Bethesda Softworks, L.L.C. v. Interplay Entertainment Corp.

Appeals court affirms district court’s denial of motion for preliminary injunction, holding that (1) the fact that defendant contractually agreed that a breach of the contract would cause irreparable harm does not bind the court, (2) the possible loss of exclusive rights alone does not constitute irreparable harm, and (3) irreparable harm cannot be presumed for preliminary injunctions (any more than for permanent injunctions) in copyright cases.

Plaintiff Bethesda Softworks sought a preliminary injunction in the district court prohibiting defendant Interplay Entertainment Corp. from infringing Bethesda's copyrighted works relating to Bethesda’s "Fallout" video game series. The district court denied the motion and Bethesda appealed, arguing that the court abused its discretion and misapplied the law in concluding that plaintiff had failed to establish a likelihood of irreparable harm. The appeals court affirmed.

The court rejected plaintiff’s argument that the district court abused its discretion in holding that plaintiff had not established irreparable harm, despite contractual language between the parties that a breach of an asset purchase agreement would "result in irreparable injury for which there is no adequate remedy at law," and that Bethesda would be entitled to equitable relief in the event of a breach. The court held that contractual agreements alone do not control the district court's exercise of its equitable discretion, and the district court did not abuse its discretion when it looked beyond the parties' stipulation to determine whether plaintiff could establish irreparable harm.

The court also rejected plaintiff's argument that, under Hughes Network Systems, Inc. v. InterDigital Communications Corp., 17 F.3d 691 (4th Cir. 1994), defendant's alleged insolvency required a finding of irreparable harm. The purpose of a preliminary injunction is to protect the status quo and to prevent irreparable harm during the pendency of a lawsuit, in order to preserve the court's ability to render a meaningful judgment on the merits. Hughes Network Systems suggests that a defendant’s insolvency may alter the status quo and undermine a court's ability to render a meaningful judgment, such that a preliminary injunction might be appropriate to preserve the plaintiff's ability to receive a damages award. The appeals court concluded, however, that the injunctive relief Bethesda sought would not preserve Interplay's assets, such that it could satisfy a judgment if Bethesda ultimately prevailed in the case.

The court determined that after the U.S. Supreme Court’s decision in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 126 S. Ct. 1837, 164 L. Ed. 2d 641 (2006), irreparable harm is no longer presumed at the preliminary injunction stage based on the plaintiff’s showing of a likelihood of success on the merits. The court rejected Bethesda’s attempt to distinguish eBay because it involved a permanent injunction, not a preliminary injunction. Agreeing with other courts of appeal who have considered the issue, the court concluded that despite the differences in the two forms of relief, the same equitable principles upon which eBay was based applied with equal force to both permanent and preliminary injunctions. The court also rejected plaintiff’s argument that the court’s decision in Christopher Phelps & Associates, LLC v. Galloway, 492 F.3d 532 (4th Cir. 2007), required a rebuttable presumption of irreparable harm in cases where copyright infringement would likely result. Noting that plaintiff’s reading of the case was “impermissibly broad,” the court concluded that its finding of irreparable harm in Phelps was not based on the intangible nature of the copyright alone – reasoning that would lead to the presumption prohibited by eBay – but on the circumstances surrounding the infringement that established the likelihood of irreparable harm.

Finally, the court of appeals concluded that the district court had applied the proper standard for showing a likelihood of harm. On review of the record below, the court rejected plaintiff’s assertion that the district court had required Bethesda to identify with particularity each element of the copyrighted works being infringed and the resulting specific, tangible harm. Rather, the court had required Bethesda to demonstrate copyright infringement that could be stopped or needed to be stopped before it caused irreparable harm, and concluded that Bethesda has offered no evidence in support of its claim that its alleged loss of intangible rights in the copyrighted material alone established irreparable harm.