The opinion of the court was delivered by: VAUGHN R. WALKER
For a period of three (3) years commencing on the Effective Date, [Humongous] may not sell any product it develops using the SCUMM System to any third party distributors in North America other than [LucasArts] for less than seventy-five percent (75%) of the six month rolling average wholesale price, net of any promotional allowances, at which such products are re-sold to North American retailers (current examples of which include Software, Etc.; Babbages; and Electronic Boutique). [LucasArts] reserves the right to verify such wholesale price upon [LucasArts'] request in writing to Licensee. After such three year period, the foregoing price restriction will be inapplicable.
LucasArts brings this suit alleging, among other things, that Humongous violated the terms of the licensing agreement by (1) failing to follow the terms of the price restriction provision and (2) allowing a third party (i.e., Electronic Arts) to publish Putt Putt Joins the Parade.
LucasArts moves the court to grant a preliminary injunction against Humongous pursuant to FRCP 65. Having reviewed the papers submitted and considered the oral arguments of counsel at a hearing on February 26, 1993, the court hereby DENIES LucasArts' motion for preliminary injunction.
LucasArts is entitled to a preliminary injunction against Humongous if it can show either: (1) probable success on the merits and the possibility of irreparable injury or (2) serious questions going to the merits and a balance of hardships tipping in its favor. First Brands Corp. v Fred Meyer, Inc., 809 F.2d 1378 (9th Cir 1987); Regents of Univ. of California v A.B.C., Inc., 747 F.2d 511, 515 (9th Cir 1984). LucasArts fails under both tests.
LucasArts' argument for likelihood of success on the merits is rather long and tenuous. To make its copyright infringement claim, LucasArts attempts to jump through several legal hoops: first, Humongous has breached the licensing agreement; second, Humongous' breach is so extreme as to constitute a material failure of consideration; third, the failure of consideration entitles LucasArts to rescind the license agreement; fourth, once rescinded, Humongous' continued use of the copyrighted SCUMM program constitutes infringement; fifth, if there is copyright infringement then irreparable harm is presumed and the preliminary injunction should he granted. In this case, LucasArts is unable to clear all the hoops successfully.
LucasArts claims that Humongous has breached at least three material aspects of its licensing agreement with LucasArts. First, pursuant to § A.1.1.1(b) of the agreement, Humongous had a obligation to sell its games developed with the SCUMM System to third party distributors at no less than
seventy-five percent (75%) of the six month rolling average wholesale price, net of any promotional allowances, at which such products are re-sold to North American retailers * * * .
Second, LucasArts contends that Humongous breached its contractual obligation to make available to LucasArts documentation that would verify Humongous' compliance with the pricing regime to which it had agreed. According to LucasArts, Humongous consistently refused access to, and denied inspection of, ...