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LUCASARTS ENTERTAINMENT CO. v. HUMONGOUS ENTERTAIN

March 3, 1993

LUCASARTS ENTERTAINMENT COMPANY, a California corporation, Plaintiff,
v.
HUMONGOUS ENTERTAINMENT COMPANY, a Washington corporation, Defendant, ELECTRONIC ARTS, INC., Intervenor-Defendant. AND RELATED COUNTERCLAIMS.



The opinion of the court was delivered by: VAUGHN R. WALKER

 This suit arises as a result of an agreement between Electronic Arts, Inc. ("Electronic Arts") and defendant Humongous Entertainment Company ("Humongous"), granting Electronic Arts the right to distribute Humongous' products, including a computer video game entitled Putt Putt Joins the Parade. Humongous' principals are former employees of plaintiff LucasArts Entertainment Company ("LucasArts") who created a software tool called the Script Creation Utility for Maniac Mansion ("SCUMM") System. The SCUMM System is a tool used in the development of computer video games. LucasArts subsequently licensed the SCUMM System to Humongous under limited terms and conditions. Among other things, the license agreement states that Humongous may not sell its games which utilize the SCUMM program to any third party distributor other than LucasArts for less than a certain price and that Humongous must verify its compliance with the licensing agreement at LucasArts' request. The precise language as outlined in § A.1.1.1(b) of the license agreement is as follows:

 
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.

 I.

 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.

 II.

 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.

 A.

 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 * * * .

 Instead, Humongous entered into a separate contract with Electronic Arts to sell SCUMM-based games at twenty-five percent (25%) of retail price. See § 5.01 of the Electronic Arts Manufacturing and Distribution Agreement. Thus, LucasArts maintains that at the moment Humongous entered into an agreement with Electronic Arts providing for pricing of its product at less than seventy-five percent of the average wholesale price, Humongous materially breached its obligation to LucasArts under the licensing agreement.

 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, ...


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