Universal Entertainment Corporation v. Aruze Gaming America, Inc.

Opinion

4 UNITED STATES DISTRICT COURT 5 DISTRICT OF NEVADA 6 * * * 7 Universal Entertainment Corporation, Case No. 2:18-cv-00585-RFB-NJK 8 Plaintiff, ORDER 9 v. 10 Aruze Gaming America, Inc. et al., 11 Defendants. 12 13 I. INTRODUCTION 14 Before the Court are Defendants Aruze Gaming America, Inc. (“AGA”) and Kazuo 15 Okada’s Motions for Temporary Restraining Order (ECF No. 119) and Preliminary Injunction 16 (ECF No. 120). The motions are denied. 17

18 II. PROCEDURAL BACKGROUND 19 Plaintiff Universal Entertainment Corporation (“UEC”) sued AGA and Okada on March 20 20, 2018. ECF No. 1. AGA and Okada moved to dismiss the complaint on May 29, 2018. ECF 21 No. 13. The Court granted leave to file an amended complaint on July 16, 2018. ECF No. 25. 22 UEC filed the First Amended Complaint on July 19, 2018. ECF No. 29. AGA and Okada moved 23 to dismiss the First Amended Complaint. ECF No. 33. UEC then filed the Second Amended 24 Complaint on August 23, 2018. ECF No. 43. The Second Amended Complaint is the operative 25 complaint in this action. 26 AGA and Okada moved to dismiss the complaint on September 6, 2018. ECF No. 44. 27 UEC opposed, and AGA and Okada replied. ECF Nos. 49, 53. This motion remains pending 28 before the Court after a hearing held on May 29, 2019. ECF No. 89. 1 On September 20, 2018, AGA and Okada also answered the complaint, asserting eighteen 2 counterclaims. ECF No. 50. They amended the answer on October 11, 2018. ECF No. 58. In the 3 Amended Answer, AGA and Okada assert counterclaims against UEC, Aruze USA, Inc., and Jun 4 Fujimoto. 5 UEC moved to dismiss the counterclaims. ECF No. 59. AGA and Okada opposed, and 6 UEC replied. ECF Nos. 64, 68. Fujimoto also moved to dismiss the counterclaims. ECF No. 60. 7 AGA and Okada opposed, and Fujimoto replied. ECF Nos. 63, 67. These motions remain pending 8 before the Court after the hearing on May 29, 2019. ECF No. 89. 9 The parties engaged in a settlement conference on March 5, 2019, but no settlement was 10 reached. ECF No. 78. On May 24, 2019, Defendant and Counter Claimant AGA filed a Motion 11 for Summary Judgment. ECF No. 86. UEC responded on June 28, 2019, AGA replied on July 19, 12 2019. ECF Nos. 97, 99. This motion remains pending before the Court. 13 On October 29, 2019, UEC filed a Notice of Related Case referencing a case filed in this 14 district involving the same parties and asserting patent infringement claims involving similar 15 products at issue in this matter. ECF No. 117. That case is not currently before this Court. 16 On November 15, 2019, AGA and Okada filed the instant motions. ECF Nos. 119, 120. 17 UEC responded on November 22, 2019 and AGA and Okada replied on November 27, 2019. ECF 18 Nos. 126, 127. 19

20 III. FACTUAL BACKGROUND 21 The facts at issue in the underlying dispute are substantial. For purposes of deciding the 22 instant motions, the Court limits its factual discussion to those facts upon which the instant motions 23 are based. 24 The primary dispute at the center of this action is an allegation by UEC against AGA of 25 four counts of patent infringement of its slot machines, as asserted in UEC’s complaint. ECF No. 26 43 at 3-38. In the operative complaint, UEC alleges, inter alia, infringement of four patents by 27 AGA’s G-ENEX slot machine cabinets, as well as certain AGA gaming machines. Id. In response, 28 Defendants have asserted a number of counterclaims against UEC, including breach of patent 1 license agreement (Count Ten), Sham Patent Litigation (Count Twelve), Declaratory Judgment as 2 to Patent Rights (Count 15), and Breach of Contract (Count 17). ECF No. 58 at 64-79. The 3 assertion underlying these counterclaims is that AGA has an implied and oral license with a right 4 to sublicense to UEC patents “existing, conceived, or claiming priority to applications existing on 5 March 31, 2009, when UEC completed its sale of AGA to Okada.” ECF No. 120 at 11. 6 Defendants assert in the instant motion that UEC has filed and initiated additional patent 7 suits in foreign jurisdictions against Defendants and their affiliates. ECF No. 120 at 5. Specifically, 8 Defendants assert that UEC previously initiated criminal proceedings against Okada and AGA in 9 the Philippines in November 2017 alleging fraud, id. at 10, and in April 2018 “encourage[ed]” the 10 Hong Kong Independent Commission Against Corruption to criminally prosecute Okada by 11 providing documents and submitting a statement alleging corruption, id. at 12. The current motions 12 specifically concern UEC’s filing of a criminal complaint in Macau for patent infringement against 13 Aruze Gaming Macau Limited (“AGML”), id. at 2, 12, a subsidiary of Aruze Gaming HK, which 14 is an affiliate of AGA, id. at 7 n.4. This criminal complaint was filed on or about July 10, 2018. 15 ECF No. 126 at 2. 16 Defendants explain through an affidavit filed by counsel for AGML that in Macau, a 17 private entity may file either a civil or criminal complaint for patent infringement and “may request 18 to be appointed as an assistant to the criminal proceedings and, in that capacity . . . may provide 19 its collaboration in the investigation, as well as request that investigative measures and further 20 means of evidence be produced and/or collected.” Ex. A at 2, ECF No. 121. The Public Prosecutor, 21 “directly or with the assistance of the police authority . . . must investigate the complaint.” Id. It is 22 ultimately the Public Prosecutor’s decision whether to bring an indictment after investigation, but 23 if “sufficient evidence exists” to suggest that a crime may have been committed, the Prosecutor 24 “must” pursue charges. Id. at 3. Until an indictment is issued or a trial hearing is scheduled, the 25 investigation and pre-trial proceedings are required to remain secret. Id. at 4. 26 Defendants state that on June 5, 2019, Macau Customs officials1 removed AGML’s 27 28 1 According to counsel for AGML, Macau Customs is “entrusted with police authority and has the competence to investigate criminal offenses related to intellectual property matters . . . .” 1 gaming machine inventory of approximately eight gaming machines of the G-ENEX and CUBE- 2 X G-series cabinets at issue in this case. ECF No. 120 at 13-14. Defendants assert “upon 3 information and belief” that this seizure was the consequence of the criminal complaint asserting 4 patent infringement by AGML filed by UEC with the Macau Customs authorities. Id. at 14. UEC 5 has cooperated with the Macanese authorities in this criminal investigation. ECF No. 126 at 2. 6 These actions by UEC are consistent with a press release it issued on May 14, 2018, in 7 which it stated it would file criminal complaints and civil lawsuits against AGA and Okada “on 8 the grounds that its patent rights and other rights were violated” in the United States, Macau, the 9 Philippines, and Hong Kong. ECF No. 120 at 12 (citing Ex. CC at 175-76, ECF No. 123). 10

11 IV. LEGAL STANDARD 12 A. Anti-Suit Injunction 13 “‘A federal district court with jurisdiction over the parties has the power to enjoin them 14 from proceeding with an action in the courts of a foreign country, although the power should be 15 used sparingly.’” Microsoft Corp. v. Motorola, Inc., 696 F.3d 872, 881 (9th Cir. 2012) (quoting E. 16 & J. Gallo Winery v. Andina Licores S.A., 446 F.3d 984, 989 (9th Cir. 2006)). “Courts derive the 17 ability to enter an anti-suit injunction from their equitable powers. Such injunctions allow the court 18 to restrain a party subject to its jurisdiction from proceeding in a foreign court in circumstances 19 that are unjust.” Gallo, 446 F.3d at 989. “The suitability of an anti-suit injunction involves different 20 considerations from the suitability of other preliminary injunctions.” Id. at 990. “To the extent the 21 traditional preliminary injunction test is appropriate, . . . [courts] only need address whether [the 22 injunction seeker] showed a significant likelihood of success on the merits. The merits in this case, 23 however, are . . . about . . . whether [the injunction seeker] has demonstrated that the factors specific 24 to an anti-suit injunction weigh in favor of granting that injunction here.” Id. at 990-91 (adopting 25 Fifth Circuit approach establishing that a modified analysis for anti-suit injunctions applies rather 26 than the usual test for preliminary injunctions) (internal quotations and citation omitted). 27 28 Ex. A at 2, ECF No. 121. 1 Whether a court should issue an anti-suit injunction is determined by the consideration of 2 three factors. Microsoft Corp., 696 F.3d at 881. First, a court must determine “whether or not the 3 parties and the issues are the same in both the domestic and foreign actions, and whether or not 4 the first action is dispositive of the action to be enjoined.” Id. (internal quotations and citation 5 omitted). Second, the court must determine “whether at least one of the so-called 6 ‘Unterweser factors’ applies.” Id. (citation omitted). Finally, a court must “assess whether the 7 injunction's impact on comity is tolerable.” Id. 8 The Unterweser factors “are a disjunctive list of considerations that may justify a foreign 9 anti-suit injunction . . . .” Id. at 881-82. They are: “[whether the] foreign litigation . . . would (1) 10 frustrate a policy of the forum issuing the injunction; (2) be vexatious or oppressive; (3) threaten 11 the issuing court's in rem or quasi in rem jurisdiction; or (4) where the proceedings prejudice other 12 equitable considerations.” Id. at 882 (quoting Gallo, 446 F. 3d at 990). 13 V. DISCUSSION 14 Defendants request that the Court enjoin UEC and affiliates within its control from further 15 voluntary cooperation with Macanese authorities in the criminal investigation and prosecution of 16 AGML, and of other AGA and Okada affiliates, over the alleged infringement of UEC patents 17 within the scope of AGA’s alleged license. ECF No. 120 at 2. With regard to the Macanese 18 investigation, Defendants also request that the Court enjoin UEC from asserting that AGA has no 19 rights to UEC patents without also disclosing Defendants’ pending counterclaims alleging AGA 20 has a license and sublicense to UEC’s patents in the underlying suit before this Court. Id. at 2-3. 21 Defendants also move the Court to enjoin UEC from initiating or encouraging additional foreign 22 government authorities to criminally prosecute Okada, AGA, or any of their affiliates on issues 23 relating to the right to use patents within the scope of AGA’s alleged license, pending resolution 24 of the underlying counterclaims. Id. at 3. 25 Employing the three-part test elucidated by the Ninth Circuit in Microsoft Corp., the Court 26 first considers whether or not the parties and the issues are the same in both the domestic and 27 foreign actions, and whether or not the first action is dispositive of the action to be enjoined. 28 Defendants argue that both the parties and issues are functionally the same in both this and 1 the Macau action. With regard to the parties, Defendants assert that “functionally UEC is a party” 2 to the Macau action because the Public Prosecutor in investigating the criminal complaint filed by 3 UEC and potentially filing charges and trying the case, with the potential assistance of UEC, will 4 “indirectly represent UEC’s interests in pursuing the[] criminal charges, as any relief obtained 5 would benefit UEC.” ECF No. 120 at 15-16. UEC counters that the Public Prosecutor is not the 6 functional equivalent of UEC and that Defendants have proffered no evidence that AGML and 7 AGA “share the type of affiliation . . . that courts have recognized would satisfy [the] identity 8 requirement.” ECF No. 126 at 7-8. Specifically, UEC argues that the Macau action is not a civil 9 action in which UEC sought “to protect its own civil patent rights,” id. at 6-7, and the private entity 10 who files the criminal complaint “is not a party to the criminal investigation and has no control or 11 authority of the investigation nor decision to indict” though it may be asked to or may request to 12 assist, id. at 7. Regarding the relationship between AGML and AGA, UEC asserts that Defendants 13 have not shown that any adverse consequences of the Macau action on AGML would extend to 14 AGA. Id. at 8. 15 In reply, Defendants note that the declaration and organizational chart attached to their 16 motion “outlining the close affiliation between Defendants and AGML” provides evidence in 17 support of common ownership and shared business practices and assets, and therefore evidence 18 that Defendants and AGML are functionally the same. ECF No. 127 at 5 (citing Exs. N, FF, ECF 19 No. 120). With regard to UEC, Defendants assert in reply that UEC’s admission that it initiated 20 the criminal complaint and the fact that Macau procedure permits the private entity to voluntarily 21 assist in the criminal investigation, leads Defendants to “believe that UEC has continued to 22 voluntarily and gratuitously insert itself further into the Macau proceedings by requesting to be 23 made an assistant to the Macanese Authorities.” Id. at 6. This conduct is consistent with “a role 24 that is functionally similar to an active litigant,” thereby warranting an injunction. Id. at 6. 25 The Court finds that Defendants have not satisfied this initial hurdle of the first factor in 26 the Microsoft Corp. test because they have failed to show that the parties are the same, in either 27 the Macau action or any future foreign criminal proceedings. Microsoft Corp. itself considered 28 facts very similar to those at issue here, with one crucial exception. In that case, the Ninth Circuit 1 considered an interlocutory appeal of the district court’s foreign anti-suit injunction. Microsoft 2 filed a breach of contract suit against Motorola, arguing that Motorola had breached its contractual 3 obligation to license standard-essential patents to the International Telecommunications Union and 4 Institute of Electrical and Electronics Engineers with terms that are “reasonable and 5 nondiscriminatory.” 696 F.3d at 876-78. Microsoft was a third-party beneficiary to the contract. 6 Id. Months after the civil litigation began, Motorola sued Microsoft in a German court, alleging 7 patent infringement. Id. at 879. That German court found that Microsoft did not have a license to 8 use Motorola’s patents and that Microsoft did not have third-party contractual rights based on 9 German law. Id. The court enjoined Microsoft from using the patents in Germany. Id. Because the 10 German injunction was not self-enforcing, Microsoft sought an order in the U.S. civil action to 11 enjoin Motorola from enforcing German injunctive relief. Id. The district court granted the 12 injunction, and the Ninth Circuit agreed with the lower court’s reasoning that the U.S. contract 13 dispute would be dispositive of the German patent action because the patents at issue in that action 14 were included in the proposed worldwide license to Motorola’s standard-essential patents at issue 15 in the contract dispute. Id. at 880, 883. 16 Importantly, in Microsoft Corp., all agreed on the threshold issue that the parties were the 17 same in both the German and U.S. actions. Id. at 883. Here, the fact that the Macau action is a 18 criminal, rather than civil proceeding, and therefore invokes the power of the Macanese 19 government itself, makes plain the vital distinction between these two cases, and the necessity for 20 a divergent result. The Macanese Public Prosecutor is not the functional equivalent of UEC, though 21 the procedures of that country permit UEC to voluntarily assist in the investigation. The Public 22 Prosecutor, not UEC, will ultimately make the decision as to whether there is evidence sufficient 23 to suggest a crime has been committed, and therefore that an indictment is warranted. Defendants 24 ask this Court to enjoin UEC from that continued voluntary cooperation, if indeed it is engaged in 25 that conduct, and not to enjoin the criminal proceeding itself. The Court appreciates the distinction 26 but is unwilling to exercise its equitable powers to enjoin UEC from participation in a Macanese 27 criminal proceeding that is governed by Macanese procedural rules and led by Macanese 28 authorities, to determine whether there has been a violation of Macanese criminal law. 1 Moreover, even assuming, arguendo, that Defendants were able to satisfy the first and 2 second Microsoft Corp. factors, they would not satisfy the third. The Court finds in the instant case 3 that the impact of such an injunction on international comity would not be “tolerable.” Defendants 4 request that the Court enjoin UEC from “initiating or encouraging additional foreign government 5 authorities to criminally prosecute Mr. Okada, AGA or any of their affiliates” on issues concerning 6 the patents at issue in this action. ECF No. 120 at 3. However, the criminal patent infringement 7 complaint process of Macau clearly allows for initiation of a criminal investigation by a non- 8 governmental entity. Yet, this non-governmental entity does not ultimately direct the investigation 9 or decide whether criminal charges may be brought. This is to say that it is not essentially a civil 10 proceeding whose prosecution or litigation is directed by third parties. As the determination of 11 how a country’s criminal laws should be investigated and enforced represents one of the most 12 important characteristics of sovereign authority, this Court will not intervene in an essentially 13 criminal proceeding of another country. While Defendants move the Court to enjoin the initiation 14 or encouragement itself, and not the resulting criminal prosecutions, the Court finds that enjoining 15 such conduct would have an intolerable impact on the criminal proceeding and thus international 16 comity. Foreign governments have the right to enforce their criminal laws and to investigate 17 credible allegations of violations. Whether they choose to do so, once allegations have been made, 18 is in accordance with the application of their laws to the facts at hand. UEC may make allegations 19 against Defendants, but that in itself does not necessarily result in criminal investigation and 20 prosecution. Defendants essentially ask this Court to enjoin UEC from alerting foreign 21 governments to potential violations of their criminal laws. Whether those allegations are credible 22 enough to warrant investigation is a decision to be made by the foreign government. The Court 23 declines to intrude upon this sovereign discretion. 24 As the Court finds that Defendants have not established that the parties are the same in 25 both this action and the Macau action, and will not be the same in any future foreign criminal 26 actions, Defendants have failed to meet the initial hurdle of the first factor of the Microsoft Corp. 27 test, and the Court does not consider the parties’ remaining arguments. 28 // ! VI. CONCLUSION 2 IT IS THEREFORE ORDERED that Defendants Aruze Gaming America, Inc. and 3 Kazuo Okada’s Motion for Temporary Restraining Order (ECF No. 119) and Motion for ‘ Preliminary Injunction (ECF No. 120) are DENIED. ° Good cause appearing, IT IS FURTHER ORDERED that Defendants Aruze Gaming 6 America, Inc. and Kazuo Okada’s Motion for Leave to File Under Seal Application for Temporary Restraining Order and Motion for Preliminary Injunction (ECF No. 118) in accordance with Rule 8 5.2(d) of the Federal Rules of Civil Procedure is GRANTED, nunc pro tunc. 9 10 DATED: March 16, 2020. 11 2 RICHARD F. WARE, II 13 UNITED STATES DISTRICT JUDGE 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

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