Out of curiosity is there a source of the judges ruling on the matter? All I can find is the companies settled, and one of the reason was because Marvel employees made the duplicates using CoH, but the terms were not disclosed and what you wrote is just the argument of the NC Soft lawyer made on the case:
https://www.eff.org/cases/marvel-v-ncsoft
I'm actually curious if this case set a precedence to protect future potential MMOs. I tried different phrases to trying to lookup what you stated on this case and how the judge seemed to think the lawyers should consider remedial law classes, cause that would be actually funny to read on an arbitration.
I checked the EFF link and they do appear to at least contain the district court order which partially granted NCSoft's motion to dismiss (it is near the bottom, March 9, 2005).
Summarizing the motion:
Part 4: Court rules that Marvel trademarked the actual words "Captain America" and now tries to claim that trademark protection extends to any and all depictions of the character
Captain America. Court rules that is an "unsubstantiated" broadening of trademark protection. In other words, Marvel made that up. Therefore, this claim is dismissed (i.e. tossed out).
Part 5,6,8,9: Court rules that Marvel's claim that NCSoft contributed to trademark infringement by enabling users to make infringing works fails to state a legal claim because the legal requirement is that users actually
use the infringing marks in a business setting. Marvel makes no such claim which is mandatory for the claim of trademark infringement, so this claim is dismissed for having not really stated an actual valid claim. This basic legal principle struck four separate claims.
In the same ruling, the court refused to dismiss the following claims:
* Direct copyright infringement - this claim states that NCSoft "directly copied and/or reproduced" protected Marvel characters such as Captain America and Wolverine.
* Contributory copyright infringement - this claim basically states that CoH players copied Marvel characters and NCSoft knew or should have known about this and taken action to delete them
* Vicarious copyright infringement - this claim basically states that NCSoft made money allowing players to copy Marvel characters
* Direct infringement of common-law trademark- this claim basically states that NCSoft attempted to confuse people into thinking that their business (City of Heroes) was in some way related to Marvel's business by using a depiction (Statesman) that resembles Captain America enough to cause people to think the two businesses were similar or related.
Refusing to dismiss only states that the claim is legally sufficient to go to trial, and makes no presumption about the likelihood to prevail at trial.
I suspect both sides knew that the first and last ones were going to be the weakest for Marvel and the hardest to prove legal liability. It is really only the second one that appears to have teeth (the third is loosely related). I recall statements about the settlement at the time stating that while details would not be disclosed, the settlement explicitly did not require NCSoft to substantively change the game in any way. That suggests to me that the only likely significant part of the settlement was some vague promise to police the player community reasonably well to reduce infringement. Also worth noting: the lawsuit wasn't one-sided: NCSoft countersued for a couple of things and those counter-claims also survived motions to dismiss. So Marvel did have something to lose in this lawsuit also: settling wasn't just a question of giving up their claims unilaterally.
Also worth highlighting in the March 9 motion to dismiss was the court's specific language comparing at least part of Marvel's suit to prior cases regarding "false and sham pleadings" and also citing the legal precedent to dismiss a claim where there is either "a lack of a cognizable legal theory" (i.e. the claim is nonsensical) or "the absence of sufficient facts alleged under a cognizable legal theory (i.e. the claim is baseless).