783 F.2d 421 (4th Cir. 1986), 84-1710, M. Kramer Mfg. Co., Inc. v. Andrews

Docket Nº:84-1710.
Citation:783 F.2d 421
Party Name:1986 Copr.L.Dec. P 25,891 M. KRAMER MANUFACTURING CO., INC., Appellant, v. Hugh ANDREWS, et al., Tim Caldwell, Drew's Distributing, Inc., Drew's Distributing Co., and Lynch Enterprises, Inc., Appellees.
Case Date:February 06, 1986
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit
 
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783 F.2d 421 (4th Cir. 1986)

1986

Copr.L.Dec. P 25,891

M. KRAMER MANUFACTURING CO., INC., Appellant,

v.

Hugh ANDREWS, et al., Tim Caldwell, Drew's Distributing,

Inc., Drew's Distributing Co., and Lynch

Enterprises, Inc., Appellees.

No. 84-1710.

United States Court of Appeals, Fourth Circuit

February 6, 1986

Argued Jan. 7, 1985.

Rehearing Denied March 27, 1986.

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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Ralph Bailey, Greenville, S.C., (Bailey & Hardaway, Greenville, S.C., on brief), for appellant.

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Wellington M. Manning, Jr., Greenville, S.C., (Dority & Manning, Greenville, S.C., on brief), for appellees.

Before RUSSELL and CHAPMAN, Circuit Judges, and HAYNSWORTH, Senior Circuit Judge.

DONALD RUSSELL, Circuit Judge:

This appeal involves a dispute over the right to manufacture and sell a computer video game--"Hi-Lo Double Up Joker Poker." Essentially, the plaintiff claims that the defendants infringed the plaintiff's copyright in the game by copying the computer program controlling the machinations of the video characters and by copying the audiovisual aspects of the game. In addition to its copyright infringement claim, the plaintiff asserts that the defendants falsely designated the origin of the defendants' version of the game in violation of section 43(a) of the Federal Trademark Act, 15 U.S.C. Sec. 1125(a), and that the defendants competed unfairly with the plaintiff in violation of the common law. 1 When the plaintiff filed its complaint, it moved for a preliminary injunction, which was granted. Prior to trial, the injunction was vacated, and the district court tried the case without a jury, finding for the defendants. The plaintiff appeals, and we reverse.

I. Factual Background

The facts of this case are quite complex and require careful explication. The plaintiff is M. Kramer Manufacturing Co., Inc., (Kramer Manufacturing), a New Jersey corporation having its principal place of business in New Jersey. Defendants Hugh Andrews, Jr. (Andrews) and Tim Caldwell (Caldwell) are citizens of the State of South Carolina. The other defendants, Drews Distributing Inc., Drews Distributing Co. (collectively Drews Distributing) and Lynch Enterprises, Inc. (Lynch Ent.) are South Carolina corporations. 2 Andrews is the president and sole shareholder of Drews Distributing; he thus controlled all Drews Distributing activities. Andrews is also the sole stockholder of Lynch Ent.

Kramer Manufacturing markets various electronic, coin-operated video games, including the game at issue here--an electronic card game based on draw poker. Lynch Ent. and Drews Distributing also manufacture and market various electronic, coin-operated video games, including games similar to those at issue here. In addition, Andrews operates a sister corporation, which is not a party to this suit, that installs and services the various video games sold by Lynch Ent. and Drews Distributing.

  1. The Development of the Game

    The record does not clearly indicate the facts surrounding the origin of the video game or the copyright which is in dispute here. Being bound by the factual findings of the district court unless clearly erroneous, we have reviewed the record and essentially adopt its factual findings as herein set forth with our modifications as noted. The game, Hi-Lo Double Up Joker Poker, has gone through various modifications, as is typical of video arcade games. The original version of the game, which was actually a variation of the card game blackjack that displayed five cards, was created by Kramer, Robert Battaglia, and Bill Blair in late 1979. Battaglia was then an engineer employed by LJF Corporation (LJF), a New Jersey corporation engaged in the engineering and manufacturing of video games. James Foy was the principal of LJF, and he had hired Battaglia to engineer and Kramer to provide ideas for the development of a video arcade card game. Battaglia acted as the software designer, engineer, and programmer, while Kramer essentially provided the concepts upon

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    which the game was built. Although the game was developed by Battaglia and Kramer, the record is clear, as most noticeably evidenced by Kramer's own testimony, that LJF owned the rights to the original production model of what was eventually to become Hi-Lo Double Up Joker Poker. Despite LJF's ownership of the game from its inception, Kramer in fact marketed the game through Kramer Manufacturing.

    After marketing the five card blackjack game, Kramer recognized the potential for profit in this business and entered into an arrangement with Pasquale Storino to form a New Jersey corporation called Computer Portrait Center (CPC), which marketed various electronic devices. The two of them, Storino and Kramer, were the sole owners of CPC. In addition to his association with Kramer, Storino was also a principal in Gametronics, another New Jersey corporation. LJF had sold various video games to Gametronics, and Kramer and Storino met through their mutual association with LJF.

    Sometime prior to 27 October 1981, Battaglia, working for LJF, and with the cooperation of Kramer, completed a video game called Draw Poker II which had a different printed circuit board than prior games, included an attract mode unlike prior games, and included a split screen and play mode with jokers unlike prior games. Nevertheless, the testimony and documentary evidence is clear that Draw Poker II encompassed a prior version of the same game, Draw Poker I. That is, Draw Poker II was not an independent creation of the engineers who had created Draw Poker I but resulted from various and often subtle changes in the earlier version, Draw Poker I. The changes to Draw Poker I were made slowly and over a period of time; the total result of those changes being an almost complete transformation of Draw Poker I into Draw Poker II.

    On 27 October 1981, LJF transferred by letter and for consideration all rights to Draw Poker II as it then existed to Kramer Manufacturing. The defendants have challenged the adequacy of the consideration, premising their challenge to the validity of Kramer Manufacturing's copyright on that challenge, among others. Kramer testified, and his testimony was not contradicted, however, that although Kramer Manufacturing did not pay the entire contract price for the rights to Draw Poker II, LJF released him and his company from all obligations under the contract by accepting certain computer hardware and harnesses. In the absence of any evidence to the contrary, and doubting the standing of any of the defendants to challenge the adequacy of whatever consideration was exchanged for the rights to Draw Poker II, we find that the letter of 27 October 1981 effectively transferred all rights in Draw Poker II to Kramer Manufacturing.

    Through Battaglia's guidance, Draw Poker II went through many more modifications and eventually evolved into the game that forms the basis for this suit: Hi-Lo Double Up Joker Poker. Battaglia left LJF in August, 1981, and on 31 August 1981 Battaglia became a full-time employee of Kramer Manufacturing. The revised version of Draw Poker I was then in what the parties refer to as revision G, with revisions H through K to follow. Soon after Battaglia joined Kramer Manufacturing, he completed the programming necessary to transform Draw Poker I into a marketable Draw Poker II. At the time of transfer of the rights to Draw Poker II to Kramer Manufacturing, as discussed above, Draw Poker II was not completely "integrated"; therefore, Battaglia's modifications were necessary prior to sale of the game to the public, and he made those modifications while in Kramer Manufacturing's employ. Draw Poker II was first manufactured in late 1981, and Kramer Manufacturing has since sold over 6,000 of the games.

    The final changes to Draw Poker II, which resulted in the game Hi-Lo Double Up Joker Poker, occurred between November 1981, just after Battaglia left LJF, and February 1982. Kramer Manufacturing began marketing the game with the hi-lo double up feature in February, 1982. The hi-lo double up feature allowed a player,

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    after winning a hand, to choose to play "hi-lo" and double his "credits," or plays, if he correctly guessed whether the next card would be higher or lower than the card then appearing. On 15 April 1982, Kramer Manufacturing began marketing the final version of the game, Hi-Lo Double Up Joker Poker. This version was identical to the one marketed in February except it contained a "flashing card feature": a series of flashing cards rather than still cards indicated the player's hand. The audio-visual differences between Draw Poker II as of 31 August 1981, when ownership was transferred from LJF to Kramer Manufacturing and Battaglia left LJF for Kramer Manufacturing, and the Hi-Lo Double Up Joker Poker game sold in April, 1982 were changes in the attract mode to include the hi-lo double up feature, instructions for hi-lo double up in the play mode, the hi-lo feature itself with instructions as to which button to push to activate the optional game, and the series of flashing cards instead of still cards throughout the game.

  2. The Relationship Between Andrews and Kramer

    In September, 1981, Andrews incorporated Drews Distributing for the purpose of distributing and servicing video game equipment. Andrews' association with Kramer developed out of Drews Distributing's sales of Kramer's video games. Drews Distributing bought various versions of Draw Poker I and II and Hi-Lo Double Up Joker Poker from Kramer Manufacturing. Andrews and Kramer often discussed the possibility, during their frequently combined vacation and business trips, of Drews Distributing becoming the exclusive licensee for the sale of Kramer...

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