Federal Evidence Review

In copyright action, trial court did not abuse its discretion in excluding evidence that copyright holder had engaged in illegal operations (by distributing an online bingo game in violation of state law) since the evidence “might improperly influence the jury to reduce the statutory damages award,” in Dream Games of Arizona, Inc. v. PC Onsite, 561 F.3d 983 (9th Cir. Apr. 2, 2009) (Nos. 07-15847, 07-15919)

A recent copyright case by the Ninth Circuit highlights the interplay between the jury and trial judge in considering evidence of illegal operations. While the evidence was unfairly prejudicial for the jury to consider, the trial court could consider evidence that the copyright holder had engaged in illegal operations on the issue of statutory damages.

In the case, Dream Games of Arizona (“Dream Games”) requested that PC Onsite provide software upgrades on an electronic video bingo game, “Fast Action Bingo.” The parties signed a third party source code nondisclosure agreement which provided PC Onsite with access to the original source code as a licensee but retained all intellectual property rights in Dream Games. PC Onsite was prohibited from “assigning, selling, distributing, licensing, or otherwise transferring the proprietary information.” After a dispute, PC Onsite created “Quick Play Bingo I,” which it marketed as an electronic video bingo game and competed directly with Fast Action Bingo. Dream Games filed a copyright and breach of contract action and obtained a preliminary injunction against PC Onsite.

Before trial, PC Onsite sought to introduce evidence that Dream Games illegally operated Fast Action Bing in Wyoming and Utah. The Wyoming Supreme Court had found that Fast Action Bingo was illegal. Dream Games, 561 F.3d at 990 (citing Fraternal Order of Eagles Sheridan Aerie No. 186, Inc. v. State ex rel. Forwood, 126 P.3d 847 (Wyo. 2006)). The Utah Constitution barred the state legislature from “authorize[ing] any game of chance, lottery or gift enterprise under any pretense or for any purpose.” (quoting Utah Const. art. 6, § 27). The trial court determined that no statutory damages were permitted in Wyoming but “whether there is recovery in Utah ‘really depends upon the facts.’” Dream Games, 561 F.3d at 990.

The trial court excluded any evidence of illegality, under FRE 403 during the jury trial, “conclude[ing] that the jury should focus on the conduct of PC Onsite, and that any possible illegal activity by Dream Games was irrelevant to the willfulness or innocence of PC Onsite’s conduct.” Dream Games, 561 F.3d at 992. The jury returned a verdict for Dream Games. In ruling on the defendant’s motion for Judgment as a Matter of Law, the trial court concluded that while the Fast Action Bingo game was illegal in Utah, since “the illegality I have found is not, per se, so it only pertains to the actual damages for violation of a copyright,” and Dream Games “may recover statutory damages.” Dream Games, 561 F.3d at 990. On appeal, PC Onsite challenged the exclusion of evidence of illegality.

The circuit found no abuse of discretion in excluding evidence illegality under FRE 403. In construing the copyright statute, the circuit held “that an award of either type of damages available under the Copyright Act — actual or statutory — is not precluded by evidence of illegal operation of the copyrighted work, at least where the illegality did not injure the infringer.” Dream Games, 561 F.3d at 992.

The circuit noted that “the jury has wide discretion in setting the award,” but “the district court maintains its role as the evidentiary gatekeeper.” Dream Games, 561 F.3d at 993 (citing Sprint/United Mgmt. Co. v. Mendelsohn, 128 S. Ct. 1140, 1144-45 (2008) (applying abuse of discretion standard on admissibility of evidence based on the “district court’s familiarity with the details of the case and its greater experience in evidentiary matters”)). As the circuit explained:

“It was reasonable for the district court to conclude that such evidence might improperly influence the jury to reduce the statutory damages award. Such reduction would have been improper because illegal operation does not diminish copyright protections or undermine the punitive purposes of the statutory damages provision. Further, illegal operation of a work does not provide information relevant to the nature of the copyright, the circumstances of the infringement, plaintiff’s conduct during litigation, or any of the other factors commonly relied upon by decisionmakers in setting statutory damages awards.”

The ruling of the trial court maintained the jury’s focus on whether there was infringement. Evidence of illegal operations in two states likely would have been unfairly prejudicial on the issue of statutory damages. The trial court could separately consider the scope of any statutory damages award.