Filed 4/22/22 NetEase Inc. v. PUBG Corporation CA1/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or

or dered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION ONE

NETEASE INC.

, et al.,

Plaintiffs and Appellants

,

v.

PUBG CORPORATION et al.

,

Defendant s and Respondents

. A 1 60572

( San Mateo County
Super. Ct. No. 20CIV01382 )

This is an appeal from an order granting a preliminary injunction , the

effect of which is to enjoin NetEase Inc., NetEase Information Technology

Corporation, and Hong Kong NetEase Interactive Entertainment Limited

(collectively, NetEase) from engaging in certain behaviors pend ing the

resolution of litigation to determine whether NetEase breached its March

2019 s ettlement agreement with PUBG Corporation and PUBG Santa

Monica, Inc. (collectively, PUBG) (settlement agreement )

. NetEase argues on

appeal that the trial court abused its discretion in determining both that

PUBG was likely to succeed on the merits of its breach of contract claims and

that PUBG would be harmed in the absence of the preliminary injunction

.

NetEase additiona l ly claims that the trial court erred by issuing a

preliminary injunction allowing for greater relief than PUBG would be2

entitled to at trial

. Seeing no abuse of discretion in the granting of the

preliminary injunction in this contract dispute , we affirm. 1

I.

FACTUAL AND PROCEDURAL BACKGROUND

A. The Parties and Their Products

The parties possess competing video games in the “battle royale” genre.

The battle royale genre of video games “takes its name from the 1999

Japanese novel Battle Royale by Koushun Takami. Battl e royale games

simulate a free

- for

- all

, ‘every man for himse lf,’ battle between a large group

of players

— often 50 or more. Players ‘win’ battle royale games by being the

last player left alive at the end of the battle, referred to as the ‘last man

standing.’ Battle royale games are often set in recently

- deserted, but

formerly inhabited locations, such as an abandoned city, island, or port town.

Players must scavenge among abandoned structures and building s in order to

find weapons, equipment, and supplies that they use to fight the other

players.”

Bluehole Ginn o Games Inc. (Bluehole) release d its battle royale game

“ Playerunknown’s Battlegrounds ” ( Battlegrounds ) in approximately

March 2017. PUBG Corp. is the successor in interest to Bluehole with

respect to Battlegrounds

. PUBG Santa Monica, Inc. was formed as a wholly

owned subsidiary to support the Battlegrounds community in the United

States. Battlegrounds quickly became successful . Its early

- access public beta

version sold one million copies in less than a month, faster th an any other

game had ever sold on Steam, a major online computer game distribution

1 The settlement agreement at issue contains numerous confidential ity

provisions, and much of the record in this matter has been filed under seal.

Thus, our decision necessarily omits many specific details in order to preserve
that confidentiality.3

site. By July 2017, Battlegrounds reached over $100 million in sales. It

broke a Steam record in September 2017 by having 1.35 million players

playing at the same time.

Net E ase released the battle royale game “ Rules of Survival ,” in

November 2017. It l aunch ed a nother battle royale game, “ Knives Out

, ” that

same month which was only marketed to a handful of high

- income territories,

mostly in Japan and Taiwan. Net E ase also created a third game, “ Survivor

Royale

, ” using the same materials as Kni v es Out, but translating them into

new languages to enable global marketing. The initial version of Survivor

Royale was also released in November 2017. Thereafter, NetEase added new

material to Survivor Royale to differentiate it from Knives Out. Survivor

Royale , however, was never a commercial success. NetEase disabled

downloads of the game in September 2019 so new players could no longer

play the game. In November 2019

, the entire game was shut down so that it

was no longer accessible to players.

B. Initial Litigation an d Settlement

PUBG became c oncerned that Rules of Survival and Kni v es Out “copied

a significant number of the same visual and other protectable elements” of

Battlegrounds and that the NetEase games “appeared to be trading

wholesale on the ‘look and feel’ of ” Battlegrounds through “extensive copying

of individual and ensembles of elements

. ” It therefore filed a lawsuit in

federal district co urt in April 2018, asserting cla ims for copyright

infringement, trade dress infringement, and unfair competition. ( PUBG

Corporation v. NetEase, Inc. ( N.D.Cal., No. 4: 18

- cv

- 02010

- JSW) ( PUBG I ); see

also PUBG Corporation v. NetEase, Inc. (N.D.Cal. Mar. 3, 2020, No. 19

- cv

06615

- JSW) 2020 U.S.Dist. Lexis 37604 ( PUBG II ) [summarizing PUBG I ].)

NetEase moved to dismiss, arguing that “PUBG’s lawsuit was an improper4

effort to monopolize the entire ‘battle royale’ genre of video games” and that

“PUBG had not actually ident ified any elements of Battlegrounds which were

both (i) protectab l e in copyright or trade dress and (ii) copied by NetEase.”

After mediation and extended negotiations, the parties resolved

PUBG I by entering into the settlement agreement on March 11, 2019.

Among other things, the settlement agreement contains a strict

confidentiality provision, so that the parties’ business decision to settle could

not be misconstrued as indicative of their views on the merits of PUBG I

. It

also includes a mutual general release with respect to the claims asserted in

PUBG I , including a waiver of Civil Code section 1542. In particular, the

settlement agree ment provides that each party “fully understands that if the

facts with respect to the [settlement agreement] are found hereafter to be

other than or different from the facts now believed by it to be true, it

expressly accepts and assumes the risk of such possible differences in fact

and agrees that the [settlement agreement] shall b e and remain effective,

notwithstanding any such differences.” The parties additionally agreed that

the settlement agreement should be construed and enforced in accordance

with California law. Having settled the matter, the parties entered a

stipulated d ismissal of PUBG I , and it was dismissed on April 8, 2019.

Six months later, on October 15, 2019, PUBG filed PUBG II in federal

district court, alleging that NetEase had breached the terms of the

settlement agreement. However, in February 2020, the par ties jointly asked

to brief the issue of whether the federal court had jurisdiction over the

matter, given that the stipulated dismissal in PUBG I failed to expressly

state that the federal court retained jurisdiction. (See Kokkonen v. Guardian

Life Ins

. Co. of America (1994) 511 U.S. 375, 3 81

– 382 [ “ If the parties wish to

provide for the court’s enforcement of a dismissal

- producing settlement5

agreement, they can seek to do so [in the dismissal order].

. . . Absent such

action, however, enforcement of the settlement agreement is for state courts,

unless there is some independent basis for federal jurisdiction.” ].) Th e

lawsuit was subsequently dismissed for lack of subject matter jurisdiction on

March 3, 2020. ( PUBG II

, supra , 2020 U.S.D ist. Lexis 37604 .)

C. Current Litigation and Preliminary Injunction

O n March 4, 2020, NetEase initiated the current litigation, seeking a

declaration that it was not in breach of the s ettlement a greement

. According

to NetEase

— since shortly after the execution of the settlement agreement

—

PUBG had “attempted to manufacture new claims against NetEase under

distorted interpretations of the [s] ettlement [a] greement’s clear and

unambiguous terms,” necessitating declaratory relief as to the parties’

“rights and obligations” under the settlement agreement. PUBG responded

by fil ing a cross

- complaint

, alleging that NetEase had breached two different

terms of the settlement agreement

— paragraphs 5.a. and 5.d., hereafter the

5 ( a ) and 5 ( d ) obligation s

.

P UBG also filed a motion for a preliminary injunction, requesting that

NetEase be enjoined from breaching the settlement agreement with respect

to the 5(a) and 5(d) obligations pending trial

. In support of its argument that

it was likely to succeed on the meri ts of its breach of contract claim, PUBG

pointed to the following: (1) a single, specific breach of the 5(a) obligation;

(2) NetEase’s allegedly too narrow construction of a term used in connection

with the 5(a) obligation ; (3) certain allegedly inadequate responses by

NetEase to the 5(a) obligation ; (4) several violations of the 5(d) obligation by

NetEase ; and (5) NetEase’s allegedly too narrow co nstruction of the 5(d)

obligation

. PUBG a ssert ed

, in addition

, that it would suffer irreparable harm

without the issuance of a preliminary injunction.6

On July 23, 2020, the trial court heard argument with respect to

PUBG’s preliminary injunction motion. NetEase opposed the motion,

contendi ng that PUBG’s request impermissibly altered the status quo by

asking for relief beyond that required by the settlement agreement before the

matter was considered by the jury. With respect to the 5(d) obligation,

NetE ase claimed that PUBG was improperly asking for retroactive relief and

that its request was contrary to the plain wording of the obligation. NetEase

argu ed further that altering the status quo as requested by PUBG would

cause NetEase significant harm. In contrast, NetEase asserted PUBG had

not offered persuasive evidence that it would be harmed absent the

injunction.

The trial court granted the preliminary inju nction in part and denied it

in part , opining that PUBG had shown “a significant likelihood of success on

the merits of it claims for breach of contract” with respect to both the 5(a)

obligation and the 5(d) obligation in the settlement agreement. The cou rt

additionally determined that “PUBG ha [d] demonstrated that it is likely to

suffer immediate and irreparable injury as a result of NetEase’s conduct

because such conduct will irreparably harm PUBG’s business reputation and

goodwill with its customers.” Finally, i t found that the “ balance of equities

favor [ed] PUBG against NetEase.” The trial court there fore enjoined

NetEase from various behaviors related to the 5(a) and 5(d) obligations. The

court also denied NetEase’s request to stay the preliminary i njunction

pending appeal. N etEase timely appealed

.

D. Post i njunction Proceedings

On July 29 , 2020, NetEase filed an emergency petition and motion for a

temporary stay of the preliminary injunction order in this court

, pending the

filing of a writ of supersedeas. It claimed a stay was necessary given the7

“hopelessly vague preliminary injunction” which upset the status quo and

provided “an impossible deadline for compliance.” W e granted a temporary

stay of the prelimin ary injunction the next day and requested further

briefing

.
On August 19, 2020, we dissolved our temporary stay and denied

NetEase’s emergency stay petition, instructing the parties to resolve any

factual disputes regarding the scope of the preliminary i njunction in the trial

court in the first instance

. NetEase responded by fil ing a motion for

clarification of the preliminary injunction in the trial court on September 1,

2020. Specifically

, NetEase was seeking assurance that the preliminary

injunction did not require certain specific actions to be taken pending trial

with respect to the 5(a) obligation

.
While the clarification motion was pending

, PUBG filed a n application

for an order to show cause regarding contempt on October 2, 2020

, arguing

that NetEase had consistently disobeyed the preliminary injunction order

.
According to PUBG, NetEase was in contempt for failing to comply with

PUBG’s understanding of the 5(a) obligation

— as reflected in the preliminary

injunction

— pending trial. As for the 5(d) obligation, PUBG noted that

although NetEase had not sought any clarification , it had failed to comply

with the preliminary injunction’s mandate with respect to the 5(d) obligation.

On October 5 , 2020, NetEase filed a petition for writ of supersedeas

with this court, arguing that we should “stay the fatally vague and unclear

preliminary injunction.” NetEase characterized the preliminary injunction

motion as a request by PUBG for the trial court to rewrite the settlement

agreement in PUBG’ s favor despite the contract’s clear terms

. It claimed

that, in issuing the preliminary injunction, the trial court failed to make clear

whether it was accepting PUBG’s broader version of the contractual8

obligations or improperly ordering NetEase to perform obligations it had

already completed

. How ever, NetEase expressly agreed that “[i]f the trial

court clarifies that its order simply prohibits NetEase [from taking certain

actions], and rejects PUBG’s efforts to hold NetEase in contempt, then no

stay will be necessary. ”

The trial court considere d both PUBG’s contempt request and

NetEase’s clarification motion together o n November 5, 2020

. T he court

granted NetEase’s motion , clarifying which actions should not be taken

pending trial

— a s well as those that need not be taken

— with respect to the

5(a) obligation

. In doing so, the court noted that conforming the preliminary

injunction to PUBG’s understanding of the 5(a) obligation would be

inappropriate because it involved questions that should be left for the jury.

Consequently, t he court denied PUBG’s contempt request.

On November 12, 2020, we requested supplemental briefing addressing

whether any action taken by the trial court at the November 5 clarification

hearing affected NetEase’s pending petition for writ of supersedeas

. PUBG

argued th at the petition was moot given the trial court’s clarification that

NetEase need not take certain actions with respect to the 5(a) obligation

pursuant to the preliminary injunction . Thus, the clarification “eliminated

both the merits claim that the injunc tion is vague and also the possibility of

potential harm” which formed the bases for NetEase’s writ petition

.
However, NetEase declined to withdraw the petition unless PUBG agreed

that NetEase was not currently in violation of the injunction as clarified.

NetEase read the trial court’s clarification order as not requiring certain

actions with respect to either obligation pending trial. It confirmed that it

could not agree to withdraw its writ petition because PUBG would not say

that it would not initiate any further contempt proceedings with respect to9

the 5(a) or 5(d) obligations. NetEase claimed this threat of further contempt

proceedings was sufficient to support its petition. Relying on Net E ase’s own

statement s regardin g when its writ petition would no longer be necessary , we

denied the petition for writ of supersede a s as moot on November 23, 2020

.

The merits of th is matter are now before us for decision.

II.

DISCUSSION

A. Legal Framework and Standard of Review

As the name suggests, “ ‘[a] preliminary injunction is an order that is

sought by a plaintiff prior to a full adjudication of the merits of its claim.’ ”

( Amgen Inc. v. California Correctional Health Care Services (2020)

47 Cal.App.5th 716, 731 ( Amgen ) .) “ ‘ The general purpose of a preliminary

injunction is to preserve the status quo pending a determination on the

merits of the action. ’ ” ( McCann v. City of San Diego (2021) 70 Cal.App.5th

51, 98 ( McCann ) .) “In determining whether to issue a preliminary injunction,

the trial court considers two related f actors: (1) the likelihood that the

plaintiff will prevail on the merits of its case at trial, and (2) the interim

harm that the plaintiff is likely to sustain if the injunction is denied as

compared to the harm that the defendant is likely to suffer if th e court grants

a preliminary injunction. ” ( Western Growers Assn. v. Occupational Safety &

Hea l th Standards Bd. (2021) 73 Cal.App.5th 916

, 930 ( Western Growers ).)

“ ‘ The latter factor involves consideration of such things as the inadequacy of

other remedies, the degree of irreparable harm, and the necessity of

preserving the status quo. ’ ” ( Take Me Home Rescue v. Luri (2012)

208 Cal.App.4th 1342, 1350 ( Take Me Home ) .)

“ The determination of whether to grant a preliminary injunction

generally rests in the sound discretion of the trial court .” ( Western Growers

,

supra

, 73 Cal.App.5th at p. 930

. ) When determin ing whether to issue a10

preliminary injunction

, the trial court exercise s its discretion by considering

and weighing the two interrelated factors. ( Take Me Home

, supra

,

208 Cal.App.4th at p. 1350 .) Thus, “ ‘ [t] he more likely it is that plaintiffs will

ultimately prevail, the less severe must be the harm that they allege will

occur if the injunction does not issue. [Citation.] Further, “ if the party

seeking the injunction can make a sufficiently strong showing of likelihood of

success on the merits, the trial court has discretion to issue the injunction

notwithstanding that p arty ’ s inability to show that the balance of harms tips

in his [or her] favor. ” ’ ” ( Id. at pp. 1350

– 1351.) “ The trial court ’ s order on a

request for a preliminary injunction ‘reflects nothing more than the superior

court ’ s evaluation of the controversy on the record before it at the time of its

ruling; it is not an adjudication of the ultimate merits of the dispute.’ ”

( People v. Uber Technologies, Inc. (2020) 56 Cal.App.5th 266, 283 ( Uber ).)

We review a trial court’s issuance of a preliminary injunction for abuse

of discretion. (

Amgen

, supra , 47 Cal.App.5th at p. 731.) T he burden is on the

party challenging the injunction to make a clear showing of abuse. ( Uber

,

supra

, 56 Cal.App.5th at p. 283.) “ Discretion is abused when a cour t exceeds

the bounds of reason or contravenes uncontradicted evidence .” ( Western

Growers

, supra

, 73 Cal.App.5th at p. 930 .) In contrast, “[t] he court properly

exercises its discretion where its determination is supported by substantial

evidence. [Citation.] ‘ “

. . . ‘ [T]he trial court is the judge of the credibility of

the affidavits filed in support of the application for preliminary injunction

and it is that court ’ s province to resolve conflicts. ’ [Citation.] Our task is to

ensure that the tri al court ’ s factual determinations, whether express or

implied, are supported by substantial evidence. [Citation.] Thus, we

interpret the facts in the light most favorable to the prevailing party and

indulge in all reasonable inferences in support of the trial court ’ s order. ” ’ ”11

( Id. at p p

. 930

– 931 .) “ ‘ However, if the “ likelihood of prevailing on the merits ”

factor depends upon the construction of a statute or another question of law,

rather than evidence to be introduced at trial, our review of that issue is

independent or de novo. ’ ” ( Amgen

, at p. 731.)

Since a determination of the underlying merits in this case will require

resolution of the parties’ disputes regarding their rights and obligations

under the settlement agreement, we review salient principles with respect to

contract interpretation. Where the language of a writing is unambiguous, its

interpretation is solely a judicial function, with the threshold question of

ambiguity also a question of law. ( Parsons v. Bristol Development Co. (1965)

62 Cal.2d 861, 865 ( Parsons ) ; Appleton v. Waessil (199 4 ) 27 Cal.App.4th 551,

554

– 555.) We must interpret the contract to give effect to the mutual

intention of the parties at the time the contract was formed. And such intent

should be a scertained

, if possible, from the written provisions of the

agreement

. (Civ. Code, § 1636; Thompson v. Miller (2003) 112 Cal.App.4th

327, 335.) Thus, it is generally the objective intent of the parties as

evidenced by the words of the contract that control s

. ( Shaw v. Regents of

University of California (1997) 58 Cal.App.4th 44, 54

– 55 .) W henever

possible

, the whole of a contract is to be read so that each clause helps to

interpret the other and give effect to every part thereof. (Civ. Code, § 1641;

Bear Creek Planning Committee v. Ferwerda (2011) 193 C al.App.4th 1178,

1183.)

However, where a contract is reasonably susceptible to two or more

meanings

, it is ambiguous; and, in the case of ambiguity, extrinsic evidence

may be introduced to aid the interpretation of the contract. ( Nava v. Mercury

Casualty Co

. (2004) 118 Cal.App.4th 803, 8 05; Pacific Gas & Electric Co. v.

Zuckerman (1987) 189 Cal.App.3d 1113, 1140

– 1141.) For instance, “ extrinsic12

evidence of such objective matters as the surrounding circumstances under

which the parties negotiated o r entered into the contract; the object, nature

and subject matter of the contract; and the subsequent conduct of the parties”

may all be considered. ( Morey v. Vannucci (1998) 64 Cal.App.4th 904, 912

( Morey ) .) 2 When “ascertaining the intent of the parties at the time the

contract was executed depends on the credibility of extrinsic evidence, that

credibility determination and the interpretation of the contract are questions

of fact that may properly be resolved by the jury.” ( City of Hope National

Medical Center v. Genentech, Inc. (2008) 43 Cal.4th 375, 395; Morey

, at

pp. 912

– 913 [same] .)

B. Likelihood of Success on the Merits

As stated above, in granting the preliminary injunction in this case, the

trial court opined that PUBG had shown “a sign ificant likelihood that it will

prevail on the merits of it s claims for breach of contract ” with respect to both

the 5(a) obligation and the 5(d) obligation under the settlement agreement

.
NetEase argues on appeal that the trial court abused its discretion in making

this finding because none of three possible grounds advanced by PUBG as to

why it would succeed on the merits of it s breach of contract claims support

issuance of the preliminar y injuncti on

. We disagree with both NetEase’s

analysis and its conclusion

.

2 Indee d, “ [w] here the meaning of the words used in a contract is
disputed, the trial court must provisionally receive any proffered extrinsic

evidence which is relevant to show whether the contract is reasonably
susceptible of a particular meaning. [Citations.]

. . . Even if a contract
appears unambiguous on its face, a latent ambiguity may be exposed by

extrinsic evidence which reveals more than one possible meaning to which
the language of the contract is yet reasonably susceptible.” ( Morey

, supra

, 64 Cal.App .4th at p. 912.)13

1

. The 5(a) Obligation

NetEase acknowledges a single, specific violation of the 5(a) obligation

,

which it corrected a round the time PUBG brought the matter to its attentio n

in July 2019

. D uring the November 2020 clarification hearing, the trial court

opined that t his 5(a) breach was a violation of the settlement agreement.

S ubstantial evidence in the record therefore supports the conclusion that

PUBG will likely prevail on its breach of contract claim with respect to this

specific violation of the 5(a) obligation.

NetEase nevertheless contends that preliminary injunctive relief was

inappropriate based on the 5(a) obligation because the company voluntarily

correct ed this one problem and there was no evidence it was likely to recur.

We address t h is argument below in our discussion of the balance of harms

between the parties

. However, we disagree with NetEase ’s con tention that

th e conceded 5(a) violation is the only possible breach upon which the trial

court could have based its conclusion that PUBG was likely to succeed on the

merits at trial with respect to the 5(a) obligation

.
As summarized above, PUBG supported its preliminary injun ction

request by arguing it was likely to succeed on the merits with respect to five

different categories of breach of contract claims, not just the three NetEase

discusses in its briefing

. NetEase reasons that the trial court could not have

based its pre liminary injunction on the other two 5(a) categories because,

during the hearing on November 5, 2020 , the court stat ed that it “did not

seek to enforce the entirety of [PUBG’s] Preliminary Injunction Motion ” and

clarified that the preliminary injunction did not address those two categories.

In addition, the court denied PUBG’s application for an order to show cause

regarding contempt which was based on th o se same two alleged 5(a)

breaches

. We do not read the trial court’s actions so narrowly.14

In issuing the preliminary injunction, t he trial court was clearly and

appropriately cognizant of the fact that such injunctions are issued solely to

maintain the status quo pending trial

. ( McCann

, supra

, 70 Cal.App.5th at

p. 98.) The cou rt did not enjoin behaviors related to the two contested 5(a)

obligations because they involved issues of fact for the jury which were

inappropriate for resolution at the preliminary injunction stage. As the court

opined, had it included the se two categories in the injunction, “it would have

essentially been a summary judgment determination

. ” Thus, the trial court

clarified : “While the Court previously made a fin ding of likelihood of success

on the merits, it did not seek to enforce the entirety of [PUBG’s] Preliminary

Injunction Motion .” In other words

, while the trial court did not enjoin any

specific behaviors based on these two categories of alleged 5(a) brea ches , it

does not follow that the trial court failed to include them in its calculation of

PUBG’s overall likelihood of success in the underlying action as NetEase

contends

. Moreover , in our view, substantial evidence exists in the record

supporting PUBG’ s likelihood of success with respect to both additional

categories of 5(a) breaches.

For instance, one of these two disputed categories involves a

di sagreement regarding whether a particular term in the settlement

agreement should be construed broadly eno ugh to include two specific items.

NetEase claims that the disputed term, when understood in its ordinary and

popular sense

, excludes these two items. It cites several dictionary

definitions of the term in support of its position

. PUBG, in contrast, arg ues

that the term is defined by reference to another document and must therefore

be construed in that context.

We are not convinced that this dispute can be resolved by dictionary

definitions. While NetEase points to one common definition, there are others.15

And, in fact, one of the definitions reli ed on by NetEase indicates i t s

requirements are only “usually” applicable. More importantly, however, the

term must be construed in the context of the settlement agreement as a

whole, which specifically defines the term by referencing another document.

(See MacKinnon v. Truck Ins. Exchange (2003) 31 Cal.4th 635, 649

[“ Although examination of various dictionary definitions of a word will no

doubt be useful, such examination doe s not necessarily yield the ‘ordinary

and popular’ sense of the word if it disregards the [contract’s] context.” ].) The

question thus becomes not what the term means generally but what it means

when it is construed as part of the phrase in which it is use d

.
Even when read in context, we agree with the trial court that the term

is ambiguous. PUBG argues in favor of a very broad reading of the term

.

Under this broad reading, both items would be included within the disputed

term. However, two specific par agraphs in the referenced document are

captioned by the disputed term. Thus, a reasonable interpretation of the

settlement agreement might be that the 5(a) obligation applies only to items

identified in th o se paragraphs. Under this interpretation, one of the two

items at issue is clearly included within the disputed term. The other item is

not included in these paragraphs, but it is included in an immediately

preceding paragraph describ ing a broader category of items whi ch could be

viewed as including the disputed term

. Under all of these circumstances, we

conclude that substantial evidence supports the conclusion that PUBG is

likely to succeed on the merits of its 5(a) claim with respect to at least one of

these two ite ms.

The other category of alleged breaches of the 5(a) obligation involve s

PUBG ’s assertion that certain responses by NetEase to its 5(a) obligation

were inadequate. This claim hinges on the construction of the third in a16

series of words contained in the settlement agreement

, which define the scope

of NetEase’s 5(a) obligation. NetEase argues for a narrow construction of this

term, while PUBG contends it must be interpreted more broadly. The trial

court stated this claim involved fact questions for t he jury and thus must

have concluded the disputed term was ambiguous. We agree. Since this

term in the settlement agreement is reasonably susceptible to the

interpretations offered by both sides, we apply appropriate cannons of

construction to determine whether there is substantial evidence that PUBG

will likely succeed on the merits of this 5(a) claim.

NetEase’s construction of the disputed term , if taken to its logical

extreme, would lead to an absurd result which could not have been

contemplated by the parties when drafting the settlement agreement. (See

Civ. Code, § 1638; Galardi Group Franchise & Leasing, LLC v. City of El

Cajon (2011) 196 Cal.App.4th 280, 288 [a court “must interpret a contract in

a manner that is reasonable and does not lead to an absurd result ” ].) Rather,

w e find the doctrine of noscitur a sociis instructive

. “ Noscitur a sociis means

‘ “ a word takes meaning from the company it keeps. ” ’ [Citation.] Under this

rule, ‘ “ ‘ [a] word of uncertain meaning may be known from its associates and

its meaning “ enlarged or restrained by reference to the object of the whole

clause in which it is used. ” [Citation.] ’ [Ci tation.] ” [Citation.] “ ‘ “ In

accordance with this principle of construction, a court will adopt a restrictive

meaning of a listed item if acceptance of a more expansive meaning would

make other items in the list unnecessary or redundant, or would otherw ise

make the item markedly dissimilar to the other items in the list. ” ’ ” ’ ”

( People v. Lucero (2019) 41 Cal.App.5th 370, 398 ; see also Blue Shield of

California Life & Health Ins. Co. v. Superior Court ( 2011 ) 192 Cal.App.4th

727, 740 [same]

. )17

Thus, p ursuant to the doctrine of noscitur a sociis

, the disputed term

cannot be so narrowly construed so as to “ ‘ “ make the item markedly

dissimilar to the other items in the list

, ” ’ ” but it also cannot be so broadly

construed so as to “ ‘ “ make other items in the list unnecessary or

redundant .” ’ ” ( Busker v. Wabtec Corp. ( 2021 ) 11 Cal.5th 1147, 1160 & fn. 11

[construing a term so that it is not “markedly different” from other listed

terms ].) Here, NetEase’s narrow construction of the third listed term in the

series would make that term markedly dissimilar from the other two. On the

other hand, the disputed t erm cannot be read so broadly as to make the other

two terms unnecessary or redundant.

Finally, in construing the disputed term

, we consider “ the surrounding

circumstances under which the parties negotiated or entered into the

contract; the object, nat ure and subject matter of the contract; and the

subsequent conduct of the parties

. ” ( Morey

, supra , 64 Cal.App.4th at p. 912.)

T he settlement agreement in this case resolved PUBG I

, federal litigation

between the parties on the question of whether NetEase’s battle royale video

games infringed PUBG’s copyrights and trade dress rights in Battlegrounds

.
Taking all of these considerations into account

, we determine that

substantial evi dence supports the conclusion that PUBG will likely succeed to

some degree on the merits of this category of 5(a) claim s

.

In sum, substantial evidence supports the trial court’s conclusion that

PUBG had shown “a significant likelihood that it will prevail on the merits of

it s claims for breach of contract” with respect to the 5(a) obligation under the

settlement agreement.

2. The 5(d) Obligation

PUBG cites two item s which it contends are a clear violation of the 5( d )

obligatio n under the settlement agreement. However, NetEase argues that18

th is conduct cannot support the issuance of the preliminary injunction

because the actions are attributable to two Southeast Asia companies

—

Nguyen Bao Digital Company Limited and VNG Singapore PTE. LTD.

(collectively, VNG)

— who are not agents of NetEase

. We wi ll leave th e

dispute regarding VNG’s status for further development and determination

by the trial court in the first instance. Thus, we do not consider th ese two

potential violation s when determin in g whether PUBG will likely prevail on

its breach of cont ract claim with respect to the 5( d ) obligation

.
The parties also discuss a potential single violation of the 5(d)

obligation which PUBG brought to NetEase’s attention in July 2019.

NetEase arranged for the potential violation to be corrected. There is a

timing issue with respect to the 5(d) obligation which we discuss at length

below. Although the exact date th at this single alleged 5(d) violation first

occurred is not entirely clear on this r ecord

, substantial evidence supports the

conclusion that PUBG will likely prevail on its breach of contract claim with

respect to this specific violation of the 5(d) obligation, regardless of how the

timing issue i s resolved

.

The bulk of the p arties ’ dispute with respect t o the 5(d) obligation

involves how certain conduct should be viewed from a temporal perspective.

NetEase argues that conduct which began before a certain date is not

prohibited by the settlement agreement. PUBG, in contrast, maintains that

certain continu ing conduct falls within the 5(d) obligation. We consider the

trial court’s rulings on the matter and the relevant contractual language to

determine which party is more likely to succeed on the merits of this claim.

As stated above, the threshold determi nation regarding whether a

contract is ambiguous is a question of law. ( Parsons

, supra

, 62 Cal.2d at

p. 865.) However, the record is unclear in this case whether the trial court19

has made this preliminary determination. At the July 20 20 hearing on the

preliminary injunction, the court indicated that, with respect to the 5(d)

obligation, the “preliminary injunction is granted as requested.” But neither

the requested language nor the actual wording of the preliminary injunction

definitive ly resolve s the temporal issue. Later in the hearing, the court

stated that the injuncti on was prospective only and related the 5(d) obligation

back to the requirements of the settlement agreement. NetEase did not seek

clarification of the injunction wit h respect to the 5(d) obligation.

Nevertheless, in its November 2020 clarification order, the court again tied

the 5(d) obligation to the terms of the settlement agreement.

Arguably, th en , the trial court was simply enjoining conduct with

respect to the 5(d) obligation to the extent it is prohibited by the settlement

agreement without , at this stage, defining exactly what that means. We

therefore turn to the contract language to inform our analysis of each party’s

likelihood of succeeding with respect to its interpretation of the obligation.

For purposes of this analysis we conclude, g iven the information before us at

this point in the proceedings

, that the language of the 5(d) obligation is

ambiguous. 3

In revi ewing the 5(d) obligation in the context of the settlement

agreement as a whole , we find it interesting that the obligation uses a generic

term twice for a very important concept

— a concept which the parties took

great care to specifically define in at leas t three different ways elsewhere in

the agreement , including in paragraph s 1 .c. and 1.d

. We also look to the

3 The trial court is , of course, free to review all the extrinsic evidence

with respect to the 5(d) obligation at a later point in these proceedings and

conclude as a matter of law that the 5(d) obligation is not reasonably
susceptible to more than one meaning and is therefore unambiguous. (See

Morey

, supra

, 64 Cal.App.4th at p. 912 .)20

wording of the 5(a) obligation

, to which the 5(d) obligation refers. The 5(a)

language includes one of the defined terms for the concept but also includes

another use of the generic term in reference to the agreement’s e xhibit B. A

review of that exhibit reveals a broad series of obligations

, beyond those

involving just the concept as specifically defined , a pparently limited only by

paragraph 5(e) of the agreement.

It is thus clear that , as a general matter, the 5(d) obligation is intended

to capture a broader group of behaviors than those related to the time

- specific

defined term NetEase points to in its argume nt. Moreover, there is no

temporal limitation included in the 5(d) obligation

, and one could easily have

been inserted. On this basis, it could be concluded that if a particular item

falls within the purview of the 5(a) obligation, the 5(d) obligation ap plies

generically to current conduct , regardless of the time limitation NetEase

suggests

. This interpretation provides substantial evidence that PUBG

would likely succeed on the merits of its 5(d) claim.

However, even if NetEase is correct that the 5( d) obligation at issue in

this case only appl ies to the concept as limited by the time

- specific defined

term it suggests, we still conclude that substantial evidence supports PUBG’s

likelihood of success on the merits. In short, we disagree with NetEase tha t

the crucial determination is when and in what exact context a behavior

began. Instead, the key is current conduct. This interpretation is not

retroactive, as the trial court recognized

, but addresses forward

- looking

behaviors as much as words like “cre ate” or “publish” would have

. I t is

simply an acknowledgment of how the particular technology at issue often

works

. Indeed, NetEase concedes that individuals c an currently be exposed

to old behavior s

. Thus, older behaviors, even if specifically dated, that21

continue to exist are still part of the universe of behaviors that accompany

and will continue to impact the time

- limited version of the concept.

In reaching this conclusion, we reject NetEase’s assertion that such a

reading o f the 5(d) obligation renders the defined terms with respect to the

concept at issue unnecessary to the settlement agreement. The definitions

are still necessary both to set a baseline for compliance under paragraph 1 .d.

of the settlement agreement and to make clear what was and was not

required under the 5(a) obligation with respect to the NetEase g ames. We

also disagree that these behaviors were released by the settlement

agreement. Obviously, if actions are required by the settlement agreement

with re spect to current behaviors, they were not released by the settlement

agreement. Rather, we conclude that, under either of the contractual

interpretations discussed above , substantial evidence supports the conclusion

that PUBG will likely succeed on the me rits of it s 5(d) breach of contract

claims.

C. Balance of Harms

As discussed above, in considering whether to grant a preliminary

injunction a trial court weighs the “likelihood the party seeking relief will

prevail on the merits” against the “relative interim harm to the parties if the

preliminary injunction is granted or denied.” ( Uber

, supra

, 56 Cal.App.5th at

p. 283.) “The goal is to minimize the harm that an erroneous interim decision

would cause.” ( Ibid. ) We have concluded that substa ntial evidence supports

the trial court’s determination in this case that PUBG has shown “a

significant likelihood that it will prevail on the merits of it s claims for breach

of contract” with respect to both the 5(a) obligation and the 5(d) obligation

und er the settlement agreement. Under such circumstances, a less severe

showing of harm is sufficient to support the injunction. ( Take Me Home

,22

supra

, 208 Cal.App.4th at pp. 1350

– 1351.) We conclude that the trial court’s

finding that the balance of harms i n this case tips in favor of PUBG is

supported by substantial evidence.

We first consider the harm to NetEase of an erroneous interim decision.

Interestingly, NetEase does not even attempt to make an argument of

interim irreparable harm. And such an arg ument would be difficult to

formulate as the trial court clarified in its November 2020 order that certain

actions were not required by NetEase under the preliminary injunction with

respect to the 5(a) obligation pending trial

. Moreover, with respect to the 5(d)

obligation, if NetEase was not required to undertake the actions it says it

voluntarily began pending trial, 4 it makes no argument that monetary

damages would be insufficient to compensate it for its losses

.

With respect to harm to PUBG, NetEase contends there was no

evidence of harm from the isolated breaches of the settlement agreement

identified by PUBG because NetEase voluntarily corrected the problem

months before the issuance of the preliminary injunctio n, and there was no

evidence that any such acts were likely to be repeated in the future. (See

Choice

- in

- Education League v. Los Angeles Unified School Dist. (1993)

17 Cal.App.4th 415, 431 [no showing of irreparable interim harm where no

evidence the alle ged illegal behaviors were likely to recur].) However, we

have concluded that PUBG’s likelihood of success on the merits , and thus its

likelihood of irreparable harm, is based on claims much broader than those

few allegations. Given the record in this case

— including the identified

4 In its response to PUBG’s request for an order to show cause regarding contempt, NetEase reported that, after this court denied its stay

r equest in August 2020, it took significant actions to comply with PUBG’s
understanding of the 5(d) obligation

, which it believed could be covered by the
terms of the preliminary injunction.23

breaches

, the timing of NetEase’s various responses to PUBG’s allegations

both before and after the issuance of the preliminary injunction , and the

likelihood that PUBG is still suffering with respect to certain continuin g

violations

— we determine that substantial evidence supports the conclusion

that , absent the injunction, breaches were likely to recur.

Moreover , the settlement agreement contemplates that PUBG may

incur substantial harm from even a single breach of the 5(a) obligation. Each

party cites DVD Copy Control Assn., Inc. v. Kaleidescape, Inc. (2009)

176 Cal.App.4th 697 (

Kaleidescape ) as support for its view of the efficacy of

the contractual language of the settlement agreement. Kaleid e scape is a

permanent i njunction case which held

, “ I rreparable harm may be established

where there is the fact of an injury, such as that arising from a breach of

contract, but where there is an inability to ascertain the amount of damage.

In other words, to say that the harm is irreparable is simply anoth er way of

saying that pecuniary compensation would not afford adequate relief or that

it would be extremely difficult to ascertain the amount that would afford

adequate relief.” ( Id. at p. 722.) After noting that “ ‘ the trial court ’ s

discretion is by no means as broad as that which it might exercise in

weighing the equities of the parties’ positions for the purpose of deciding

whether to issue a preliminary injunction

, ’ ” the court held with respect to a

permanent injunction that “a court must reject a st ipulation contemplating

an equitable remedy that is contrary to law or public policy, such as where

the evidence shows that an aggrieved party actually has an adequate remedy

at law. Otherwise, the court should honor the parties ’ agreement and enforce

the stipulation.” ( Id. at p p

. 721

, 726, fn. omitted ; see Grail Semiconductor,

Inc. v. Mitsubishi Elec tric & Elec tric s USA, Inc. (2014) 225 Cal.App.4th 786,

799

– 801 & fn. 12 [no abuse of discretion in denying a permanent injunction24

d espite stipulation in nondisclosure agreement (NDA) ; insufficient evidence

that monetary damages would be insufficient where no evidence that

Mitsubishi was engaging in continuing conduct in violation of the NDA] .)

Both parties overstate the importance of this precedent a t this juncture

in the proceedings. Whether and how PUBG can prove damages for breach of

contract and/or the necessity of a permanent injunction posttrial remains to

be seen . Here, the trial court found that, absent the preliminary injun ction

,

PUBG “is likely to suffer immediate and irreparable injury as a result of

NetEase’s conduct because such conduct will irreparably harm PUBG’s

business reputation and goodwill with its customers

, ” and we believe the

parties’ own contractual language provides som e support for this finding.

( Kaleidescape, supra , 176 Cal.App.4th at p. 722 [“ to say that the harm is

irreparable is simply another way of saying that pecuniary compensation

would not afford adequate relief or that it would be extremely difficult to

ascer tain the amount that would afford adequate relief”].) In terpreting the

facts in the light most favorable to the prevailing party and indulging in all

reasonable inferences in support of the trial court’ s order , we conclude that

this language, along with the evidence of reputational harm presented by

PUBG, constitute substantial evidence supporting th e trial court’s finding.

In this regard, we disagree with NetEase’s contention that conduct or

information from before the execution of the settlement agreement is

irrelevant to an analysis of harm. The question is not whether this conduct

was somehow “released” by the settlement agreement, it is whether facts

supporting possible customer confusion and PUBG’s drop in revenues and

active use rs in the wake of the release of NetEase’s g ames can reasonably be

read as some evidence that PUBG’s ability to control Battleground’s brand

reputation and goodwill with its customers was negatively impacted by the25

NetEase g ames

. Under such circumstances, c ompliance with the resulting

settlement agreement could be deemed necessary to mitigate these harms.

And the threat of imminent loss es that cannot be compensated at trial are

the very harms preliminary equitable relief ar e intended to address. ( See

Broker Genius

, Inc. v. Volpone (S.D.N.Y. 2018) 313 F.Supp.3d 484, 496

[ “ ‘irreparable harm through loss of reputation, good will, .

. . business

opportunities,’ or loss of customer relationships can justify injunctive relief on

a breach of contract claim,” citing cases].) 5

In the end, the goal of a preliminary injunction is to “minimize the

harm that an erroneous interim decision would cause.” ( Uber

, supra

,

56 Cal.App.5th at p. 283.) The task i s essentially “a predictive one.” ( Id. at

p. 301.) Given the strong showing made by PUBG with respect to its likely

success on the merits of its claims and a balance of harms that clearly tippe d

in PUBG’s favor, we cannot say that the trial court abused its discretion by

concluding that PUBG would likely suffer irreparable harm without an

injunction ordering that, at the least, NetEase comply with the undisputed

terms of the settlement agreement pending trial

.

D. Scope of Preliminary Injunction

NetEase finally arg ues that the preliminary injunction is improper as a

matter of law because it exceeds the relief PUBG would be entitle d to at trial.

(See O’Connell v. Superio r Court (2006) 141 Cal.App.4th 1452, 1463 [ “ ‘ “[t]he

scope of available preliminary relief is necessarily limited by the scope of the

5 Frangipani v. Boecker (1998) 64 Cal.App.4th 860, 865, cited by
NetEase, is not a preliminary injunction case and is thus readily
distinguishable. (Compare Take Me Home

, supra , 208 Cal.App.4th at p. 1350
[analysis of harm in preliminary injunction context “ ‘involves consideration

of such things as the inadeq uacy of other remedies, the degree of irreparable
harm, and the necessity of preserving the status quo’ ”].)26

relief likely to be obtained at trial on the merits” ’ ”].) Specifically, NetEase

claim s that the court ’s injunction enjoin s behavior s with respect to bot h the

5(a) obligation and the 5(d) obligation that are potentially broader than the

corresponding language in the settlement agreement requires

. Again, w e

disagree.

With respect to the 5(a) obligation, Ne tEase complains that a word

used in the preliminary injunction is vague, potentially requiring it to engage

in conduct beyond that required by the settlement agreement. However, the

injunction uses the word in connection with certain explicit battle royale

first

- person shooter games developed by NetEase

. Similar language is found

in the settlement agreement in exhibit B , and it seems clear that the word in

the injunction must be limited by and construe d in this context

. 6 I ndeed,

pursuant to paragra ph 5

. e

. and e xhibit B of the settlement agreement, i t is

not only p ossible but very likely that NetEase’s obligations under the

settlement agreement are broader than the conduct enjoined by the court

pending trial. In short, w e see no ambiguity here

.

As for the enjoined behaviors with respect to the 5(d) obligation, we

have already determine d that substantial evidence supports the conclusion

that PUBG is likely to succeed on the merits of its claim for a broader reading

of that obligation under the settle ment agreement than NetEase advocates

.
More importantly

, however, NetEase ignores the court’s clarification order

6 At oral argument in this matter, counsel for NetEase repeatedly

argued that the expansive language of the preliminary injunction with

respec t to the 5(a) obligation runs afoul of a bargained

- for limitation on

NetEase’s obligations under the settlement agreement which is set forth in

paragraph 5

. e. As set forth above, we disagree. Read in context, the enjoined

behavior is li mited to items lik e the defined term in the preliminary
injunction

, which is actually narrower tha n NetEase’s obligations under

paragraph 5

. e.27

which specifically relates NetEase’s 5(d) obligations under the injunction

back to the terms of the settlement agreement. Thus, the settlement

agreement is the touchstone here. N o conduct is required under the

injunction beyond that which is requir ed by the contract, itself.

* * *

W e cannot say it any more clearly than the trial court did during the

hearing on the clarification motion: “What you have is a settlement

agreement [with certain things] set forth in it. I still don’t understand why

t here’s been confusion about that. It’s the language counsel came up with to

resolve the federal litigation. It’s the language I used in my ruling on this

matter. It’s the language I’m using again. There’s no ambiguity here. There

just isn’t. I’m just intending to make sure that the settlement agreement is

being complied with until the trial is held. That’s it. Nothing more; nothing

less.” For all the reasons set forth here, w e find no abuse of discretion in the

trial court’s issuance of the prelimi nary injunction. To the extent the parties’

own words have created ambiguities, those are questions which the court

properly deferred to another day.

III.

DISPOSITION

T he judgment is affirmed. PUBG is entitled to its costs on appeal.28 E AST

, J. 

WE CONCUR:

H UMES

, P. J.

M ARGULIES

, J.

A 160572

NetEase, Inc. v. PUBG Corporation

 Judge of the San Francisco Superior Court, assigned by the Chief
Justice pursuant to article VI, section 6 of the California Constitution.