Sega Enterprises Ltd. v. MAPHIA et al.
857 F. Supp. 679 (N.D. Cal. 1994)

The defendants in this copyright and trademark infringement case operated an electronic bulletin board service called “MAPHIA” which allowed for, and actively encouraged, the upload and download of unauthorized versions of copyrighted Sega video games. Sherman, the owner and main operator of MAPHIA, profited from those services by selling game copiers which allowed for game play. Moreover, the court found that many of the games were located in files on defendants' computer bearing the name Sega, and the SEGA trademark also appeared when a Sega game downloaded from the bulletin board was run. Sega brought this action against the defendants, charging them with federal copyright and trademark infringement, unfair competition, and false designation of origin, as well as the violation of a series of California statutes.

MAPHIA violated Sega’s copyrights when its users uploaded the games to its bulletin boards (BBs) and allowed the public to download them. However, Sherman, owner and operator of MAPHIA, could not be found directly liable for copyright infringement. The court relied on Religious Technology Ctr. v. Netcom On-Line Communication Serv., Inc., 907 F. Supp. 1361 (N.D. Cal. 1995), which “found that the Internet provider was not directly liable for copyright infringement of a copyrighted work posted and distributed through its system. Netcom, 907 F. Supp. at 1368-70.” The court found this to be the case even when the defendant had knowledge of potential copyright infringement by its subscribers. Id. at 1372-73. “While Sherman's actions in this case are more participatory than those of the defendants in Netcom, the Court finds Netcom persuasive.” Sega failed to show that Sherman himself “uploaded or downloaded the files, or directly caused such uploading or downloading to occur,” so Sherman could not be found directly liable.

The court found Sherman liable for contributory copyright infringement because Sega established “that the users of Sherman's MAPHIA BBs directly infringed Sega's copyright… [and] that (i) with knowledge of the users' infringing activity, (ii) Sherman induced, caused, or materially contributed to their infringing activity.”

As noted above, the uploading and downloading by MAPHIA BB users constituted illegal copying. Through evidence such as print-outs of upload/download statistics and Sherman’s admissions, it was clear that Sherman had knowledge of the copying that was occurring. Sherman contributed to the infringing activity by “provide[ing] the site and facilities for the known infringing conduct. He actively solicited users to upload unauthorized games, and provided a road map on his BBs for easy identification of Sega games available for downloading. Additionally, through the same MAPHIA BBs medium, he offered copiers for sale to facilitate playing the downloaded games

Sherman affirmatively asserted a fair use defense stating there was no evidence that subscribers were playing the games outside their own homes or further distributing the games, but the court rejected the defense. The four non-exclusive factors that the court considered in determining whether the use was fair were:

1. Purpose and Character of Use: The bulletin boards were intended to induce users to purchase defendants’ game copiers to play the games they downloaded from the boards, costing Sega customers who would otherwise have bought their game cartridges. This for-profit use at Sega’s expense weighed against accepting a fair use defense.

2. Nature of the Copyrighted Work: The Sega games are for entertainment use and are creative rather than informational works, which leans against a finding of fair use.

3. Amount and Substantiality of the Copyrighted Work Used: The court found that the users’ copying of entire copyrighted games without providing any public benefit weighed heavily against, but didn’t preclude, fair use.

4. Effect of the Use upon the Potential Market for the Copyrighted Work: The court weighed this factor most heavily. The court determined “whether unrestricted and widespread conduct of the sort engaged in by the defendant would result in a substantially adverse impact on the potential market for the copyrighted work.” Here the court found that even if users only played the games in their own homes and didn’t further distribute them, Sherman’s conduct of allowing users to avoid paying for games would, if widespread, adversely impact the market for Sega games.

The court found that these four factors weighed against the application of the fair use doctrine, so Sherman was liable for contributory copyright infringement.

Because Sherman intentionally contributed to the users' infringement of Sega's copyright (by uploading to BBs, encouraging downloads, selling copiers, using and allowing others to use Sega’s trademarks) with the intention to profit, the court found that he “willfully infringed upon their copyrights, which would entitle it to greater damages.”

Sega alleged that Sherman infringed on its trademark by knowingly using the Sega name & mark in connection with the unauthorized games. But Sherman argued that using the Sega name to identify file contents and the “SEGA” trademark incidentally showing on the screen when the games were played wasn’t a violation.

The court noted that a “prima facie case for trademark infringement under the Lanham Act is established by a showing that (1) the mark is owned by or associated with a particular plaintiff, and (2) the defendant's use of the mark is likely to cause confusion or mistake among the public as to the origin of the goods. New West Corp. v. NYM Co. of California, Inc., 595 F.2d 1194, 1201-02 (9th Cir. 1979); see also Jockey Club, Inc. v. Jockey Club of Las Vegas, 595 F.2d 1167 (9th Cir. 1979).”

1. Ownership: Sega owns and has exclusive rights to the registered SEGA trademark.

2. Likelihood of Confusion:

a. Proximity of Goods: The games downloaded from the BBs are “substantially identical” to Sega’s games.

b. Similarity of Marks: The marks in the counterfeit games are identical to Sega’s trademark.

c. Intention in Adopting the Mark: Sherman intended to use the SEGA mark to show that the game available for download was associated with Sega.

d. Actual Confusion: Sega didn’t show any actual confusion, but the court notes that this evidence isn’t absolutely necessary for proving likelihood of confusion.

Based on these factors, the court found “that there is a likelihood of consumer confusion regarding the sponsorship and origin of the game files available on the MAPHIA BBs.” The court thought it was likely that anybody logging onto the BBs or playing a game using a game copier would think the counterfeit games and the use of Sega's name and trademark on the BBs was affiliated with or supported by Sega.

Sherman knew about the SEGA mark in the counterfeit games and used the Sega name to identify the game files on the BBs.

The court found that Sherman’s willful use of the Sega name and trademark in the counterfeit games was likely to lead to “consumer confusion as to whether Sega endorsed or sponsored the games appearing on or downloaded from MAPHIA. Accordingly, Sega has established a prima facie case that Sherman's use of Sega's trademark on virtually identical Sega game programs constitutes counterfeiting.”

To prevail on this Lanham Act claim, Sega again needed to show that the public would likely be deceived or confused by the similarity of the marks. “For the same reasons set forth regarding Sega's trademark infringement claim, Sherman's use of the Sega trademark is likely to be confusing and to cause damage to Sega and, therefore, Sega is entitled to summary judgment regarding Sherman's liability under 15 U.S.C. § 1125(a).”

“Sega claims that Sherman is liable for California trade name infringement under Cal. Bus. & Prof. Code § 14401 et seq.” The court also found for Sega on this claim because, once again, Sega needed and was able to show “that a likelihood of confusion exists with the use of Sega's trade name on Sherman's BBs."

Lastly, the court granted Sega summary judgment on this California state claim of unfair competition for the same reasons stated above because “[u]nfair competition claims made pursuant to Cal. Bus. & Prof. Code § 17200 et seq. are substantially congruent to claims made under the Lanham Act.”

The court granted injunctive relief and awarded Sega $10,000 in damages plus attorney’s fees for the copyright infringement claim. For the other claims, the court said that Sega was entitled to treble damages or profits if it could prove either, but it hadn’t done so yet.

Read the full opinion here.