As the videogame industry cements its position as the most profitable entertainment medium, it is now more important than ever for IP professionals to be clued in to what’s happening.

Last year was a notable year for litigation in the market and following the resolution of one of the highest-profile antitrust cases in recent years in Epic Games v Apple, there are more emerging cases and trends that are worth keeping an eye on in 2022.

These issues range from pre-release patent infringement claims to the potential wave of litigation over the rights granted by non-fungible tokens (NFTs), which could see much of its early case law defined in the videogames industry.

WIPR asked Ryan Meyer, of counsel at Dorsey & Whitney, for his take on the cases to watch in 2022.

What are some of the biggest videogame IP cases to look out for in 2022?

Activision v Infernal Tech

“One set of lawsuits to look out for is a series of patent litigation suits filed by Infernal Technology, against several major videogame companies including Activision, Epic Games, Ubisoft, and Take-Two Interactive.

“Infernal Technology is the exclusive licensee of two patents relating to ‘lighting and shadowing methods’ in computer graphic simulations. It alleges that these companies infringed those patents when they used the patented technology in certain development tools to create games.

“In the case against Activision, the US District Court for the Northern District of Texas Dallas Division granted a summary judgment of non-infringement on behalf of Activision and also excluded Infernal's expert damages report. According to the court, Infernal failed to demonstrate a ‘nexus’ between Activision’s infringement of the asserted patent claims when testing and demonstrating the game at events prior to release and the actual sale of the games.

“Infernal appealed to the US Court of Appeals for the Federal Circuit in September and that appeal is still pending, leading each of the district courts to stay their cases. This is because the Federal Circuit’s decisions regarding claim construction, infringement, and damages could affect the lower court proceedings.

“This series of cases is interesting because the parties are contesting whether infringing the patents during the pre-release demonstration, testing and development of a game could be shown to have driven revenue to the final product, even if the final product does not itself infringe.

“So if the Federal Circuit upholds the lower court’s decision, then the ruling has the potential to make it harder to prove damages for patents that are infringed only during development but not during the sale, manufacture and use of the game itself.

“Generally, in order to prove damages in a patent infringement case, you need to prove that there is a ‘nexus’ between the harm that was done and the activities that caused the infringement.

“Activision says that there was no infringement of the patents but, if the patents were infringed, the activities related to just testing and demonstrating the game, and there is no direct connection between the infringement and the revenue gained from selling the games.

“There’s a strong argument that the activities that go into developing a game, whether that’s the promotion or designing of a game, all feed into the revenue. It’s a question of what evidence a patent holder can provide showing what impact those things had on revenue.

“I imagine that regardless of whatever the Federal Circuit decides in this case, it will find that it was fair to exclude the expert report based on the insufficiency of evidence relied on by the expert. It will encourage other plaintiffs, including Infernal Technology, to provide more solid support for a nexus between damages and infringing pre-release activities.”

Epic Games v Nreal

“Another pair of cases that I think are worth following are two trademark cases that Epic Games and Nreal Technologies have filed against each other.

“Nreal is a Chinese company that makes augmented reality, or AR, glasses designed to look like regular sunglasses. It applied to register ‘Nreal’, as a trademark in the US but the application was opposed by Epic which owns several trademarks relating to ‘Unreal Games’ and the ‘Unreal’ game development engine.

“Epic filed an opposition against Nreal’s application as well as a trademark infringement lawsuit against it in the US District Court for the East District of North Carolina in May 2021.

“In July, Nreal moved to dismiss that case for lack of jurisdiction and filed its own lawsuit against Epic in the Northern District of California, seeking a declaratory judgment that its mark won't cause confusion with Epic marks and that its application does not harm or violate Epic’s rights.

“Epic moved to dismiss Nreal’s action for violating the ‘first-to-file’ rule since Epic had filed its case pertaining to the same mark initiated against Nreal in a different forum first.

“It will be interesting to see how those two courts decide the motions. Presumably, one of those cases will have to end and the other will continue forward but at this point, we don’t know which one that will be.

“These cases highlight one of the potential problems plaintiffs face when trying to sue a foreign party, which is an increasingly common issue in an international industry such as videogames. Plaintiffs must generally show sufficient contact between a defendant and a particular venue or jurisdiction, which can be challenging when the defendant is foreign to the US.

“These cases also show that a plaintiff’s failure to file suit in the correct forum straight away might give the defendant an opportunity to file a declaratory judgment action in a less convenient forum.

“As to the substantive issues, although the marks seem quite similar, there are some important distinctions that the courts might need to consider. Firstly, Nreal is a made-up word whereas ‘Unreal’, which differs by only one letter, is a real word that means something completely different.

“Secondly, Epic’s marks relate to games and game development software tools but Nreal’s mark relates to augmented reality glasses—hardware with many potential uses, one of which is gaming.

“Given the fact that the glasses can be used for gaming and that augmented reality has a close association in people’s minds with gaming, it is possible that there could be a real confusion between Nreal’s hardware mark and the ‘Unreal’ software-related mark.”

Are there any emerging trends in the market that could impact IP litigation in general?

“One major trend that affects not only the videogame market but a lot of different technology industries, is uncertainty about the rights granted by non-fungible tokens (NFTs). Game companies are at the forefront of experimenting with NFTs and any court decisions relating to ownership around NFTs and games could impact IP litigation more generally.

“The problem here is that the asset that is associated with the NFT isn’t the same as the NFT, and the rights that one has to an NFT don't necessarily reflect the rights to the asset with which it is associated.

“So the dispute in the videogame market, as in many other contexts, will likely come down to whether the NFT can be used freely without infringing someone’s copyright, trademark rights, or publicity rights, or whether it can only be used in a very limited way.

“The discrepancy between rights to the asset and rights to the token I think will inevitably lead to legal disputes and a lot of those disputes will occur within the context of videogames.

“For example, you could have a situation where a sports videogame will sell an in-game NFT which features a famous sportsperson in a unique uniform or gives them a unique tattoo for example.

“Each and every one of those things could be covered by someone else’s IP rights that the player doesn’t own. So if you have that character NFT and take some screenshots of it doing something embarrassing for example, that could lead to liability for defamation or perhaps violate rights of publicity.”