallout Two or Fallout Tactics, but it's Trilogy. Sohere's what we have. We have Trilogy. Talks about a compilation ofthree games. It's clearly identified on the box, and it shows theproduct that's on there.
You asked the question, doesn't their determination have tobe reasonable, and I submit that it does. And it still has to bereasonable whether we've submitted it before or not, because Interplayhad been using it before and in fact believed and reasonably believedthat they had the right to continue to use the box art that has beenused in the past. They have done nothing different.
In most trademark infringement cases, Your Honor, somebodycomes along and they're trying to take the good will of anothercompany. In this particular case Interplay had the right to use thatwhich it had actually developed originally, sold and licensed backcertain rights. It didn't come along to steal anything.
Trilogy, asfar as I'm concerned, I think the evidence would be clear, doesn'trefer to a third version of a game like Fallout Three. You'll see fromthe documents we've submitted, the packaging is completely different.The packaging completely identifies the product within it, but mostimportantly, there is no confusion in the marketplace. Zero.
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