Another Reason Why It’s Important to Distinguish Between Conditions and Obligations

Chris Lemens, longtime reader and now member of Koncision’s confidentiality agreement editorial board, steered me to the Ninth Circuit’s recent opinion in MDY Industries v. Blizzard Entertainment. (Go here for a PDF copy.)

He correctly thought I’d find it of interest because of the court’s discussion of the importance of distinguishing between conditions and obligations (or as the court refers to them, “conditions precedent” and “covenants”).

The dispute involved MDY’s sale of Glider, a technology that automates play of the early levels of the online role-playing game “World of Warcraft.” The court held that as part of its case for secondary copyright infringement by MDY, Blizzard had to establish direct infringement by demonstrating that Glider owners violated one of Blizzard’s exclusive rights.

At issue was § 4(B) of Blizzard’s terms of use (or ToU), which provided as follows:

You agree that you will not … (ii) create or use cheats, bots, “mods,” and/or hacks, or any other third-party software designed to modify the World of Warcraft experience; or (iii) use any third-party software that intercepts, “mines,” or otherwise collects information from or through the Program or Service.

Here’s what the court had to say about this language (citations omitted):

We refer to contractual terms that limit a license’s scope as “conditions,” the breach of which constitute copyright infringement. We refer to all other license terms as “covenants,” the breach of which is actionable only under contract law. …

A Glider user commits copyright infringement by playing WoW while violating a ToU term that is a license condition. To establish copyright infringement, then, Blizzard must demonstrate that the violated term — ToU § 4(B)—is a condition rather than a covenant. …

A covenant is a contractual promise, i.e., a manifestation of intention to act or refrain from acting in a particular way, such that the promisee is justified in understanding that the promisor has made a commitment. A condition precedent is an act or event that must occur before a duty to perform a promise arises. Conditions precedent are disfavored because they tend to work forfeitures. Wherever possible, equity construes ambiguous contract provisions as covenants rather than conditions. However, if the contract is unambiguous, the court construes it according to its terms.

Applying these principles, ToU § 4(B)(ii) and (iii)’s prohibitions against bots and unauthorized third-party software are covenants rather than copyright-enforceable conditions. …

So the court held that Blizzard had failed to establish direct infringement.

I agree with the court that the language at issue is best read as constituting language of obligation. If you want to know how to articulate a condition that won’t be confused for an obligation, consult MSCD chapter 3. I leave to copyright types to determine whether as a matter of copyright law it would make sense to couch all such provisions as conditions.

At any rate, I found it interesting to encounter a context where a particular significance is attributed to the difference between conditions and obligations. For more on that distinction generally, see this April 2007 AdamsDrafting blog post.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.

5 thoughts on “Another Reason Why It’s Important to Distinguish Between Conditions and Obligations”

  1. Very interesting to see the US approach to distinguishing conditions and obligations. From an English perspective, the distinctions seem to fall out a little differently. Chitty on Contracts (para 12-027, 30th edn) distinguishes between promissory conditions and contingent conditions. The judge in the case you cite, in his reference to conditions, appears to be referring to what English law would describe as contingent conditions. Conditions precedent are the most familiar example of contingent conditions. I agree with MSCD that “condition precedent” is an old-fashioned expression. Unlike MSCD, I would prefer to call these “pre-conditions” rather than conditions, in view of the many other types of condition.

  2. I agree that s.4(B) reads like a contractual obligation rather than a precondition. But although “conditions precedent” are (confusingly) mentioned in the opinion, I think the judge seems to be considering whether the clause is a “condition” in the broader sense, i.e. a clause which, if breached, allows rescission of the contract as well as damages. (The top of page 19997 of the opinion mentions concepts similar to the “root of the contract” test used in English law).

    Preconditions are just an evolution of this principle – in each case, breach of (or failure to meet) the condition results in the law treating the parties as if no obligation had ever arisen on the innocent party. For non-precedent conditions (do they have another name?), usually this means money is repaid.

    So, does this fascinating academic discussion have any significance in terms of drafting? I think so, because a “condition” in the broader sense, unlike a precondition, may well look grammatically like any other contract term. So, if it is important to avoid a judge having to decide whether the term is of the nature of a “condition” or not (and so determining whether a party can rescind the contract), I would say in the agreement that the contract can (or can’t) be rescinded for breaches of particular clauses – this is generally allowed in English law, at least.

    (I am aware that applying English law principles to Arizonan copyright law would probably end in tears in reality! It’s as much a general point as a comment on the case.)

  3. It seems to me that the opinion blends together two different defintions of “condition.” One is a condition precedent, “an act or event that must occur before a duty to perform a promise arises.” That’s the type of condition that is disfavored because those conditions tend to work forfeitures. Note that one cannot really breach a condition precedent. Either it is satisfied or it is not. If not, the duty to perform is never triggered. In this context, I think that if there were a condition precedent that was not satisfied, there would be no license granted, period.

    The other definition of “conditions” is “contractual terms that limit a license’s scope. . . the breach of which constitute copyright infringement.” I think that’s different. There doesn’t seem to be any question that there was a license granted, which (as explained above) should be the result of not satisfying a condition precedent. Instead, the question is the SCOPE of the license granted. That’s different.

    Nonetheless, the result seems right to me, based on the language of the contract. The language doesn’t seem to limit the scope of the license (headings notwithstanding). Instead, the provisions are worded as negative covenants. However, I think the discussion of conditions precedent is unnecesary to get there.

    • To answer my own question — whether a license condition is a conditio precedent — I suppose it is properly viewed that way given that the grant of a license is not a one-time duty that is satisfied immediately upon execution of the agreement. Instead it is an ongoing duty not to sue for infringement as long as the licensee stays within the confines of the license conditions.


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