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`Case 1:16-cv-00453-RGA Document 574-1 Filed 06/12/18 Page 6 of 47 PageID #: 46863
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`IN THE UNITED STATES DISTRICT COURT
`IN AND FOR THE DISTRICT OF DELAWARE
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`ACCELERATION BAY, LLC,
` Plaintiff,
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`NO. 16-0453-RGA
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`:::::::::
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`ACTIVISION BLIZZARD,
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` - - -
` Wilmington, Delaware
` Thursday, May 17, 2018
` 1:13 o'clock, p.m.
` - - -
`BEFORE: HONORABLE RICHARD G. ANDREWS, U.S.D.C.J.
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` Valerie J. Gunning
` Official Court Reporter
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`1 of 55 sheets
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`Page 1 to 1 of 139
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`05/22/2018 07:33:52 AM
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`

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`Case 1:16-cv-00453-RGA Document 574-1 Filed 06/12/18 Page 7 of 47 PageID #: 46864
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`process, is that a computer process?
`MR. ENZMINGER: It still has to be executing on
`the hardware. I'm sorry. It still has to be executing on
`the computer.
`The issue there was -- the issue there was
`whether each participant had to be a separate computer, and
`it doesn't. You can have two participants playing on one
`XBox. That's not uncommon actually. You get two
`controllers. You plug it into the XBox and each will be a
`player in the game. But the software still has to be
`executing on the XBox in order to establish a network.
`Otherwise, it's just a set of magnetic ones and zeros.
`Hat's not a system. That's a set of magnetic ones and
`zeros. That's the Centillion case. There's no daylight
`between this case and Centillion on that issue.
`The ownership argument that Mr. Andre makes,
`that is not in 271. There's nothing about in 271, direct
`infringement, that has anything to do with infringement.
`When he talks about mastermind, that language
`comes from method claim cases, not direct infringement
`system claims, and they're different as this Court observed
`in CenTrak. It's different.
`The idea that you can have pure software has two
`other problems, and this is where I was going to earlier.
`We moved under 101 because we thought they might
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`only had a few pages to bring it, because --
`THE COURT: Yes, but I'm sympathetic to them
`there because, I don't remember the exact count, but you
`crammed like 200 issues into 50 pages.
`MR. ENZMINGER: And the reason for that is
`because they're suing us on five different networks, three
`different companies, one of which isn't even a defendant on
`claims that have really no real basis for even being here in
`the first place.
`THE COURT: Yes. So I would have thought that
`you could pick out a few good arguments and if you had them
`and win.
`
`MR. ENZMINGER: Well, this is one of them. The
`World of Warcraft, lack of M-regularity is another, which we
`have not gotten into in this hearing.
`THE COURT: No, no.
`MR. ENZMINGER: Which is good reason --
`THE COURT: Let's not go that way. Let's stick
`to the point here. You said there are two reasons.
`MR. ENZMINGER: One is, if it's just software,
`then we need to revisit the 101 argument that they made
`where they relied on tangible structure in order to get past
`that.
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`THE COURT: I got that point.
`MR. ENZMINGER: The second is, if it's pure
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`be going this direction and their response to our 101
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`motion, because software by itself is just a set of ideas,
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`it can't separately be patented at all. That's DigiTech.
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`You can, you can patent software via a method claim. You
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`know, there's some argument about whether you can patent a
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`piece of software via a computer readable media claim, but
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`software as just a set of instructions, it's not by itself
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`patentable. I'm not saying patent software isn't
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`patentable. I'm saying software by itself is not. That's
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`the DigiTech case.
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`And we moved on that question, and their
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`response was, oh, no. There's all kinds of hardware and
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`structure here. And the structure and hardware they pointed
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`to was the physical XBoxes and computers, and it has to be
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`executing on the computers. That's the structure of the
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`network. That's why it's not invalid under 101, because we
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`have this tangible structure of the computers that execute
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`the programs. You can't have it both ways. You cannot say,
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`we avoid 101 a year ago because we're pointing to all this
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`structure and then to stand up here and say, oh, no.
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`Structure doesn't matter. There's no structure. This is
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`MR. ENZMINGER: Right.
`pure software. You can't do it that way. It can't be both
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`THE COURT: All right.
`ways. This is what their expert said. You know, they make
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`MR. ENZMINGER: But to say you can stand up here
`the point, you know, they only had a few, a few pages to
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`respond. It's their burden of proof on this issue and we
`and infringe an apparatus claim with no physical or tangible
`33 of 55 sheets
`Page 126 to 129 of 139
`05/22/2018 07:33:52 AM
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`software, there's a different argument, which it's not
`patentable subject matter because software is not patentable
`subject matter except as part of a method claim, and these
`are not method claims.
`THE COURT: So you mentioned DigiTech, which is
`a case perhaps I've heard of, but I don't think I've ever
`had occasion to read.
`What exactly did DigiTech say?
`MR. ENZMINGER: I may have to defer, because
`that's not one that is in any of our briefing because this
`is not supposed to be an issue, that pure software can
`infringe. But I would be happy to brief it. But basically,
`the idea is that software untethered to tangible structure
`is not patentable. You can patent a process, which is a
`method claim.
`THE COURT: Okay. All right. Well, that makes
`sense to me.
`MR. ENZMINGER: Yes.
`THE COURT: I mean, that would be part of the
`reason why computer-readable medium claims came into
`existence.
`
`

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`Case 1:16-cv-00453-RGA Document 574-1 Filed 06/12/18 Page 8 of 47 PageID #: 46865
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`Case 1:16-cv-00453-RGA Document 574-1 Filed 06/12/18 Page 9 of 47 PageID #: 46866
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`Page 1 of 179
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`10-K 1 a2230993z10-k.htm 10-K
`
`Usethese links to rapidly review the document
`TABLE OF CONTENTS
`FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
`
`Table of Contents
`
`
`UNITED STATES
`SECURITIES AND EXCHANGE COMMISSION
`Washington, D.C. 20549
`
`FORM 10-K
`
`(Mark
`one)
`
`x
`
`ANNUAL REPORT PURSUANTTO SECTION13 OR 15(d) OF THE SECURITIES
`EXCHANGEACTOF 1934
`
`For the Fiscal Year Ended December 31, 2016
`
`OR
`
`oO
`
`TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
`SECURITIES EXCHANGEACT OF1934
`
`For the transition period from
`
`to
`
`Commission File Number 1-15839
`
`AcTIVision. BIIZ/AR)
`
`ACTIVISION BLIZZARD, INC.
`(Exact name ofregistrant as specified in its charter)
`
`Delaware
`(State or other jurisdiction of incorporation or
`organization)
`
`95-4803544
`
`(LR.S. Employer Identification No.)
`
`3100 Ocean Park Boulevard, Santa Monica, CA
`(Address of principal executive offices)
`
`90405
`(Zip Code)
`
`Registrant's telephone number, including area code: (310) 255-2000
`
`https://www.sec.gov/Archives/edgar/data/7 18877/000104746917001072/a2230993z10-k.htm 6/6/2017
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`Page 7 of 179
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`Table of Contents
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`The Activision Blizzard Studios ("Studios") business, which is devoted to creating original film and
`television content based on ourlibrary of globally recognized intellectual properties, and, in October 2016,
`released the first season of the animated TV series Skvlanders™ Academyon Netflix.
`
`The Activision Blizzard Distribution ("Distribution") business, which consists of operations in Europe that
`provide warehousing, logistics, and sales distribution services to third-party publishers of interactive
`entertainment software, our own publishing operations, and manufacturers of interactive entertainment
`hardware.
`
`3
`
`.
`
`Products
`
`Wedevelop content and services principally for console, PC, and mobile devices, and we market and sell our games
`throughretail and digital distribution channels. We develop products spanning various genres, including first-person
`shooter, action/adventure, role-playing, strategy, and "match three," among others. We primarily offer the following
`products andservices:
`
`.
`
`:
`
`:
`
`*
`
`Full-games, which typically provide access to main gamecontent, primarily for console or PC.
`
`Downloadable content, which provides players with additional in-game content to purchase following the
`purchaseofa full game.
`
`Microtransactions, which typically providerelatively small pieces of additional in-game content or
`enhancements to gameplay, generally at relatively lowprice points.
`
`Subscriptions for players in our World of Warcraft franchise that provide for continual access to the game
`content.
`
`Providing additional opportunities for player investmentoutside of full-game purchases has allowed usto shift from
`our historical seasonality to a more recurring and year-round revenue model.In addition, if executed properly, it allows us
`to increase player engagementas it provides more frequent and incremental content for ourplayers.
`
`Product Development and Support
`
`Wefocus on developing enduring franchises backed by well-designed, high-quality games with regular content
`updates. Webuild content with the potential for broad reach, sustainable engagementand year-roundplayer investment. It
`is our experience that enduring franchises then serve as the basis for sequels, prequels and related new products and
`content that can be released over an extendedperiod of time. Webelieve that the developmentanddistribution of products
`and content based on proven franchises enhancespredictability of revenues and the probability of high unit volumesales
`and operating profits. We intend to continue development of ownedfranchises in the future.
`
`Wedevelop and produce ourtitles using a model in whicha group ofcreative, production, and technical
`professionals, including designers, producers, programmers,artists, and sound engineers, in coordination with our
`marketing, finance, analytics, sales, and other professionals, has responsibility for the entire development and production
`process, including the supervision and coordination of internal and, where appropriate, external resources. Webelievethis
`modelallowsus to deploy the best resources for a given task, by supplementing our internal expertise with top-quality
`external resources on an as-neededbasis.
`
`While most of the content for our franchises is developed byinternal studios, we periodically engage independent
`third-party developers to create content on our behalf. From time to time, Activision also acquires the license rights to
`publish and/or distribute software productsthat are, or will be, independently created by third-party developers. Since
`2010, Activision has been in a long-term exclusive relationship with Bungie, the developer of gamefranchises including
`Halo, Myth and
`
`https://www.sec.gov/Archives/edgar/data/7 18877/000104746917001072/a2230993z10-k.htm 6/6/2017
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`Table of Contents
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`Marathon, to publish gamesin the Destiny franchise. During the term of the agreement, Activision has exclusive,
`worldwiderights to publish and distribute on multiple platformsall future Bungie gamesbased on Destiny.
`
`Weprovide various forms of product support. Central technology and development teams review, assess, and provide
`support to products throughout the developmentprocess. Quality assurance personnelare also involved throughout the
`development and production of published content. We subject all such content to extensive testing before public release to
`ensure compatibility with appropriate hardware systems and configurations and to minimize the numberof bugs and other
`defects found in the products. To support our content, we generally provide 24-hour game support to players through
`various means, primarily online and by telephone.
`
`Marketing, Sales, and Distribution
`
`Many ofour products contain software that enables us to connect with our gamersdirectly. This provides a
`significant marketing tool that allows us to communicate and marketdirectly to our customers, including through
`customized advertising and in-game messaging based on customerpreferences and trends. Our marketing efforts also
`include activities on Facebook, Twitter, YouTube and other online social networks, other online advertising, other public
`relations activity, print and broadcast advertising, coordinated in-store and industry promotions (including merchandising
`and point of purchase displays), participation in cooperative advertising programs, direct response vehicles, and product
`sampling through demonstration software distributed through the Internet or the digital online services provided by our
`partners. From time to time, we also receive marketing support from hardware manufacturers, producers of consumer
`products related to a game, andretailers in connection with their own promotional efforts.
`
`Our physical products are available for sale in outlets around the world. These products are sold primarily on a direct
`basis to mass-market retailers (e.g., Target, Wal-Mart), consumerelectronics stores (e.g., Best Buy), discount warehouses,
`game specialty stores (e.g., GameStop), and other stores (e.g., Amazon, Toys "R" Us) or through third-party distribution
`and licensing arrangements.
`
`Most of our products and contentare also available in a digital format, which allows consumers to purchase and
`download the content at their convenience directly to their console, PC, or mobile device through ourplatform partners,
`including Microsoft Corporation ("Microsoft"), Sony Interactive EntertainmentInc. ("Sony"), Nintendo Co., Ltd.
`("Nintendo"), Apple Inc. ("Apple"), Google Inc. ("Google"), and Facebook,Inc. ("Facebook"). Blizzard utilizesits
`proprietary online gaming service, Battle.net®, to distribute most of Blizzard's content directly to PC consumers.
`
`In addition to serving asa distribution platform, Blizzard's Battle.net offers players communications features, social
`networking, player matching and digital content delivery and is designed to allow people to connect regardless of what
`Blizzard gamethey are playing.It attracts millions of active players, making it one of the largest online game-related
`services in the world.
`
`Manufacturing
`
`Weprepare master program copies for our products on eachrelease platform. With respect to products for Microsoft,
`Sony and Nintendo consoles, our disk duplication, packaging, printing, manufacturing, warehousing, assembly and
`shipping are performedby third-party subcontractors or distribution facilities owned byus.
`
`Microsoft, Sony, and Nintendo generally specify or control the manufacturing and assembly of finished products and
`license their hardware technologies to us for which we pay anapplicable royalty per unit once the manufacturerfills the
`productorder, even if the units do not ultimately sell. We
`
`https://www.sec.gov/Archives/edgar/data/7 18877/000104746917001072/a2230993z10-k.htm 6/6/2017
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`Case 1:16-cv-00453-RGA Document 574-1 Filed 06/12/18 Page 12 of 47 PageID #: 46869
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`(cid:40)(cid:59)(cid:43)(cid:44)(cid:37)(cid:44)(cid:55)(cid:3)(cid:20)(cid:20)(cid:26)
`APH S SSALSSLABEE SB
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`Case 1:16-cv-00453-RGA Document 574-1 Filed 06/12/18 Page 13 of 47 PageID #: 46870
`Case 1:16-cv-00453-RGA Document 574-1 Filed 06/12/18 Page 13 of 47 PagelD #: 46870
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`THIS EXHIBIT HAS BEEN
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`Case 1:16-cv-00453-RGA Document 574-1 Filed 06/12/18 Page 14 of 47 PageID #: 46871
`Case 1:16-cv-00453-RGA Document 574-1 Filed 06/12/18 Page 14 of 47 PagelD #: 46871
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`A fH S SSACSSELABE EW
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`

`

`www.gamespot.com/the-
`Blizzard outlines massive effort behind World of Warcraft - GameSpot
`6/1/2018
`Case 1:16-cv-00453-RGA Document 574-1 Filed 06/12/18 Page 15 of 47 PageID #: 46872
`(https://www.gamespot.com/)
`
`-movie-solo/)
`
`Blizzard outlines massive effort behind World of Warcraft
`Austin GDC 2009: Frank Pearce explains what it takes to craft 7,650 quests, 70,000
`spells, 40,000 NPCs, 1.5 million assets, and 5.5 million lines of code; some 4,000
`employees, 13,250 server blades, and 75,000 CPU cores keep MMORPG running.
`
`Last updated by Brendan Sinclair (/profile/Polybren/) on September 17, 2009 at 10:54AM
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`Blizzard outlines massive effort behind World of Warcraft - GameSpot
`6/1/2018
`Case 1:16-cv-00453-RGA Document 574-1 Filed 06/12/18 Page 17 of 47 PageID #: 46874
`
`Frank Pearce at BlizzCon 2008.
`
`Who Was There: Blizzard Entertainment cofounder and executive vice president of product
`development Frank Pearce (https://gamespot.com/6199603/) and production director J. Allen
`Brack opened Thursday's schedule of panels with a keynote address titled "The Universe of
`World of Warcraft."
`
`What They Talked About: In the GDC Austin schedule, Pearce and Brack's keynote address is
`described as offering "an in-depth at the operational complexities of running a large-scale
`MMO." While there has been no shortage of people to talk about the difficulties of developing
`and running MMORPGs, few have experience with anything as "large-scale" as World of
`Warcraft and its 11-million-strong subscriber base.
`
`Paid Content
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`Blizzard outlines massive effort behind World of Warcraft - GameSpot
`6/1/2018
`Case 1:16-cv-00453-RGA Document 574-1 Filed 06/12/18 Page 18 of 47 PageID #: 46875
`
`Just a few of WOW's 11-million-subscriber army.
`
`The biggest recurring theme of the at-times-technical presentation was "large-scale." Brack
`began by explaining the studio's layout, emphasizing that Blizzard tries to form its structure
`around the people, and not the other way around.
`
`The programming team is responsible for updating and maintaining 5.5 million lines of code.
`The team of 51 artists has created 1.5 million unique assets for the game, with a handful of
`sub-teams dedicated to weapons and armor; environments; animation; props like torches or
`fence posts; dungeons and large objects like houses; and technical art to polish what everyone
`else creates. There are 37 designers responsible for creating classes, professions, events, a
`library of more than 70,000 spells, and a population of nearly 40,000 non-player characters.
`
`Then there's an entire cinematics department of 123 people that does more than just
`cutscenes. Pearce said the team acts as reference when merchandising partners want to make
`replicas, or, say, gaudy 12-foot-tall statues like the one sitting outside Blizzard's headquarters.
`
`()
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`https://www.gamespot.com/articles/blizzard-outlines-massive-effort-behind-world-of-warcraft/1100-6228615/
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`6/1/2018
`Case 1:16-cv-00453-RGA Document 574-1 Filed 06/12/18 Page 19 of 47 PageID #: 46876
`70,000 spells? That's a whole lot of magic goin' on...
`
`There's also a QA testing team, which employs 218 people. That group's job gets tougher as
`time goes on, Brack said, because the amount of content in the game expands, but the size of
`the team does not. The original World of Warcraft contained 2,600 quests, with the Burning
`Crusade expansion adding another 2,700, and Wrath of the Lich King contributing another
`2,350 to the game--a total of 7,650 in all. Also adding to the QA team's woes, Brack said, is
`that Blizzard promotes from within, taking some of the most talented QA testers out of the
`pool to work on other parts of the game.
`
`As if there weren't enough to deal with, Pearce said Blizzard handles the localization of the
`game in-house. It's crucial for the game, since World of Warcraft is played in English by fewer
`than half the game's players. He added that the team doesn't do any partial localizations, and
`adding another language to the game is a commitment to provide ongoing support to that
`for as long as the game is running.
`
`()
`
`Combined, WOW and its two expansions have 7,650 quests.
`
`https://www.gamespot.com/articles/blizzard-outlines-massive-effort-behind-world-of-warcraft/1100-6228615/
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`Patching is another problem, with many different versions of the game and previous patches
`Blizzard outlines massive effort behind World of Warcraft - GameSpot
`6/1/2018
`Case 1:16-cv-00453-RGA Document 574-1 Filed 06/12/18 Page 20 of 47 PageID #: 46877
`out there for which compatibility must be assured. Brack said every time the company releases
`a patch, it needs to prepare more than 120 versions of it to make sure every player will get
`one compatible with his or her game.
`
`Pearce talked about Blizzard Online Network Services, a group of 68 people who run data
`centers where servers are hosted in Washington, California, Texas, Massachusetts, France,
`Germany, Sweden, South Korea, China, and Taiwan. Between them, there are 13,250 server
`blades and 75,000 CPU cores keeping the World of Warcraft up and running.
`
`Then there are international offices, which employ about 1,700 people across France, South
`Korea, Taiwan, China, and Ireland dealing with local concerns and customer service. Customer
`service is one of the biggest chunks of Blizzard, Brack said, with more than 2,500 people
`worldwide dedicated to the team.
`
`()
`
`It's unclear if Blizzard's infamous April Fools' gags count as part of WOW's 1.5 million assets.
`https://www.gamespot.com/articles/blizzard-outlines-massive-effort-behind-world-of-warcraft/1100-6228615/
`
`6/11
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`

`The numbers don't stop: nearly 150 people on the team are responsible for Battle.net
`Blizzard outlines massive effort behind World of Warcraft - GameSpot
`6/1/2018
`Case 1:16-cv-00453-RGA Document 574-1 Filed 06/12/18 Page 21 of 47 PageID #: 46878
`(http://battle.net/), from maintaining billing and the account system to creating the
`infrastructure that will let the 12 million active Battle.net players keep persistent friends lists
`across games when Starcraft II launches. There are also dedicated groups for public relations;
`a Web team for the game's slate of official Web sites; the community team serving as forum
`mods and liaison between developers and players; and a corporate applications team
`responsible for fraud detection and data mining on the World of Warcraft achievement
`system. Pearce dropped a little bit of info on that, noting that to date, World of Warcraft
`players have earned collectively about 4.5 billion achievements.
`
`It's not over yet. Pearce talked about the eSports team, which has been involved in more than
`1,600 tournaments around the world. They also act as a direct line of communication for
`feedback between the developers and the highest end of high-end players. Blizzard also
`needs an events team to put together BlizzCon, which Brack said is operated at a substantial
`loss for the company. While the company doesn't turn a profit on the annual shindig, Brack
`said the cost is worth it for marketing purposes.
`
`Speaking of marketing, there's a World of Warcraft-specific team for that as well. They're
`responsible for TV commercials, promotions, and tie-ins like this summer's World of Warcraft-
`themed flavors of Mountain Dew. A separate licensing department handles board games,
`plushies, statues, novels, and anything else with the World of Warcraft logo on it.
`
`()
`
`https://www.gamespot.com/articles/blizzard-outlines-massive-effort-behind-world-of-warcraft/1100-6228615/
`
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`Blizzard outlines massive effort behind World of Warcraft - GameSpot
`6/1/2018
`Case 1:16-cv-00453-RGA Document 574-1 Filed 06/12/18 Page 22 of 47 PageID #: 46879
`
`The Murloc plush toy is one of the items under the WOW licensing team's supervision.
`
`World of Warcraft didn't start off this large, which means Blizzard has needed to establish a
`recruiting team as well. Blizzard is essentially always hiring, Brack and Pearce said, with 221 job
`openings worldwide at the moment.
`
`There's a creative development team responsible for chronicling the lore of the series, working
`with licensing and novelists to ensure the World of Warcraft story is consistent across
`products. They don't create the lore, Brack said, but they do maintain it.
`
`Wrapping up the presentation, the pair also gave quick shouts to their human resources,
`finance, facilities, legal, and information technology teams. In all, Blizzard has more than 4,000
`employees and 600 licensed partners helping to keep the World of Warcraft turning.
`
`Quote: "The moral of the story is that operating an online game is about more than just game
`development."--Frank Pearce
`
`Takeaway: Clearly, running a massively multiplayer online game is a massive task indeed. As
`Pearce noted partway through the hour-long presentation, despite all the numbers thrown at
`the audience, the most mind-boggling may have been "one," the number of MMO games
`Blizzard is making in addition to World of Warcraft.
`
`World of Warcraft BlizzCon '08 Interview: Frank Pearce
`https://www.gamespot.com/articles/blizzard-outlines-massive-effort-behind-world-of-warcraft/1100-6228615/
`
`8/11
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`Blizzard outlines massive effort behind World of Warcraft - GameSpot
`6/1/2018
`Case 1:16-cv-00453-RGA Document 574-1 Filed 06/12/18 Page 23 of 47 PageID #: 46880
`
`Filed under: World of Warcraft (/world-of-warcraft/)
`
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