Infernal Technology, LLC et al v. Take-Two Interactive Software, Inc.

Complaint

Southern District of New York, nysd-1:2019-cv-09350

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0 Eric W. Buether (pro hac vice submitted) Christopher M. Joe (pro hac vice submitted) Michael C. Pomeroy (pro hac vice submitted) BUETHER JOE & CARPENTER, LLC 1700 Pacific Avenue, Suite 4750 Dallas, Texas 75201 Tel: (214) 466-1271 Fax: (214) 635-1827 Attorneys for Plaintiffs Infernal Technology, LLC and Terminal Reality, Inc. UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK INFERNAL TECHNOLOGY, LLC, a Texas Limited Liability Company, and TERMINAL Civ. No. REALITY, INC., a Texas Corporation, Plaintiffs, COMPLAINT v. TAKE-TWO INTERACTIVE SOFTWARE, INC., a Delaware Corporation, DEMAND FOR JURY TRIAL Defendant. Plaintiffs Infernal Technology, LLC ("Infernal") and Terminal Reality, Inc. ("TRI") (collectively "Plaintiffs") file this Complaint against Take-Two Interactive Software, Inc. ("Take- Two"), and allege as follows. THE PARTIES 1. Plaintiff Infernal Technology, LLC ("Infernal Technology") is a Texas Limited Liability Company with its principal place of business at 18333 Preston Road, Suite 220, Dallas, Texas 75252. 2. Plaintiff Terminal Reality, Inc. ("Terminal Reality") is a Texas Corporation with its address at P.O. Box 271721, Flower Mound, Texas, 75027-1721. Terminal Reality, a video game development and production company, was formed in 1994 in Lewisville, Texas. Terminal 1 0 Reality developed a number of video games, such as Nocturne, Bloodrayne, Ghostbusters: The Video Game, Kinect Star Wars, The Walking Dead: Survival Instinct, and many others. Terminal Reality also developed a video game graphics engine, called the "Infernal Engine," used in many of Terminal Reality's games. In addition to using the "Infernal Engine" in its own games, Terminal Reality successfully licensed the "Infernal Engine" to other video game developers for use in their video games. On June 3, 2014, Terminal Reality granted Infernal Technology an exclusive license to a number of patents, including the Asserted Patents as defined below, and the exclusive right to enforce same. Infernal Technology and Terminal Reality are collectively referred to herein as "Plaintiffs." 3. Defendant Take-Two Interactive Software, Inc. ("Take-Two") is a corporation organized under the laws of the State of Delaware, with a principal place of business at 110 W 44th Street, New York, NY 10036. Take-Two may be served through its registered agent for service, Corporation Service Company, 80 State Street, Albany, New York 12207-2543. JURISDICTION AND VENUE 4. This is an action for patent infringement arising under the patent laws of the United States of America, Title 35, United States Code. This Court has original jurisdiction over the subject matter of this action pursuant to 28 U.S.C. §§ 1331 and 1338(a). 5. Take-Two is subject to this Court's specific personal jurisdiction because (1) its headquarters is located in New York at 110 West 44th St., New York, New York 10036; (2) it has designated an agent for service of process in the State of New York; and (c) it has committed acts of infringement in the State of New York as alleged herein. In particular, Take-Two has infringed the patents asserted in this case (the "Asserted Patents") in the State of New York by making, using, offering to sell and selling the video games accused of infringing the Asserted Patents (the 2 0 "Accused Games") through its headquarters and other offices and locations located in the State of New York. Take-Two has also infringed the patents asserted in this case in the State of Texas by using other distribution channels, including digital downloads and retail stores, to sell the Accused Games to residents of the State of New York. Therefore, this Court has personal jurisdiction over Take-Two. 6. Venue is proper in this district under 28 U.S.C. §§ 1400(b). Take-Two has a regular and established business under § 1400(b) because its headquarters is located in New York City in this District. In addition, Take-Two has committed acts of infringement in this District by making, using, selling and/or offering to sell the Accused Games in this District. THE PATENTS-IN-SUIT 7. On March 26, 2002 the United States Patent and Trademark Office issued United States Patent No. 6,362,822 (the "'822 Patent") entitled "Lighting and Shadowing Methods and Arrangements for use in Computer Graphic Simulations," a true copy of which is attached as Exhibit 1. 8. On June 13, 2006, the United States Patent and Trademark Office issued United States Patent No. 7,061,488 (the "'488 Patent") entitled "Lighting and Shadowing Methods and Arrangements for use in Computer Graphic Simulations," a true copy of which is attached as Exhibit 2. The '488 Patent is a continuation-in-part of the '822 Patent. The '822 and '488 Patents are collectively referred to as the "Asserted Patents." 9. Infernal Technology is the exclusive licensee of the '822 and '488 Patents, and has the exclusive right to sue for and recover all past, present and future damages for infringement of the Asserted Patents. 3 0 THE ESTABLISHED VALIDITY OF THE PATENTS-IN-SUIT 10. On April 21, 2016, Electronic Arts Inc. ("EA") petitioned the U.S. Patent Trial and Appeal Board ("PTAB") for inter partes review of the '822 and '488 Patents (IPR2016-00928, IPR2016-00929, IPR2016-00930Z). In the IPR petitions, EA relied upon the following prior art references: (1) Segal, et al., "Fast Shadows and Lighting Effects Using Texture Mapping," Computer Graphics Proceedings, Volume 26, Number 2, July, 1992 ("Segal"); and (2) McReynolds, "Programming with OpenGL: Advanced Rendering," SIGGRAPH '96 Course, August, 1996 ("McReynolds"). With respect to the '822 Patent, EA asserted that Claims 1-10 and 39-48 were unpatentable under 35 U.S.C. § 103 in view of Segal, and that Claims 1-20 and 39-48 were unpatentable under 35 U.S.C. § 103 as obvious over the combination of Segal and McReynolds. With respect to the '488 Patent, EA argued that Claims 1-10, and 27-62 were unpatentable under Section 103 in view of Segal and that Claims 1-20 and 27-36 were unpatentable under Section 103 in view of Segal in combination with McReynolds. 11. On October 25, 2016, the PTAB instituted IPR proceedings as to all challenged claims of the '822 and '488 Patents. In addition to the Segal and McReynolds references asserted by EA in its petitions, the PTAB instituted IPR based on an additional prior art reference: James D. Foley, et al., COMPUTER GRAPHICS, PRINCIPLES AND PRACTICE, 2d ed. (1997) ("Foley"). Oral argument was heard by the PTAB on July 18, 2017. On October 19, 2017, and on October 23, 2017, the PTAB issued its Final Written Decisions in the IPR proceedings rejecting all of EA's challenges to the patentability of all claims of the '822 and '488 Patents in view of Segal, alone or in combination with McReynolds and/or Foley. Shortly thereafter, EA settled Plaintiffs' patent infringement claims and entered into a formal settlement and license agreement with Plaintiffs. 4 0 TAKE-TWO'S VIDEO GAME BUSINESS Take-Two is a Publisher, Developer, and Distributor of Video Games 12. Take-Two was incorporated in the state of Delaware in 1993. Take-Two describes itself as "a leading developer, publisher and marketer of interactive entertainment for consumers around the globe." Take-Two Form 10K (2019). Take-Two has over 3,400 employees working in game development in 19 studios around the world. Id. 13. In numerous pleadings filed in federal court, Take-Two states that "it is a multinational publisher, developer, and distributor of video games and video game peripherals." Take-Two Interactive Software, Inc. v. Leslie Benzies, Civil Action No. 1:16-cv-02699-VSB, Dkt. No. 1 (S.D.N.Y 2016). See also Take-Two Interactive Software, Inc. v. Pinkerton Consulting & Investigations, Inc., Civil Action No. 19-cv-338, Dkt. No. 1 (S.D.N.Y 2019) ("Take-Two is a multinational publisher, developer, and distributor of video games and video game peripherals."); Declaration of Linda Zabriskie, Acceleration Bay LLC v. Take-Two Interactive Software, Inc., et al., Civil Action No. 16-455 (RGA), Dkt. 9-1 (July 8, 2016) ("Take-Two is an integrated global developer, marketer, distributor and publisher of interactive entertainment software games and accessories. Take-Two publishes and develops products through its wholly owned labels.") 14. Take-Two has asserted that "Take-Two's games are widely recognized as some of the most popular and innovative games available on the market, and Take-Two has earned numerous awards both in the United States and abroad as a result." Take-Two Interactive Software, Inc. v. David Zipperer, Civil Action No. 1:18-cv-2608, Dkt. No. 1 (S.D.N.Y 2018). Take-Two also has stated that "Take-Two has invested vast resources, including time, effort, talent, creativity, and money, to produce its video games. Its games have large followings of fans throughout the world, making Take-Two one of the world's most popular video game publishers." Id. 5 0 15. Take-Two has explained that it "develop[s] and publish[es] products principally through [its] two wholly-owned labels Rockstar Games and 2K." Take-Two Form 10K (2019). "Rockstar" is a reference to Rockstar Games, Inc., a wholly-owned subsidiary of Take-Two. "2K" is a reference to 2K Games, Inc., and 2K Sports, Inc., also both wholly-owned subsidiaries of Take-Two. Take-Two has directed and controlled its video game business through the Rockstar Games and 2K labels. Take-Two uses the Rockstar Games and 2K labels to focus each label on distinct product genres and target demographics. Take-Two uses the Rockstar Games label to focus on the internally developed games in the action product category and uses the 2K label to focus other categories, including third-party and internally developed games in the sports category as well as family and casual games. ZelnickMedia Takeover of the Management and Control of Take-Two's Operations 16. Although Take-Two has been in business since 1993, a new Take-Two emerged in 2007, when a company called ZelnickMedia Corporation ("ZelnickMedia"), an investor in and operator of media, communications and entertainment businesses, took over control of Take- Two's board with the support of shareholders to clean up the company amid probes into the illegality of its business practices. In particular, between 2003 and 2005, the company fell under investigation by the Security and Exchange Commission related to corporate and personal financial fraud after going public that led to the resignation of the CEO in 2006 alongside the departures of other former executives and board members. As a result of this mismanagement, the company's majority shareholders led a takeover of Take-Two in March 2007. 17. This takeover of Take-Two led to the consolidation of the management of Take- Two's business operations under an executive team lead by executives of ZelnickMedia. Specifically, on March 30, 2007, Take-Two entered into a Management Agreement with 6 0 ZelnickMedia, pursuant to which ZelnickMedia agreed to provide financial and management consulting services to Take-Two. In addition, two ZelnickMedia executives, Strauss Zelnick and Benjamin Feder, were elected to the Board. Strauss Zelnick also was elected as the new Chairman and CEO. The Board and ZelnickMedia then reorganized Take-Two's executive management team and business. Strauss Zelnick also was elected as the new Chairman and Feder was appointed as CEO of Take-Two.. Under the Management Agreement, ZelnickMedia was authorized to, among other things, (i) oversee and supervise the operations of the Take-Two and its subsidiaries; (ii) establish operating budgets and business plans; (iii) oversee Take-Two and its subsidiaries regarding their corporate and financial structure; and (iv) establish long-term business strategies for Take-Two and its subsidiaries. 18. In May 2011, and then in March 2014, and then in November 2017, Take-Two entered into successive new management agreements with ZelnickMedia pursuant to which ZelnickMedia