Electronic Arts in mixed IP ruling at US appeals court

US games publisher Electronic Arts (EA), maker of “The Sims”, has been handed a mixed ruling in its copyright and trade secrets dispute with technology company Direct Technologies (DT).

In a ruling handed down yesterday, September 6, the US Court of Appeals for the Ninth Circuit affirmed in part and reversed in part an earlier ruling by the US District Court for the Central District of California.

In May 2008, for the release of “The Sims 3”, EA decided to order USB flash drives shaped like a PlumbBob, a gem-shaped icon from the “The Sims” game which appears above a character’s head, as a promotional trinket to be sold with the game.

EA contacted Lithomania, a print production company, to find a manufacturer for the PlumbBob flash drives.

DT was asked to produce prototype samples of the PlumBob-shaped flash drives. EA began negotiating a vendor’s agreement with DT in August 2008.

Less than two weeks later, Lithomania sent DT’s prototype to Trek2000, a Chinese company, without telling DT. The Chinese company claimed it could make the products more cheaply.

DT was was first told by Lithomania that the project was “on hold”. Lithomania then sent DT a vendor’s agreement saying that it would purchase the USB flash drives from DT, which included the transfer of all intellectual property rights from DT to EA. DT signed the agreement, thinking that it had signed the deal with Lithomania.

However, DT had not been formally approved as the supplier and had in fact lost the project. It then brought a declaratory judgment against EA. DT claimed that it was a “joint author of a copyrighted work” of the PlumbBob flash drive and that it was “entitled to an equal share of the profits”.

DT also alleged in a trade secrets claim that Lithomania and EA misappropriated DT’s trade secrets by sending DT’s prototypes to Trek2000 and asking Trek2000 to duplicate DT’s work.

But the district court held that DT had not taken “reasonable efforts” to keep the flash drives’ design secret because DT had voluntarily given the prototype to Lithomania without explicit confidentiality restrictions.

On the copyright claim, the district court dismissed DT’s arguments for failing to sufficiently allege that it was a joint owner of the USB drive, because it had signed a vendor agreement transferring all rights in the USB drive to EA.

In his ruling at the Ninth Circuit, Judge Ronald Gould vacated and remanded the earlier district court decision on copyright, holding that DT could prevail “if the contract was fraudulently induced, such that it was invalid from the beginning”.

Gould stated that there was a “genuine issue of material fact as to whether DT’s cut-away design for removing the flash drive from the PlumbBob object was sufficiently non-functional and non-trivial to warrant copyright protection”.

He added that there is a “genuine issue” of whether DT was “sufficiently in control of its artistic contribution to qualify as a joint author in the flash drive prototype”.

Gould affirmed the earlier trade secrets claim, saying that DT’s contribution to the flash drive “did not derive independent economic value from not being generally known to the public”.

EA was denied attorneys’ fees in its trade secrets claim.

“The Sims” was first released in 2000 and is a life simulation series developed by EA Maxis, a development label under EA.