Nintendo v Playables – the latest modchip case considered

It seems that Nintendo is on a mission to gun down modchip sellers at the moment. I posted in May 2010 that Nintendo was suing New York-based modchip seller NXP Games, Inc. The 1709 Blog has just reported that Nintendo has successfully just sued another modchip seller in Holland. And, last week, Nintendo won a UK High Court claim against modchip seller. This post is about the UK decision.

Here’s a quick summary:

Nintendo v Playables, the UK High Court decision on modchips delivered last week, was not a groundbreaking decision. It simply reinforces the fact that previous caselaw has already found that the sale and distribution of modchips breaches UK copyright laws and is therefore illegal. So, this decision did not make modchips illegal for the first time under UK law.  It is still an important decision, however, because it forms part of a continuing move in the US/UK towards outlawing modchips altogether – an approach which is not shared in certain other countries, particularly in Europe (more on that at the end of this post).

So, now read on the clever(ish) legal analysis. Oh, and for more background on modchips you can read my previous post ‘Are Modchips Illegal?’…

The story

Nintendo manufactures and sells its handheld Nintendo DS among other consoles. Playables, a UK company, imported and sold devices which when connected to a Nintendo DS could be used to play pirated games (either using inbuilt memory or through inserting memory cards into the device). In other words, Playables sold modchips.

HM Revenue & Customs and Trading Standards seized about 165,000 of these modchips en route to Playables, which led to Nintendo finding out about them and deciding to commence High Court proceedings against Playables and one of its directors. As it turned out, prior to trial Nintendo agreed a partial settlement with Playables (the terms of which are unknown and no doubt secret) but nonetheless sought summary judgment of the case to court in order to obtain legal vindication of its position.

Fundamentally, Nintendo argued that the modchips infringed its copyright in: (i) the source code for the boot up software; (ii) the Nintendo Logo Data File (which assist the DS to run); (iii) the Nintendo ‘Racetrack’ logo. In legal terms, the arguments being run were:


(i) circumvention of ‘Effective Technical Measures’ (essentially, they deliberately circumvented technology put in place by Nintendo to stop copyright infringement); and


(ii) pure copyright infringement.


More on that below.


The ETM argument


This is where we get a bit legal. Nintendo relied upon two provisions in the Copyright Designs and Patents Act 1988 (the “CDPA”), section 296 and section 296 ZD.


Section 296 prohibits anti-circumvention devices that have been applied to computer programs. To establish a breach of this provision, Nintendo had to prove that: 

1. there was a “technical device” which had been applied to a computer program; and
2. that the defendants had manufactured it/sold it etc for the sole purpose of the unauthorised removal or circumvention of the technical device.

In addition, for one of these sections Nintendo also have to prove that the defendants actually knew or had reason to believe the technical device would be used to make infringing copies.


Nintendo easily could prove Test (1), since the modchips physically are inserted into the Nintendo DS and can then be used to run pirated games etc.


As to Tests (2) and (3), Playables advanced the same arguments that pretty much all modchip sellers have advanced in these cases:

• modchips are not just sold for circumvention purposes but can have legitimate uses, e.g. if you wanted to play your own game on the console; and
• the modchip sellers don’t know that their devices would be used by people to make/use pirate games.

In the UK, these arguments had already been put forward (and failed) in several cases, in particular one called Sony v Ball and separately in R v Gilham (more on that below). Here, again, the judge gave these arguments pretty short shrift. He said “I do not think that the defendants have a realistic prospect of asserting that they did not know of the unlawful uses to which the devices would be put” and that Playbles had “no realistic prospect of success” in arguing the modchips were for legitimate purposes.


The Jurisdiction angle


One interesting/new question which came up during this part of the case was what happens when a modchip seller is exporting modchips outside the UK as well as selling them within the UK. Does just exporting modchips outside the UK fall foul of the CDPA as well?


Mr Justice Floyd said yes, it does. He said that one of the CDPA sections being relied on, s296 ZD, is concerned with dealings in the UK in devices capable of circumvention. Nintendo did not need to prove actual circumvention.


So what? Answer: on this reasoning, if in the future a modchip seller was to import modchips into the UK and then export them out (e.g. to Europe), that would be illegal even if the modchip is not actually sold/used in the UK. It also means that the claimant (in this case, Nintendo) could seek greater financial damages.


The copyright argument


As I said above, as well as an ETM argument, Nintendo also brought a plain old vanilla copyright argument, based on the DS source code, the NLDF and Nintendo’s logo (well, actually, Nintendo’s argument was that Playables should be liable for copyright infringement because its device authorised others to infringe Nintendo’s copyright, most likely because it would be hard to prove that Playables itself had actually infringed Nintendo’s copyright).  These arguments met with more limited success: Nintendo only won on the NLDF authorisation point.


The court’s judgment


We already know that Nintendo/Playables itself had settled but Nintendo wanted a judgment in its favour. So, it went off seeking summary judgment from Mr Justice Floyd, who found in its favour on the ETM argument and partially in its favour on the copyright argument. The Judge also found there was enough evidence to find Mr Chan, the Playables director, jointly liable with Playables.


Also, just to emphasise, the court’s judgment was directed at whether Playables had in fact breaches the relevant sections of the CDPA.  This case did not seek to establish as a general principle that modchips are illegal, as that had already effectively been achieved by a combination of the CDPA provisions and previous caselaw.  Obviously though this case will act as further precedent to be used in any subsequent cases against modchip sellers in the UK.


Analysis


As I said, this was not a groundbreaking decision, but it does have some interesting aspects:

• It forms part of the continuing trend in the US/UK towards outlawing modchips altogether, by finding that they have no legitimate purpose other than to facilitate copyright infringement/games piracy. For example, the case follows hot on the recent UK criminal case of R v Gilham, in which a modchip seller was convicted of offences relating to his sale of modchips (you can read my thoughts on that case here).
• It contrasts with the view on some other countries that in fact modchips can be used for legitimate purposes and that the games companies should not have ‘their own way’ of controlling the consoles in the way they want, rather than what consumers want. For example, you read here about recent modchip decisions in France and Spain which moved in that direction.
• It shows that the directors and employees of modchip sellers can be personally liable, not just the company. Here, Mr Chan was found financially liable as well as Playables. In Gilham, Mr Gilham himself was prosecuted and convicted. This is must be a serious deterrant factor, but…
• The fact that the case was taken all the way to judgment shows that the console manufacturers clearly do still regard modchips as a serious concern, so deterrants are needed.
• HMRC were involved. We don’t know exactly how, but clearly there was (and has been for some time) cooperation between HMRC and the console manufacturers to tackle copyright infringement/piracy of all kinds, including modchips.
• Why didn’t Nintendo go for criminal prosecution of Mr Chan and/or Playables? We know from Gilham that console manufacturers have done this before against modchip sellers. Instead Nintendo relied on a civil suit. Why? I can speculate, but really it’s a mystery…

So what next?

In the UK, Playables will likely be shut down, Nintendo’s position has been vindicated, now it and the other console manufacturers will need to focus on the next modchip threat.

However, modchips are used all over the world, with the console manfacturers being forced on jurisdictional grounds to fight legal battles under the legal systems of several different countries to outlaw modchips (for example the New York and Holland lawsuits mentioned above). It is by no means clear that the same result achieved here would be achieved in say France, China or Brazil. All of which unfortunately means continued legal expense and uncertainty for the console manufacturers.

Speculation alert: in the meantime, as far as I am aware there has been no or very little consideration of the use of modchips from a consumer law perspective in Europe, certainly in the UK. Perhaps a consumer law argument could help to change the nature of the argument away from pure copyright considerations? Sounds like a tough gig, but you never know. Watch this space…



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