Abstract
In Eclipse Gaming Systems, LLC v. Antonucci, 1 the court considered two important copyright issues related to slot machines: (1) drafting a royalty payment clause for copyright in a license agreement; and (2) the scope of the anti-circumvention clause in the Digital Millennium Copyright Act (DMCA). 2 The case illustrated the importance of careful drafting of a royalty payment provision (also referred to as nonpayment clause in this article.) Depending on how it is drafted, the party bringing the suit may be entitled to a more significant statutory relief or less contractual relief. Conversely, the party being sued could be liable for less contractual damages or more significant statutory damages. Then the court examined the scope of the DMCA anti-circumvention clause to hold that removing the software as a whole constituted a “circumvention” of the technological measure installed in the software. 3
Defendant Antonucci owned a company, Digital Dynamics Software, Inc. (DDS) and was also an employee of Eclipse Gaming Systems, LLC (EGS). 4 DDS gave a license to EGS, for a software application to use in its slot machines. 5 Later, Antonucci allegedly installed a “time bomb” in the software application. 6 EGS argued that it was a retaliation by Antonucci because EGS refused to buy out Antonucci's membership interest in EGS. 7 Antonucci argued that it was not a “time bomb” but a “license check” necessary to prevent EGS from using the software without paying the royalties. 8 Not being able to use the software, EGS removed the software protected by the “time bomb” and used a previously licensed and older version of the software. 9 EGS sued Antonucci for violation of the Computer Fraud and Abuse Act and the Illinois Computer Crime Prevention Law. 10 Antonucci counterclaimed for copyright infringement and breach of the DMCA anti-circumvention clause. 11 EGS then filed a motion to dismiss both counterclaims. 12
I. Whether EGS's Nonpayment of Royalties was a Breach of Contract or an Infringement of Copyright
Whether the nonpayment is a breach of contract or an infringement of copyright depends on whether the nonpayment clause is a condition or a covenant. 13 If it is a condition, nonpayment would void the contract, and therefore would be an infringement of copyright. If it is a covenant, nonpayment would be a breach of contract.
Here, under the master license agreement, the duty to pay licensing fees did not accrue until after the software program was installed onto the slot machines. 14 Therefore, payment of royalties was not a condition but a covenant, and failure of payment was not copyright infringement but a breach of contract. 15 The court emphasized that a promise to pay royalties in a license agreement is generally considered a covenant and that courts usually interpret any ambiguous provisions as covenants. 16
Following this case, license holders will want to draft nonpayment clauses as conditions so that nonpayment would constitute copyright infringement. For such clauses to be conditions, the language must not be ambiguous. One of the ways to achieve this would be to explicitly state in the agreement that granting of a copyright license is “conditional upon” successful payment of royalties by the licensee. On the contrary, licensees will want to draft the clauses as covenants so that nonpayment would not constitute copyright infringement.
II. Whether there was Circumvention of the Technological Measure when EGS Removed the Current Software Protected by such Measure and Installed an Older Version onto the Slot Machines
The DMCA anti-circumvention clause provides that “no person shall circumvent a technological measure that effectively controls access to a work protected under this title.” 17 “‘[C]ircumvent[ing] a technological measure’ means to descramble a scrambled work, to decrypt an encrypted work, or otherwise to avoid, bypass, remove, deactivate, or impair a technological measure, without the authority of the copyright owner.” 18 The court held that removing new software that contained the license check (not necessarily changing or manipulating the software) and replacing it with an older version that did not have a license check was a facially plausible claim of violation of the DMCA. 19
This holding is significant in showing how the court interprets and applies the DMCA anti-circumvention clause. The court simply says that removing software protected by a technological measure altogether is just a tactic to employ a workaround to bypass the security measure.
Footnotes
1
No. 17 C 196, 2019 WL 398687 (N.D. Ill. Jan. 31, 2019).
2
Id. at *1.
3
Id. at *4.
4
Id. at 1.
5
Id.
6
Id.
7
Id.
8
Id.
9
Id.
10
Id.
11
Id.
12
Id.
13
Id. at *2.
14
Id. at *2–3.
15
Id. at *3.
16
Id. at *2.
17
17 U.S.C. § 1201(a)(1)(A) (2019).
18
17 U.S.C. § 1201(a)(3)(A) (2019).
19
Eclipse Gaming Systems, 2019 WL 398687, at *1, *3.
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