## Facts

- Sega owned copyrights in video game software and trademarks associated with Sega games and branding.
- Chad Scherman operated an electronic bulletin board system (BBS) known as “MAPHIA,” which allowed users to upload and download files via modem.
- Users uploaded and downloaded unauthorized copies of Sega games through the BBS, including pre-release (“beta”) versions.
- Scherman marketed and sold “game copiers,” devices used to copy Sega game cartridges into files that could be uploaded, distributed, and played without owning authorized cartridges.
- Sega investigated through undercover access and later obtained a court-ordered seizure of Scherman’s computer equipment, confirming the presence of infringing Sega game files on the BBS.
- Evidence indicated the BBS’s operation and user privileges were connected to the acquisition or use of copying devices, and messages on the BBS encouraged unauthorized trading of Sega games.
- In discovery, Scherman invoked the Fifth Amendment on questions bearing on his knowledge and involvement.

## Issues

1. Whether Scherman was liable for contributory copyright infringement by knowingly inducing, causing, or materially contributing to users’ unauthorized uploading and downloading of Sega games.
2. Whether use of Sega trademarks in connection with the BBS and game distribution created actionable trademark infringement and false designation of origin under the Lanham Act and related state-law claims.
3. Whether users’ copying and downloading of entire Sega games through the BBS for home entertainment qualified as fair use under 17 U.S.C. § 107.
4. Whether Sega was entitled to a permanent injunction and statutory damages based on the established violations.

## Decision

- The court granted Sega summary adjudication of liability against Scherman for contributory copyright infringement.
- The court found Scherman liable for federal trademark infringement and false designation of origin, as well as related California trade name infringement and unfair competition.
- The court rejected fair use because the copying was commercial in context, nontransformative, involved copying entire works, and harmed Sega’s market.
- The court entered a permanent injunction barring further copying or distribution of Sega games through the MAPHIA BBS or any other BBS run by Scherman.
- The court awarded statutory damages for copyright infringement, emphasizing willfulness and deterrence.

## Legal Principles

- A party is liable for contributory copyright infringement when, with knowledge of infringing activity, the party induces, causes, or materially contributes to another’s infringement.
- Operating an online distribution system can constitute material contribution when the operator supplies the facilities and encouragement enabling infringement, including tools and services designed to facilitate copying and exchange of protected works.
- In assessing fair use under 17 U.S.C. § 107, copying entire entertainment software for consumption purposes, without transformation, and in a way that substitutes for lawful purchases weighs strongly against fair use, particularly where market harm is shown.
- Use of another’s trademark in commerce that is likely to cause confusion as to affiliation, sponsorship, or authorization supports liability for trademark infringement and false designation of origin.
- Permanent injunctive relief is appropriate where ongoing infringement is likely absent court intervention; statutory damages may be imposed to address willful infringement and deter similar conduct.

## Conclusion

The court held a BBS operator liable for contributory copyright infringement and trademark-based claims where he knowingly enabled and encouraged users to trade complete unauthorized copies of Sega games and sold copying devices facilitating that activity, concluding the conduct was not fair use and warranting permanent injunctive relief and statutory damages.


Sega Enters. Ltd. v. MAPHIA, 948 F. Supp. 923 (N.D. Cal. 1996)