Case 2:17-cv-08937-DMG-FFM Document 74 Filed 06/14/19 Page 1 of 16 Page ID #:1172 1 Joseph R. Taylor, (SBN 129933) jtaylor@fkks.com 2 Jeremy S. Goldman, (SBN 306943) 3 jgoldman@fkks.com Azita Iskandar, (SBN 280749) 4 aiskandar@fkks.com 5 FRANKFURT KURNIT KLEIN + SELZ PC 2029 Century Park East, Suite 1060 6 Los Angeles, California 90067 7 Telephone: (310) 579-9600 Facsimile: (310) 579-9650 8 9 Attorneys for Defendants CLOUD IMPERIUM GAMES CORP. and 10 ROBERTS SPACE INDUSTRIES CORP. 11 12 UNITED STATES DISTRICT COURT 13 CENTRAL DISTRICT OF CALIFORNIA, WESTERN DIVISION 14 Case No. 2:17-CV-08937-DMG-FFM 15 CRYTEK GMBH, 16 Plaintiff, DEFENDANTS’ REPLY TO CRYTEK GMBH’S RESPONSE TO 17 vs. DEFENDANTS’ MOTION FOR 18 BOND 19 CLOUD IMPERIUM GAMES CORP. and ROBERTS SPACE INDUSTRIES Date: June 28, 2019 20 CORP., Time: 9:30 a.m. Crtrm.: 8C 21 Defendants. 22 The Hon. Dolly M. Gee 23 Trial Date: March 24, 2020 24 25 26 27 28 DEFENDANTS’ REPLY TO CRYTEK GMBH’S RESPONSE TO DEFENDANTS’ MOTION FOR BOND Case 2:17-cv-08937-DMG-FFM Document 74 Filed 06/14/19 Page 2 of 16 Page ID #:1173 1 TABLE OF CONTENTS 2 I. INTRODUCTION ............................................................................................. 1 3 4 II. NO SHOWING THAT CRYTEK IS GOOD FOR THE MONEY .............. 1 5 6 III. NO SHOWING THAT CIG’S ESTIMATE IS UNREASONABLE ........... 2 7 8 IV. NO SHOWING AGAINST “REASONABLE POSSIBILITY” .................. 3 9 A. Opposition Argument on Newly-Deflated Objectives is Inconsistent 10 With Crytek’s Numerous Pleadings ............................................................ 3 11 12 B. Crytek Makes No Showing on the Merits ................................................... 6 13 14 i. Crytek ignores the two big wins CIG already achieved. ........................ 6 15 ii. Crytek does not even try to back up its Faceware claim. ...................... 6 16 17 iii. Crytek concedes that it cannot prove the essential element of 18 damages on the Bugsmashers claim. ........................................................ 6 19 iv. Crytek provides no proof or legal support for its bug fixes claim. ...... 7 20 21 v. Crytek fails to show why it should get credited for Amazon’s code or 22 how Crytek was damaged by the loss of credit. ...................................... 7 23 24 vi. Crytek fails to show how the development of Squadron 42 breached the GLA or was impermissible under the Amazon license agreement. 8 25 26 V. CONCLUSION ................................................................................................ 13 27 28 i. DEFENDANTS’ REPLY TO CRYTEK GMBH’S RESPONSE TO DEFENDANTS’ MOTION FOR BOND Case 2:17-cv-08937-DMG-FFM Document 74 Filed 06/14/19 Page 3 of 16 Page ID #:1174 1 TABLE OF AUTHORITIES 2 Cases 3 4 Firoozye v. Earthlink Network 153 F. Supp. 2d 1115 (N.D. Cal. 2001) ................................................................. 12 5 6 Hickcox-Huffman v. US Airways, Inc. 855 F.3d 1057 (9th Cir. 2017) ................................................................................. 7 7 8 Laws v. Sony Music Entertainment, Inc. 448 F.3d 1134 (9th Cir. 2006) ............................................................................... 11 9 10 Syntek Semiconductor Co. v. Microchip Tech. Inc. 307 F.3d 775 (9th Cir. 2002) ................................................................................. 11 11 12 Worldwide Church of God v. Philadelphia Church of God, Inc. 227 F.3d 1110 (9th Cir. 2000) ............................................................................... 12 13 14 Statutes 15 17 U.S.C. § 101.......................................................................................................... 11 16 17 17 U.S.C. § 106.................................................................................................... 11, 12 18 17 U.S.C. § 301.......................................................................................................... 11 19 17 U.S.C. § 505............................................................................................................ 3 20 21 22 23 24 25 26 27 28 ii. DEFENDANTS’ REPLY TO CRYTEK GMBH’S RESPONSE TO DEFENDANTS’ MOTION FOR BOND Case 2:17-cv-08937-DMG-FFM Document 74 Filed 06/14/19 Page 4 of 16 Page ID #:1175 1 I. INTRODUCTION 2 CIG supported its motion for a security bond with a detailed and thorough 3 evidentiary showing of: (1) Crytek’s financial distress; (2) Crytek’s prior defeats 4 eliminating its key “exclusivity” claims; (3) CIG’s likelihood of prevailing on 5 Crytek’s remaining claims; and (4) the sober forecast of expenses ahead. Crytek 6 offers no evidence at all on any of these points. It cites virtually no law. Crytek 7 instead points to its change of lawyers (a red flag in and of itself) as somehow 8 eliminating concerns. Crytek pretends specific performance was always its goal, 9 when its three repeated prayers for relief never mention specific performance. 10 Crytek’s effort regarding its lamentable financial state is a single unsubstantiated 11 sentence in the Opposition1 that CIG’s concerns are “greatly exaggerated.” Crytek 12 submitted no showing to counter the motion, period. CIG’s motion for bond 13 security should be granted, as it stands effectively unopposed. 14 II. NO SHOWING THAT CRYTEK IS GOOD FOR THE MONEY 15 CIG submitted multiple public reports, including Crytek’s publicly-available 16 financial statements, showing that Crytek suffers serious financial difficulties. CIG 17 cited cases holding that a foreign plaintiff’s financial problems weigh heavily in 18 favor of granting security bond relief. 19 Crytek concedes financial infirmity through virtual silence. Its entire 20 response is the “greatly exaggerated” sentence. Opp. at 1, lines 2-4. Crytek offers 21 no facts or evidence to back up this sentence or explain what Crytek means by it. 22 Crytek’s continued and undisputed failure to file its long overdue financial reports in 23 Germany remains unexplained. The sudden exit of the Skadden firm only adds to a 24 row of red flags. Crytek had 70 days from the filing of this motion to prepare a 25 showing that it is good for the money and that there is no reasonable possibility CIG 26 will win anything it has not already won. Crytek did not even try. Crytek’s failure 27 28 1 CIG will refer to Crytek’s “RESPONSE” brief as the “Opposition,” or “Opp.” 1 DEFENDANTS’ REPLY TO CRYTEK GMBH’S RESPONSE TO DEFENDANTS’ MOTION FOR BOND Case 2:17-cv-08937-DMG-FFM Document 74 Filed 06/14/19 Page 5 of 16 Page ID #:1176 1 to rebut reinforces the compelling need for the security requested. 2 III. NO SHOWING THAT CIG’S ESTIMATE IS UNREASONABLE 3 CIG supported its request for a $2,193,298.45 bond with a detailed 4 declaration from CIG’s counsel. It verified the amount of legal fees and expenses 5 CIG incurred to date. It explained why the sweeping nature of Crytek’s claims 6 (especially those now defeated) and Crytek’s irresponsible conduct maintaining this 7 lawsuit forced CIG to incur significant legal fees.2 It provided detailed, forward- 8 looking litigation realities—broken out by litigation phases, attorneys, rates, high 9 and low estimates of hours, and itemized anticipated litigation expenses—providing 10 the best possible forecast of fees and expenses through trial. Expense estimates 11 from outside vendors of e-discovery, trial, and other litigation support services 12 fortified CIG’s forecast showing. 13 Crytek did not attempt to rebut. Crytek’s new lawyers say that the old 14 lawyers are gone, so that “render[s] CIG’s stated concerns moot.” Opp. at 11, lines 15 13-14. CIG’s concerns are that Crytek, regardless of which lawyers represent it, has 16 and will run up expenses over whatever quibble it can. At the same time, Crytek 17 argues generally that CIG’s legal fees to date have been unreasonable [id. at 10], 18 ignoring the specific Crytek behaviors that forced CIG to incur those expenses in the 19 first place, and conspicuously neglecting to contrast the size of Skadden’s 20 corresponding bill, whether receivable or otherwise. Crytek cannot identify a single 21 unwarranted step CIG has taken. Crytek does not mention all the relief that CIG has 22 23 2 CIG’s legal work to date includes preparing a Rule 11 motion in response to Crytek’s initial complaint (leading to Crytek amending its pleading), moving to 24 dismiss Crytek’s first amended complaint (leading to the dismissal of Crytek’s most 25 material claim, that CIG was obligated to exclusively use CryEngine to the exclusion of any other game engine), moving to dismiss Crytek’s second amended 26 complaint (leading to the dismissal of Crytek’s second most material claim, that 27 CIG breached the GLA by promoting another game engine), and moving for a protective order to stop Crytek’s extraordinarily overbroad and premature discovery 28 demands (halting discovery). Declaration of Jeremy Goldman, ¶ 33. 2 DEFENDANTS’ REPLY TO CRYTEK GMBH’S RESPONSE TO DEFENDANTS’ MOTION FOR BOND Case 2:17-cv-08937-DMG-FFM Document 74 Filed 06/14/19 Page 6 of 16 Page ID #:1177 1 already obtained on substance (dismissals as a matter of law on far-reaching claims) 2 or process (including matters from bringing order to discovery to Crytek’s recent ill- 3 fated, non-compliant Memorial Day ex parte). Their criticism of CIG’s estimate of 4 future legal expenses similarly lacks specificity. Id. at 11, lines 16, through p. 12, 5 line 9. Crytek points to no particular item in CIG’s calculation, or the vendors’ 6 quotes, that it claims is unreasonable. Crytek presents no rebuttal evidence at all. 7 IV. NO SHOWING AGAINST “REASONABLE POSSIBILITY” 8 A. Opposition Argument on Newly-Deflated Objectives is Inconsistent 9 With Crytek’s Numerous Pleadings 10 CIG showed the “reasonable possibility” it will obtain judgment by 11 submitting evidence, supported by legal authorities, rebutting each of Crytek’s 12 claims. CIG cited two independent bases for an award of attorneys’ fees and costs: 13 statutory (17 U.S.C. § 505) and contractual (GLA ¶ 10.8). CIG also demonstrated 14 (with respect to contract) that, in the unlikely event the Court finds that CIG 15 committed some kind of breach of the GLA by, for example, displaying snippets of 16 CryEngine code in the Bugsmashers videos, CIG will still be deemed the prevailing 17 party because any such pyrrhic victory by Crytek will be far outweighed by the 18 successes CIG has already achieved on the most material claims (which Crytek’s 19 Opposition ignores) and the victories that there is more than a reasonable possibility 20 CIG will achieve against Crytek’s remaining claims. 21 Crytek offers no showing at all on the merits. Crytek does not address the 22 statutory basis for a fee award at all. Crytek solely asserts on the contract fee basis 23 that a mixed result (which is all Crytek can hope for, having already lost its central 24 claims), such as “ obtaining equitable relief,” would “satisfy many of its litigation 25 objectives and would support a finding that Crytek is the prevailing party, whether 26 or not it ultimately is entitled to monetary relief.” Opp. at 10, lines 2-4. Crytek’s 27 argument appears to be in opposition to a future fee motion, not the pending bond 28 motion. Rather than submitting evidence to support its remaining claims for 3 DEFENDANTS’ REPLY TO CRYTEK GMBH’S RESPONSE TO DEFENDANTS’ MOTION FOR BOND Case 2:17-cv-08937-DMG-FFM Document 74 Filed 06/14/19 Page 7 of 16 Page ID #:1178 1 monetary damages, Crytek attempts to lower its bar for success in the litigation by 2 arguing, for the first time, that it is not really after CIG’s money, but rather that its 3 “litigation objectives” all along have been specific performance. Crytek complains 4 that CIG did not make “any attempt even to understand what [Crytek’s litigation] 5 objectives might be.” Opp. at 1, lines 26-28. 6 No “attempt” is necessary. Crytek’s litigation objectives are plainly stated, 7 not just to CIG, but also to the Court because Crytek has pleaded the relief sought 8 three times. Not once has it even mentioned specific performance. Complaint 9 dated December 12, 2017 (“OC”), ECF 1, “PRAYER FOR RELIEF,” at 12, lines 10 1-23, ¶¶ a-f (seeking damages, profits, punitive damages, Copyright Act monetary 11 remedies, injunction against possession or use of CryEngine); First Amended 12 Complaint dated January 2, 2018 (“FAC”), ECF 18, “PRAYER FOR RELIEF,” at 13 14, lines 1-23, ¶¶ a-f (same); Second Amended Complaint dated August 16, 2018 14 (“SAC”), ECF 39, “PRAYER FOR RELIEF,” at 15, lines 1-22, ¶¶ a-e (same, but 15 deleted punitive damages after the Court ruled it was not appropriate as a matter of 16 law). Not one word in the bodies of these pleadings ever mentioned “specific 17 performance.” The only remedy pleaded in the body of the OC, FAC, or SAC for 18 any imagined “breach of contract” has uniformly been for a money award only. 19 OC, ECF 1, ¶¶ 5 (“By this action, Crytek seeks damages that will fairly and fully 20 compensate it for Defendants’ breach and infringement”), 27, 35, 39, 45, 52, and 60 21 (Crytek “entitled to monetary damages” for alleged breach of contract); FAC, ECF 22 18, ¶¶ 5, 27, 35, 39, 45, 52, and 60 (same); SAC, ECF 39, ¶¶ 5, 27, 35, 39, 45, 52, 23 and 60 (same). The only equitable relief Crytek has ever specifically attempted to 24 reference has been injunctive relief “enjoining and restraining Defendants from 25 continuing to possess or use” or from “infringing” CryEngine. OC, ECF 1, 26 “PRAYER FOR RELIEF,” at 12, lines 9-14, ¶ b; FAC, ECF 18, “PRAYER FOR 27 RELIEF,” at 14, lines 9-14, ¶ b; SAC, ECF 39, “PRAYER FOR RELIEF,” at 15, 28 lines 9-14, ¶ b (emphasis added). None of Crytek’s three complaints breathed one 4 DEFENDANTS’ REPLY TO CRYTEK GMBH’S RESPONSE TO DEFENDANTS’ MOTION FOR BOND Case 2:17-cv-08937-DMG-FFM Document 74 Filed 06/14/19 Page 8 of 16 Page ID #:1179 1 word about “credits” being “returned to the splash screen” (Opp. at 5, lines 23-26), 2 delivery of bug fixes (Opp. at 6, lines 10-17), or a take-down of whatever 3 Bugsmashers videos Crytek attacks (Opp. at 6, line 26 through p. 7, line 2). 4 In addition to the pleadings, Crytek’s submissions in this case also confirm 5 that its main litigation objective was always, and remains, lots of money. Crytek’s 6 Initial Disclosures listed ten categories of monetary recovery that it “expects” it may 7 be entitled to, including ones (such as punitive damages) that are not even 8 theoretically recoverable as a matter of law. Declaration of Jeremy Goldman, Ex. 9 32 (Crytek’s Initial Disclosures), at 7, lines 13-25; August 14, 2018 Minute Order 10 on Motion to Dismiss, ECF 38, at 20. The Opposition attempts to downplay 11 Crytek’s claim for damages, while admitting that the “$200 million in crowdfunding 12 . . . is context for Crytek’s eventual calculation of a monetary award.” Id. at 12. 13 Crytek’s attempt to inflate the importance of obtaining previously unspoken 14 equitable relief on the Bugsmashers and credits claims is further undermined by 15 Crytek’s failure to complain even once about either issue until it filed this lawsuit. 16 If Crytek was really so concerned about its code appearing in the Bugsmashers 17 videos, even after it sold the code to Amazon (which then gave it to Amazon’s 18 customers for free), and even after Crytek began releasing the code to the public 19 under a “pay what you want” license, it would seem the record on this motion would 20 contain Crytek’s proof of at least a letter or email from Crytek to CIG requesting 21 that whatever code fragments be removed from whatever video. The same is true of 22 Crytek’s game credits, which CIG removed from the Game on December 23, 2016. 23 Crytek raised neither issue until it filed this lawsuit more than a year later. Crytek 24 raised other issues in correspondence exchanged with CIG between November 2015 25 and June 2017 (Declaration of Ortwin Freyermuth, Exs. 6-11), but neither 26 Bugsmashers nor the game credits came up once. This lawsuit has always been 27 about getting money, not specific performance. 28 /// 5 DEFENDANTS’ REPLY TO CRYTEK GMBH’S RESPONSE TO DEFENDANTS’ MOTION FOR BOND Case 2:17-cv-08937-DMG-FFM Document 74 Filed 06/14/19 Page 9 of 16 Page ID #:1180 1 B. Crytek Makes No Showing on the Merits 2 For the Court to grant the bond motion, CIG does not have to show that it will 3 obtain or even that it is likely to obtain judgment. Rather, the Court only needs to 4 determine that there is a reasonable possibility that CIG will prevail. CIG 5 meticulously laid out the evidentiary showing of far more than a reasonable 6 possibility of defeating each Crytek claim. Crytek responded with no showing at all 7 behind its superficial briefing. 8 i. Crytek ignores the two big wins CIG already achieved. 9 Crytek’s Opposition ignores the fact that CIG has already prevailed on two of 10 Crytek’s most material claims—that CIG was obligated to exclusively use 11 CryEngine to the exclusion of any other game engine, and that CIG breached the 12 GLA by “developing, creating, supporting, maintaining, and promoting” another 13 game engine. CIG also eliminated Crytek’s claim for punitive damages. 14 ii. Crytek does not even try to back up its Faceware claim. 15 In support of its bond motion, CIG submitted sworn declarations not only 16 from CIG but also from non-party Faceware, verifying that, contrary to Crytek’s 17 reckless allegations, Faceware did not have access to the CryEngine source code. 18 Caught red-handed, Crytek submits nothing in response. The last gasp that it has 19 “good reason to believe this disclosure occurred” (Opp. at 9, lines 18-23) lacks even 20 an attempt at showing evidence underlying any such belief. This telling, naked, and 21 irresponsible falsehood only underscores the propriety of the requested security. 22 iii. Crytek concedes that it cannot prove the essential element of 23 damages on the Bugsmashers claim. 24 CIG showed that any display of CryEngine code in the Bugsmashers videos 25 could not damage Crytek because Crytek already made the code widely available for 26 free. CIG also showed that any code snippets would not carry independent value. 27 Crytek’s Opposition still does not identify the allegedly infringed code or the videos 28 where that code supposedly appears. Crytek also does not show or argue that any 6 DEFENDANTS’ REPLY TO CRYTEK GMBH’S RESPONSE TO DEFENDANTS’ MOTION FOR BOND Case 2:17-cv-08937-DMG-FFM Document 74 Filed 06/14/19 Page 10 of 16 Page ID #:1181 1 Bugsmashers video caused Crytek any harm. Instead, Crytek retreats, claiming that 2 it primarily seeks injunctive relief, not damages. Damages, however, are not just a 3 remedy but an essential element of every breach of contract claim, regardless of the 4 remedy sought. Hickcox-Huffman v. US Airways, Inc., 855 F.3d 1057, 1062 (9th 5 Cir. 2017). Moreover, Crytek sat on its hands for years before making any objection 6 to the Bugsmashers videos. The record is devoid of Crytek demanding that CIG 7 take any video down. That is not the behavior of a party with “meaningful and 8 legitimate concerns” about the confidentiality of its code. Opp. at 7, line 4. 9 iv. Crytek provides no proof or legal support for its bug fixes 10 claim. 11 CIG submitted evidence detailing years of Crytek’s slow and disinterested 12 correspondence related to the bug fixes that ultimately culminated in CIG’s delivery 13 of the bug fixes to Crytek on January 23, 2018. In response, Crytek pretends these 14 events never happened so it can argue that CIG delivered the bug fixes as a result of 15 the lawsuit. Crytek fails, however, to rebut this proof that CIG delivered the bug 16 fixes not in response to the lawsuit, but in response to Crytek’s June 22, 2017 letter 17 on the subject. CIG also cited statutes and cases under California law demonstrating 18 that CIG’s delivery of the bug fixes complied with its obligations under the GLA. 19 The Opposition ignores that authority, dwelling on the self-serving interpretation of 20 the term “annually,” without providing legal support or any evidence of what the 21 parties actually said and did. 22 v. Crytek fails to show why it should get credited for Amazon’s 23 code or how Crytek was damaged by the loss of credit. 24 CIG submitted evidence showing that, by the time CIG removed Crytek’s 25 credits, CIG was developing Star Citizen and Squadron 42 using the game engine 26 code licensed to CIG under its separate agreement with Amazon, not the GLA. 27 Crytek now argues that, even if Amazon granted CIG a separate license to use the 28 game engine code, the credit requirement in the GLA persists “so long as the 7 DEFENDANTS’ REPLY TO CRYTEK GMBH’S RESPONSE TO DEFENDANTS’ MOTION FOR BOND Case 2:17-cv-08937-DMG-FFM Document 74 Filed 06/14/19 Page 11 of 16 Page ID #:1182 1 CryEngine is in Star Citizen[.]” Opp. at 4, lines 19-20. 2 The credit requirement in GLA § 2.8.1 exposes the flaw in Crytek’s 3 argument. That provision obligates CIG to include the following wording: “Portions 4 of this software are included under license © 2004-201_ Crytek GmbH. All rights 5 reserved.” The problem is that the software is “under license” from Amazon, not 6 Crytek. Indeed, the source code from Amazon includes the following header: “All 7 or portions of this file Copyright (c) Amazon.com, Inc. or its affiliates or its 8 licensors.”3 Crytek makes much of the fact that the code is the same, but that is only 9 because Crytek cashed out on the code by selling it to Amazon, making CIG’s 10 license from Amazon possible. If Crytek did not want Amazon to take credit for the 11 code, Crytek should not have sold the code to Amazon. Suing Amazon’s licensees 12 is not the solution. 13 CIG also submitted evidence demonstrating that Crytek has been trying to 14 disassociate itself from CIG for years. Crytek neither disputed this fact nor 15 explained how Crytek’s actions are consistent with its claim of reputational harm. 16 Instead of submitting evidence of harm, Crytek simply asks that the Court take its 17 word that Crytek has suffered monetary and reputational harm as a result of it not 18 receiving credits. On this record, there is at least a “reasonable possibility” that CIG 19 will prevail. 20 vi. Crytek fails to show how the development of Squadron 42 21 breached the GLA or was impermissible under the Amazon 22 license agreement. 23 CIG demonstrated that the plain language of the GLA does not support 24 Crytek’s claim that CIG’s use of the game engine code formerly known as 25 “CryEngine” to develop Squadron 42 breached the GLA. CIG’s co-founder Ortwin 26 3 27 See, e.g., Lumberyard Code, Github.com, https://github.com/aws/lumberyard/blob/master/dev/Code/CryEngine/CryAction/Ma 28 in.cpp. 8 DEFENDANTS’ REPLY TO CRYTEK GMBH’S RESPONSE TO DEFENDANTS’ MOTION FOR BOND Case 2:17-cv-08937-DMG-FFM Document 74 Filed 06/14/19 Page 12 of 16 Page ID #:1183 1 Freyermuth submitted a declaration confirming that CIG’s use of the engine source 2 code in Squadron 42 is independently authorized under a separate license agreement 3 with Amazon. CIG showed that Amazon was able to grant CIG that license only 4 because Amazon paid Crytek an amount in the “high double digits” of millions to 5 acquire the right to rebrand and resell the source code without restriction. Crytek 6 responded with nothing but confusing arguments only about the language of the 7 GLA. 8 Crytek’s pleadings alleged that liability arose from CIG’s switching of game 9 engines.4 OC, ECF 1, ¶¶ 36-39 (alleging damage due to CIG’s use of Lumberyard); 10 FAC, ECF 18, ¶¶ 36-39 (same); SAC, ECF 39 ¶¶ 36-39 (same). Having lost the 11 claims that CIG’s switch was prohibited,5 Crytek now flips to the opposite position: 12 that liability arose from CIG’s not switching game engines (Opp. at 4, lines 11-20). 13 Crytek is making every last-ditch effort to concoct a breach claim, but the record 14 lacks any support for it. 15 a) GLA’s plain language does not support Crytek’s 16 construction of the “no standalone games” provision. 17 The GLA authorizes CIG to use CryEngine to develop the “Game,” defined 18 as including both Star Citizen and Squadron 42. Thus, there is no question that the 19 GLA grants CIG the right to use CryEngine to develop Squadron 42. Exhibit 2 20 clarifies that the Game does not include “content” that is both “[a] being sold and 21 marketed separately, and [b] not being accessed through the Star Citizen Game 22 23 4 These attacks based on switching are exactly what CIG has already defeated (after 24 significant legal expense on two motions) because nothing in the GLA prevents CIG from switching. 25 5 Note that after so much accusation, motion practice, and legal expense based upon 26 Crytek’s core position that CIG was shackled from switching game engines, Crytek 27 now states that “CIG is no doubt free to take a second license” from Amazon. Opp. at 4, lines 17-19. Crytek made this freedom possible when it sold its game engine to 28 Amazon, allowing Amazon to license it to CIG and any other Amazon licensee. 9 DEFENDANTS’ REPLY TO CRYTEK GMBH’S RESPONSE TO DEFENDANTS’ MOTION FOR BOND Case 2:17-cv-08937-DMG-FFM Document 74 Filed 06/14/19 Page 13 of 16 Page ID #:1184 1 client[.]” Crytek tries to get around this language in two ways. 2 First, Crytek argues that “the relevant question is whether CIG is developing 3 Squadron 42 to be ‘sold and marketed separately and not being accessed through the 4 Star Citizen Game client.’” Opp. at 8, lines 2-4 (bold and italics in original; bold, 5 italics and underlined added for emphasis). But that is not what it says. Rather, 6 under the plain language of the GLA, whether “content” falls outside of the scope of 7 the “Game” depends on whether the content is “being accessed through the Star 8 Citizen Game client.” This determination can be made only once the content is 9 actually “being accessed” (present tense), not while the content is still under pre- 10 access development. Accepting Crytek’s construction would lead to the absurd 11 result that CIG could fall in and out of breach depending solely on CIG’s mental 12 state, even if CIG’s use of the code did not change, and even if, when released, 13 Squadron 42 is accessible only through Star Citizen. CIG’s construction, on the 14 other hand, follows the plain language of the GLA and measures breach based on 15 objective, quantifiable criteria and CIG’s actual use of the code. 16 Second, Crytek argues that the comma in the phrase “any content being sold 17 and marketed, and not being accessed through the Star Citizen Game client” alters 18 its meaning so that engaging in either of these two activities is enough to bring the 19 “content” outside the scope of the Game. Opp. at 8, lines 20-27. Crytek does not 20 and cannot explain why the comma has the supposed effect of converting an “and” 21 to an “or.” With or without the comma, both parameters—“being sold and 22 marketed separately” and “not being accessed through the Star Citizen Game 23 client”— modify the same preceding term “content.” Thus, the plain language of 24 the provision makes clear that “content” falls outside the scope of the Game only if 25 it satisfies both parameters. 26 /// 27 /// 28 /// 10 DEFENDANTS’ REPLY TO CRYTEK GMBH’S RESPONSE TO DEFENDANTS’ MOTION FOR BOND Case 2:17-cv-08937-DMG-FFM Document 74 Filed 06/14/19 Page 14 of 16 Page ID #:1185 1 b) CIG’s separate license from Amazon empowers 2 CIG to develop, sell and release Squadron 42 as a 3 standalone game. 4 Independently, Crytek does not try and will not be able to show that CIG 5 breached the “no standalone games” provision. On April 30, 2016, CIG and 6 Amazon entered into a license agreement that granted CIG the right to use the 7 “Lumberyard Materials” (including CryEngine version 3.6.4, which is the version of 8 CryEngine embedded in the Game) to develop Star Citizen and Squadron 42. 9 Declaration of Ortwin Freyermuth, ¶ 9. From this point forward, CIG had the broad 10 rights to the game engine granted by the Amazon license and was no longer 11 dependent upon the GLA chain of title. 12 c) Crytek’s breach of contract claim is preempted by the 13 Copyright Act and the Amazon license provides a 14 complete defense to Crytek’s copyright claim. 15 Crytek’s claim—that CIG breached the GLA by using CryEngine to develop 16 a game outside the scope of the license—is preempted by the Copyright Act. 17 17 U.S.C. § 301. The Ninth Circuit follows a two-part test to determine whether a state 18 law claim is preempted by the Copyright Act: (1) “whether the ‘subject matter’ of 19 the state law claim falls within the subject matter of copyright,” and (2) “whether 20 the rights asserted under state law are equivalent to the rights contained in 17 U.S.C. 21 § 106, which articulates the exclusive rights of copyright holders.” Laws v. Sony 22 Music Entm’t, Inc., 448 F.3d 1134, 1138 (9th Cir. 2006). 23 The first prong is satisfied because Crytek’s source code falls within the 24 subject matter of copyright. Syntek Semiconductor Co. v. Microchip Tech. Inc., 307 25 F.3d 775, 779 (9th Cir. 2002) (“Computer programs are works of authorship entitled 26 to protection under the Copyright Act.”); SAC, ECF 39, ¶ 62 (“The CryEngine 27 computer program constitutes copyright expression protected by 17 U.S.C. § 101, et 28 seq.”). 11 DEFENDANTS’ REPLY TO CRYTEK GMBH’S RESPONSE TO DEFENDANTS’ MOTION FOR BOND Case 2:17-cv-08937-DMG-FFM Document 74 Filed 06/14/19 Page 15 of 16 Page ID #:1186 1 The second prong is satisfied because Crytek’s contractual right to stop CIG 2 from using CryEngine to develop games outside the scope of the GLA is equivalent 3 to Crytek’s exclusive right under the Copyright Act to stop others from using 4 CryEngine to develop games without a license. See Firoozye v. Earthlink Network, 5 153 F. Supp. 2d 1115, 1126 (N.D. Cal. 2001) (“Where a plaintiff’s breach of 6 contract claim only asserts that a defendant violated a promise not to use a certain 7 work, that breach of contract claim is preempted.”). Crytek’s own recitation of its 8 copyright infringement claim essentially concedes that the rights are equivalent. See 9 SAC, ECF 39, ¶¶ 61-70 (alleging that, by “embed[ding] the copyrighted CryEngine 10 computer program in content sold and marketed as a separate, standalone video 11 game. . . Defendants have . . . violate[d] the exclusive rights of Crytek as the 12 copyright holder to reproduce, display and distribute the CryEngine computer 13 program and to create derivative works from it, as set forth in 17 U.S.C. § 106”). 14 Since the Copyright Act preempts Crytek’s claim for breach of contract 15 related to Squadron 42, Crytek’s sole remedy would have to be a claim for 16 copyright infringement. In turn, that copyright claim will fail because CIG has a 17 complete affirmative defense: its license from Amazon. Worldwide Church of God 18 v. Philadelphia Church of God, Inc., 227 F.3d 1110, 1114 (9th Cir. 2000) (“The 19 existence of a license creates an affirmative defense to a claim of copyright 20 infringement.”). Crytek has not argued, much less shown, that Amazon lacked the 21 right to grant CIG a license to use the same CryEngine source code. Crytek cannot 22 use the GLA to deprive CIG of the benefits of its separate license from Amazon. 23 By demanding that CIG pay a separate license fee for Squadron 42, Crytek is 24 trying to have its cake and eat it too. Crytek sold its CryEngine technology to 25 Amazon for many millions of dollars in July 2014, allowing Amazon to license the 26 code to whomever it wanted under whatever terms. As a natural consequence of 27 that sale, Amazon began licensing its rebranded version of the technology to game 28 developers, including CIG. If Crytek did not want Amazon to do that, Crytek 12 DEFENDANTS’ REPLY TO CRYTEK GMBH’S RESPONSE TO DEFENDANTS’ MOTION FOR BOND Case 2:17-cv-08937-DMG-FFM Document 74 Filed 06/14/19 Page 16 of 16 Page ID #:1187 1 should not have entered into the deal with Amazon. Crytek should not be able to 2 use this litigation to retrade the deals it made with CIG and Amazon. For now, 3 Crytek should not be able to continue this litigation until it deposits an adequate 4 bond securing CIG’s future costs and fees. 5 V. CONCLUSION 6 Crytek makes no showing about anything. The need for and propriety of 7 bond security stand effectively undisputed. CIG’s broad freedom under the Amazon 8 license was enabled by Crytek’s sale of the game engine to Amazon (for a lot of 9 money that Crytek cannot show it even still has). The one-sided record empowers 10 the Court to secure a future award of fees and costs flowing from Crytek’s defeats to 11 date and the reasonably possible future defeats as outlined herein. 12 13 DATED: June 14, 2019 Respectfully submitted, 14 FRANKFURT KURNIT KLEIN + SELZ PC 15 16 17 By: /s/ Jeremy S. Goldman Joseph R. Taylor 18 Jeremy S. Goldman 19 Azita Iskandar 20 Attorneys for Defendants CLOUD IMPERIUM GAMES CORP. and 21 ROBERTS SPACE INDUSTRIES CORP. 22 23 24 25 26 27 28 13 DEFENDANTS’ REPLY TO CRYTEK GMBH’S RESPONSE TO DEFENDANTS’ MOTION FOR BOND