July 22, 2019

The claimant, Blizzard Entertainment SAS, is the creator and publisher of a number of well-known and extremely successful multi-player, online video games, such as World of Warcraft, Diablo III, Hearthstone, Heroes of the Storm and Overwatch.

The defendant, Bossland GmbH, produces and sells software designed to enable users of Blizzard’s games to secure advantages against other users, contrary to the rules of the games and contrary to the end user licence agreements entered into by each player.

In response to the use of Bossland’s software, Blizzard introduced its own software to identify and expel users of Bossland’s software. Bossland, in turn, created, “Tripwire”, to mitigate, or nullify, Blizzard’s anti-cheating software. Both parties then engaged in a process of improvements and updates to out-do the other’s software.

Blizzard issued proceedings against Bossland, claiming that Bossland had induced users of Blizzard’s games to act in breach of their end user licence agreements. In addition, it claimed copyright infringement, arguing that the use of Bossland’s software involved users, in breach of their licence agreements, copying substantial parts of the artwork and computer programs embodied in Blizzard’s games. In providing and licensing its software to those users, Bossland, authorised those infringements and was therefore liable.

Mr Justice Mann entered judgment against Bossland following admissions made by Bossland in response to the claims. Blizzard elected to have an account of profits trial.

At trial, Bossland argued that, in determining the profits, costs incurred should be deducted.

Deputy Master Bowles found that Bossland operated a single worldwide business and that only 3.6% of its overall income came from UK users. However, Bossland’s overall costs, worldwide, were not increased by its activities in the UK. In other words, had Bossland not operated in the UK at all, it would not have made any difference to the costs it incurred in respect of its overall operation.

Further, the Deputy Master found, Bossland’s infringing conduct would not have been replaced by non-infringing business, as Bossland only had one business, which was the production and sale of cheat software.

Considering whether the costs incurred were “overheads”, and therefore deductible from UK profits, or “direct costs” arising from the sale of infringing software, and therefore not deductible, the Deputy Master found that, as His Honour Judge Hacon had found in OOO Abbott v Design and Display Ltd [2018] FSR 17, “overheads” referred to “costs which cannot easily be ascribed uniquely to the infringing, or a non-infringing business”.

Further, following Dart Industries Inc v Décor Corp Pty Ltd [1994] FSR 567, the Deputy Master said that the correct approach to carrying out an account of profits was one which, while not penalising the accounting party, nonetheless ensured that the accounting party was not unjustly enriched by its actionable conduct. This was achieved, he said, by applying HHJ Hacon’s summary.

In this case, therefore, the only costs to be treated as direct costs were those solely and wholly associated with Bossland’s actionable and admitted activities in the UK. Costs that, although attributable in part to those activities, also supported its worldwide activities, should be treated as overheads. Further, no overheads could be deducted, save to the extent that they had been increased by Bossland’s actionable UK activities and save to the extent that, in the absence of those activities, they would have been incurred in respect of other non-actionable business activities.

In this scenario, the bulk of the categories of costs sought to be deducted by Bossland fell away. The gross UK sales income arising from Bossland’s accountable activities were agreed at €373,001. The Deputy Master set €30,943 against that figure to reflect transactional fees incurred directly by Bossland from its software sales in the UK.

All other costs pleaded by Bossland as deductible (server costs, worker costs, software costs, legal costs and managing director costs) were overheads and therefore not deductible. None of them were overheads that could be deducted, as it was not true that Bossland’s UK business activities would have been replaced by other business. Nor was it true that Bossland’s actionable UK business had increased, in any way, the costs that Bossland had incurred in those cost categories in respect of its overall worldwide business.

The Deputy Master did, however, allow for a 3.6% discount of Bossland’s overall affiliate costs in relation to the relevant software. He also allowed a deduction of a proportion of Bossland’s taxes.

Finally, the Deputy Master awarded Blizzard interest at 1.4% across the whole period covered by the account, payable on each year of the accountable profits as they accrued. (Blizzard Entertainment SAS v Bossland GmbH [2019] EWHC 1665 (Ch) (4 July 2019) — to read the judgment in full, click here).