When you publish electronic software, you frequently worry about copyright infringement. What if your game used sounds, graphics, text, or code from another game? If a competitor believes your game violates copyright, it might file a complaint that results in your game being removed from online and real-world storefronts. But what about trade secret infringement? Recent litigation highlights a successful takedown that relied both on alleged "trade secret misappropriation and copyright infringement." The parties on both sides of the takedown have filed mirror-image claims that should help determine whether trade secret takedowns will affect the online software marketplace going forward.
The Lawsuit
Snail Games USA Inc. and Wildcard Properties LLC (collectively, "Snail") created ARK: Survival Evolved, a successful game. Snail alleged that one or more of its parent company's former employees had gained access to ARK's source code and used a copy of that code to create the game Myth of Empires at Suzhou Angela Online ("Angela"). Snail claimed to have identified "large-scale similarities" between the games including gameplay mechanics and features as well as identical pieces of code, including nonfunctional code.
Myth was distributed on Valve Corporation's digital games platform, Steam. On December 1, 2021, Snail sent a Digital Millennium Copyright Act (DMCA) takedown notice to Valve, asserting that "Valve's distribution of the video game Myth of Empires is … facilitating trade secret misappropriation and copyright infringement."
As a result of the allegations, Valve removed Myth of Empires from Steam.
On December 9, 2021, the plaintiffs filed suit in the United States District Court for the Central District of California seeking an injunction requiring the withdraw of any takedown notices issued by Snail and a declaratory judgment that Myth of Empires does not embody any trade secrets or infringe copyrights owned by Snail. On December 12, 2021, the defendants filed counterclaims, alleging, among other things, copyright infringement and misappropriation of trade secrets under both 18 U.S.C. §1836 and California Civil Code § 3426.
More notable than the litigation, though, was the takedown notice itself. Generally, under Section 230 of the Communications Decency Act of 1996, companies that host online storefronts are immune from suits about the content of software sold there. See Parker v. Paypal, Inc., No. 16-cv-04786, 2017 U.S. Dist. LEXIS 130800 (E.D. Pa. Aug. 16, 2017); Coffee v. Google, LLC, No. 20-cv-03901-BLF, 2021 U.S. Dist. LEXIS 26750 (N.D. Cal. Feb. 10, 2021). However, Section 230 does not bar suits based on "intellectual property law." 47 U.S.C. § 230(e)(2). Thus, internet service providers are still subject to copyright claims, such as those under the DMCA.
But what about trade secrets claims? Federal trade secrets claims are brought under the Defend Trade Secrets Act (DTSA). Section 2(g) of the DTSA explains that the DTSA "shall not be construed to be a law pertaining to intellectual property for purposes of any other Act of Congress." As a result, the one court that addressed this language held that DTSA claims were not an exception to Section 230 immunity. See Craft Beer Stellar, LLC v. Glassdoor, Inc., No. 18-10510-FDS, 2018 U.S. Dist. LEXIS 178960, at *7–8 (D. Mass. Oct. 17, 2018). Craft Beer's holding based on express language of the statute is likely to be followed by courts with respect to federal trade secrets.
However, it is not clear whether the numerous state trade secrets laws would also be preempted. For instance, Craft Beer declined to express whether Section 230 immunity would bar Massachusetts' misappropriation of trade secrets, holding that the plaintiffs could not state a claim. By contrast, before the DTSA was enacted, a Nevada federal court held that a plaintiff's cause of action for misappropriation of trade secrets under Florida state law was barred by Section 230.1 In that case, the plaintiff claimed that a sports gambling message board misappropriated the plaintiff's trade secrets when it allegedly incentivized users to republish the plaintiff's handicapping analysis.
So far, the litigation has focused on the validity of the defendants' copyright claims because the plaintiffs have filed a temporary restraining order (which was denied) and a motion for a preliminary injunction, requesting the court order the defendants to rescind their DMCA takedown notice. On January 31, 2022, the court denied the plaintiffs' motion for a preliminary injunction. Among other things, the plaintiffs failed to show a likelihood of merits on the success in light of the defendants' substantial evidence of copying or that the plaintiffs suffered an irreparable injury—i.e., an injury that could not be redressed by money damages. The plaintiffs' appeal of that ruling was docketed on February 4, 2022.
Guidance
Federal trade secrets claims are likely preempted by Section 230. Right now, it is anyone's guess whether internet service providers can be held liable for state trade secret causes of action when they display third-party content. Moreover, if the defendants can succeed with their trade secret claims, other parties may include trade secret claims in their takedown letters to third-party storefronts. We will continue to monitor this area closely.
Wilson Sonsini has represented clients in several landmark copyright cases involving the DMCA. For more information, please contact a member of Wilson Sonsini's trademark and copyright litigation practice. Wilson Sonsini Goodrich & Rosati actively follows developments around the country with respect to trade secret litigation and counseling. For more information, please contact any member of the firm's trade secret litigation practices. For more information about gaming companies generally, please contact any attorney of the firm's electronic gaming practice.
[1] See Stevo Design, Inc. v. SBR Mktg., 919 F. Supp. 2d 1112 (D. Nev. 2013).
