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District Court Issues TRO Enjoining Social Media Gaming Company Zynga from Enforcing a Brazilian Injunction Against Vostu and Google

Thursday, August 25, 2011

Jessica McKinney | Bloomberg Law Zynga, Inc. v. Vostu USA, Inc., No. 11-CV-02959, 2011 BL 208568 (N.D. Cal. Aug. 11, 2011) In a copyright dispute between social media gaming companies Zynga, Inc. and Vostu, the U.S. District Court for the Northern District of California granted defendant Vostu's request for a temporary restraining order ("TRO") enjoining Zynga from enforcing an injunction against Vostu and Google, Inc. that Zynga had obtained in a related Brazilian action. The court determined that there are serious questions going to the merits as to the propriety of an anti-suit injunction, that Vostu would experience immediate and irreparable harm if the TRO were not granted, that the balance of hardships tip sharply in Vostu's favor, and that the public interest does not weigh heavily for or against granting the TRO.

Zynga Files Copyright Infringement Actions in U.S. and Brazilian Courts

Plaintiff Zynga, Inc. and defendants Vostu USA, Inc., Vostu LLC, and Vostu, Ltd. (collectively, "Vostu") create games that are played on social media platforms such as Facebook. Zynga filed a lawsuit against Vostu in the Northern District of California on June 16, 2011, alleging that Vostu infringed the copyrights in five of its games. On August 2, 2011, Zynga filed a second lawsuit in Brazil against Vostu, Ltd., Vostu USA, Inc., Vostu Brazil, and Google's Brazilian subsidiary, alleging copyright infringement with respect to four of the games named in the U.S. suit and unfair competition. The Brazilian court issued a preliminary injunction the next day, ordering the defendants "to cease the use, exhibition, edition, reproduction, distribution, sale, offer for sale, vehicleing or making available" of the games within 48 hours. Zynga at 2. Vostu moved for reconsideration of the order after learning of the injunction, which the Brazilian court denied. The Brazilian court did, however, extend the deadline for compliance to August 12. Vostu then requested that the Northern District of California enjoin Zynga from enforcing the injunction and from further pursuing the Brazilian litigation until the U.S. action is resolved, as well as a TRO to the same effect.

Anti-Suit Injunction and TRO Requirements

The court noted that a TRO is meant to preserve the status quo until a preliminary injunction hearing can be held, and that the requirements for a TRO mirror those for a preliminary injunction. In the Ninth Circuit, in instances where "complex legal questions require further inspection or deliberation," a TRO may be issued if "there are 'serious questions going to the merits' and the balance of the hardships tips sharply in the applicant's favor, so long as the applicant also shows . . . that the injunction is in the public interest and that irreparable injury is likely." Zynga at 3 (quoting Alliance for the Wild Rockies v. Cottrell, 622 F.3d 1045, 1052 (9th Cir. 2010)). To obtain an anti-suit injunction, i.e., to enjoin foreign litigation, an applicant need only show that certain factors weigh in its favor. Those factors include: "(1) whether or not the parties and the issues are the same, and whether or not the first action is dispositive of the action to be enjoined; (2) whether the foreign litigation would frustrate a policy of the forum issuing the injunction; and (3) whether the impact on comity would be tolerable." Id. (citing Applied Medical Distribution Corp. v. Surgical Co. BV, 587 F.3d 909, 913 (9th Cir. 2009)).

Court Grants Vostu's Request for a TRO

The court readily determined that Vostu satisfied the second and fourth TRO requirements. As to the fourth requirement, the court found that Vostu would suffer immediate and irreparable harm if the TRO were not issued. The injunction would require Vostu to shut down four of its most popular games indefinitely, and a previous two-day server outage had resulted in a permanent loss of 15 percent of Vostu's users. As to the second requirement, the court found that the balance of hardships tipped sharply in Vostu's favor. Zynga would only have to tolerate the alleged infringement for an additional one or two weeks if the TRO were issued, and if it succeeded on its claims, could obtain damages to remedy any harm. The court also concluded that the public interest factor weighed neither for nor against granting the TRO, noting that although the public has an interest in enforcing copyright laws, "[a]n injunction shuttering Vostu's games would frustrate a large segment of the public." Zynga at 6. Finally, the court determined that Vostu satisfied the first TRO factor (the existence of serious questions going to the merits), finding that all of the anti-suit injunction factors weighed in Vostu's favor.

— Parties Are the Same

The court noted that under this factor, the parties need not be identical, but merely "affiliated in such a way that their interests coincide." Zynga at 4. The court found this factor satisfied because both the U.S. and Brazilian actions involve Vostu's parent company and local subsidiaries. Further, all Vostu-affiliated companies are geared towards the Brazilian social gaming market.

— Issues Are the Same; U.S. Action Is Dispositive of Brazilian Action

Zynga argued that each action involves different issues because the U.S. action concerns copyrights protected under U.S. law, while the Brazilian action concerns Brazilian copyrights. Vostu countered that the issues need only be "functionally the same," rather than "identical," citing Applied Medical, 587 F.3d at 915-16. Vostu also argued that both actions involve the same copyrighted works and alleged acts of copying, and that American and Brazilian copyright law is essentially the same with respect to the issues at hand. The court found that the parties raised "a serious question of whether American and Brazilian copyrights on the same works are sufficiently 'the same' as defined by the Ninth Circuit," which "is exactly the sort of legal issue requiring close inspection that a TRO can afford the Court time to carefully consider." Zynga at 5.

— Brazilian Litigation Frustrates a Policy of the U.S. Court

The court noted that while federal appellate courts have disagreed as to what type of motive satisfies this factor, "one clear policy that all federal courts recognize—even those which have been loath to interfere with foreign proceedings—is the need to protect the court's own jurisdiction." Zynga at 5. The court observed that the Brazilian injunction "evidently purports to restrict all use of the works in suit everywhere." Id. at 5-6. Ultimately, the court found that enforcement of the "exceptionally broad" injunction would prevent it "from meaningfully adjudicating the claims of U.S. copyright infringement" in the instant action. Id. at 6.

— Impact on Comity Is Tolerable

Lastly, the court acknowledged that Brazil has an interest in enforcing its copyright laws, but noted that Zynga, which had filed the U.S. action first, "now seeks to enforce an injunction it obtained abroad that would paralyze this Court's ability to decide this case." Zynga at 6. According to the court, "[c]omity norms do not abide such a result." Id. The court emphasized that a TRO would have no effect on the Brazilian court. "Rather, a TRO would enjoin Zynga, which has submitted itself to the personal jurisdiction of this Court, from flouting this Court's jurisdiction. The fact that the flouting mechanism involves foreign courts is incidental." Id. The court therefore issued a TRO enjoining Zynga from enforcing the Brazilian injunction against Vostu and Google and "from otherwise seeking the imposition of sanctions against Vostu," and ordered Zynga to show cause as to why an anti-suit injunction should not be issued. Id. at 7.
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