Unpublished Disposition, 923 F.2d 862 (9th Cir. 1991)

MEMORANDUM

Lewis Galoob Toys, Inc. ("Galoob") appeals the district court's grant of a preliminary injunction in favor of Nintendo of America, Inc. ("Nintendo"), enjoining Galoob from producing or marketing its product, the Game Genie. We have jurisdiction pursuant to 28 U.S.C. § 1292(a) (1). We affirm.

Nintendo makes and sells the Nintendo Entertainment System, a home video game system. To use the system, a player inserts into the system's control deck a cartridge containing one of the games that Nintendo produces or licenses others to produce. The game is then displayed on a connected television screen. By moving buttons and a joystick on the controller, the player controls the actions of one of the game's characters and progresses through the video game.

The Game Genie is a hardware device manufactured by Galoob that can be attached to a game cartridge before it is inserted into the Nintendo control deck. The Game Genie allows the player to alter certain features of the Nintendo game by choosing up to three codes from a large number of Game Genie codes. For each of the codes entered by the player, the Game Genie blocks the value for a single data byte sent by the game cartridge to the central processing unit in the Nintendo controller and replaces it with a new value. For example, if the cartridge sends a data byte setting the number of lives for the player's character at 3, the Game Genie might, depending on the codes chosen by the player, substitute the value 6, thereby giving the character 6 lives rather than 3 in which to complete the game. The player can also change the color of certain features of the audiovisual display, change the speed at which the character moves, allow the character to float above obstacles and alter myriad other features of the Nintendo game.

The Game Genie makes no change in the data stored in the game cartridge. Its interception and substitution of data takes place only as long as it is attached to the game cartridge and the controller's power is on. The individual changes that the user makes through entering codes therefore alter the audiovisual display temporarily but do not change it or the Nintendo game permanently.

Nintendo contends that the alterations made by Game Genie to the audiovisual displays of its games violates its copyrights. It contends that Game Genie alters the audiovisual expression in these games, in violation of Nintendo's exclusive rights to control derivative works. On issuing the preliminary injunction below, the district court accepted Nintendo's arguments, finding that Nintendo would likely prevail on the merits of its claim that Galoob had infringed on Nintendo's copyright and that the balance of hardships tipped decidedly in Nintendo's favor.

Our review of a preliminary injunction is limited. Johnson Controls, Inc. v. Phoenix Control Sys., 886 F.2d 1173, 1174 (9th Cir. 1989). We review de novo the correctness of the legal standards employed by the district court in evaluating the plaintiff's likelihood of success on the merits. Dumas v. Gommerman, 865 F.2d 1093, 1095 (9th Cir. 1989). However, we will reverse the district court's issuance of a preliminary injunction only if the district court abused its discretion, or based its decision on an erroneous legal standard or clearly erroneous findings of fact. Johnson Controls, 886 F.2d at 1174; Dumas, 865 F.2d at 1095. We will not reverse merely because we would have reached a different result from that reached by the district court. Big Country Foods, Inc. v. Board of Educ., 868 F.2d 1085, 1087 (9th Cir. 1989).

To sustain the grant of the preliminary injunction, we must find that the district court did not abuse its discretion in determining that Nintendo showed either a likelihood of success on the merits and the possibility of irreparable injury, or that serious questions going to the merits were raised and the balance of hardships tipped sharply in its favor. Johnson Controls, 886 F.2d at 1174. The test for granting a preliminary injunction is viewed as a continuum in which the degree of irreparable harm required increases as the probability of success on the merits decreases. Id.; Dumas, 865 F.2d at 1095. Thus, " [i]f the balance of harm tips decidedly toward the [moving party], then the [moving party] need not show as robust a likelihood of success on the merits as when the balance tips less decidedly." Benda v. Grand Lodge of Int'l Ass'n of Machinists, 584 F.2d 308, 315 (9th Cir. 1978).

In the district court, the only issues raised and discussed by Galoob as defenses to Nintendo's copyright infringement claim were: (1) whether use of the Game Genie failed to constitute an unauthorized derivative work because Nintendo had authorized users to alter the audiovisual displays in the manner effected by use of the Game Genie and; (2) whether 17 U.S.C. § 117 provides a defense to the infringement charge. On appeal, Galoob does not raise the issue of Nintendo's authorizing users to make the changes made by the Game Genie. Along with its claim that 17 U.S.C. § 117 provides a defense, Galoob raises other issues on appeal, including: (1) whether the Game Genie's alterations to the Nintendo games were "fixed" within the meaning of 17 U.S.C. § 101 in order to constitute a derivative work; (2) whether the Game Genie alters only concepts or rules of Nintendo's games, which as ideas are not protectable; (3) whether the audiovisual works as altered by the Game Genie meet the originality requirement for derivative works; (4) whether the game owner's use of the Game Genie to play Nintendo games is a noninfringing fair use; (5) whether the Game Genie has substantial noninfringing uses and therefore cannot constitute contributory copyright infringement; and (6) whether Galoob cannot be found to have committed contributory infringement because Nintendo does not speak for virtually all copyright holders with an interest in the outcome.

As a general rule, a federal appellate court will not review issues on appeal not raised in the court below. E.g., Brown v. Civil Serv. Comm'n, 818 F.2d 706, 710 (9th Cir. 1987). Galoob argues that we should consider those issues first raised on appeal on the basis of the exception to this rule that allows consideration of issues of law that do not require factual determinations beyond those in the record. See id. We decline to apply this "narrow and discretionary" exception for several reasons. Jovanovich v. United States, 813 F.2d 1035, 1037 (9th Cir. 1987). First, in the absence of compelling reasons to do so, we are unwilling to expand our consideration beyond issues that were before the district court on review of an interlocutory appeal of a preliminary injunction. Unlike review of a final judgment where, if this court were to refuse to address issues not raised below they might never be addressed, the district court will have the opportunity to consider these issues when deciding the merits of the parties claims. Second, most of the issues not raised below by Galoob, specifically issues (2)-(6), require findings of fact not made by the district court. While issue (1) conceivably could be decided on the basis of the existing record, the exception for issues of law "necessarily applies only when the party against whom the issue is raised would not be prejudiced and would not have tried his case differently either by developing new facts in response to or advancing distinct legal arguments against the issue." Brown v. Civil Serv. Comm'n, 818 F.2d at 710 (quoting United States v. Gabriel, 625 F.2d 830, 832 (9th Cir. 1980), cert. denied, 449 U.S. 1113 (1981)). As it is possible that Nintendo could have raised factual and legal arguments below regarding Galoob's claim that the image produced by the Game Genie is not fixed, we decline to review this issue on appeal.

In reviewing the merits of Nintendo's claim of copyright infringement, we are persuaded that Nintendo raises a substantial question on the merits. Galoob does not contest Nintendo's ownership of copyrights to the audiovisual work embodied in the display of the video games. Section 106(2) of the Copyright Act of 1976, as amended, grants a copyright owner the exclusive right to prepare derivative works. 17 U.S.C. § 106(2). While we do not directly assess the strength of Galoob's arguments on appeal that the alterations produced by Game Genie fail to constitute a derivative work because the Game Genie's alterations are neither fixed nor original, we find that Nintendo raises substantial questions on the basis of the record as a whole regarding whether use of the Game Genie creates unauthorized derivative works in violation of Nintendo's copyrights. Galoob's argument that 17 U.S.C. § 117 provides a defense to that claim is not so strong as to dispel that substantial question. Because we find that Nintendo raises a substantial question on the merits on the issue of whether Galoob's actions constitute direct infringement, we do not consider whether Nintendo raises a substantial question on the issue of whether Galoob's actions constitute contributory infringement.

We also find that the balance of hardships in this matter tips sharply in Nintendo's favor. A large portion of the harm to Galoob and Nintendo from either granting or denying the preliminary injunction would be financially compensable. However, Nintendo introduced evidence in the court below that the sale of Game Genie could cause irreparable harm to its design strategy, reputation, and its right to create derivative works. The district court did not abuse its discretion by finding that the balance of hardships tilted strongly in Nintendo's favor on this basis. See Apple Computer, Inc. v. Formula Int'l Inc., 725 F.2d 521, 525-26 (9th Cir. 1984).

We AFFIRM the district court's grant of a preliminary injunction in favor of Nintendo.