Universal City Studios, Inc. v. Nintendo Co. Ltd.
| Decision Date | 29 July 1985 |
| Docket Number | No. 82 Civ. 4259 (RWS).,82 Civ. 4259 (RWS). |
| Citation | 615 F. Supp. 838 |
| Parties | UNIVERSAL CITY STUDIOS, INC., Plaintiff, v. NINTENDO CO. LTD. and Nintendo of America, Inc., Defendants. |
| Court | U.S. District Court — Southern District of New York |
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Townley & Updike, New York City, for plaintiff; Douglas C. Fairhurst, Mary D. Faucher, Lawrence C. Fox, New York City, of counsel.
Mudge Rose Guthrie Alexander & Ferdon, New York City, Sax & Maciver, Seattle, Wash., for defendants; John J. Kirby, Jr., Thomas G. Gallatin, Jr., Shelley B. O'Neill, Catherine E. Palmer, Robert J. Gunther, Jr., New York City, of counsel.
From the outset, this case has involved two gorillas, King Kong and Donkey Kong, and the rights of their respective owners, plaintiff Universal City Studios, Inc. ("Universal"), and defendants Nintendo Co. Ltd. and Nintendo of America, Inc. (collectively "Nintendo"). Universal initially sought to enjoin Nintendo from selling its Donkey Kong electronic arcade game, claiming that the game infringed Universal's rights in King Kong. With that issue resolved in favor of Nintendo by way of summary judgment, what remain are Nintendo's counterclaims, which seek damages arising out of Universal's conduct. Universal views its conduct as the good faith assertion of rights not yet determined at the time of the events in question. Nintendo asserts that Universal misappropriated Nintendo's Donkey Kong property and was thereby unjustly enriched, that Universal tortiously interferred with Nintendo contracts and Nintendo's licensing program, and that Universal vicariously infringed Nintendo's copyrights. Based on the facts and conclusions stated below, Nintendo is entitled to judgment, costs, and damages, both actual and exemplary.
Counsel for both parties were learned, highly skilled and enjoyable advocates who agreed on at least one critical element: it was for the court to view this voluminous record and the seven days of testimony in this bench trial to determine the credibility of the witnesses and the attendant facts which will control the theories and authorities to be applied. In order to accomplish the task, it is necessary to consider the framework of the issues, the prior proceedings, the participants in the transactions at issue, the knowledge and intent of the participants as the events occurred, and the rights involved. The facts so determined must be applied to Nintendo's counterclaims of unjust enrichment, tortious interference with contract, and vicarious infringement of copyright. What must be delineated is the boundary between the aggressive but legitimate assertion of questionable rights in intellectual property and the reckless disregard of the rights of others.
Universal in the fall of 1981 had certain rights to King Kong that derived from prior litigation and its settlement. These were viewed by Universal as merchandising rights with certain acknowledged limitations, in particular the inability to replicate any of the images of King Kong contained in the 1933 and 1976 King Kong movies. There was no active program to capitalize on these rights or to protect them.
Also in 1981, Nintendo started selling its Donkey Kong electronic arcade game, first in Japan, where it was developed, and then in the United States. In the fall of 1981, Tiger Electronic Toys, Inc. ("Tiger") sought a license to use the name King Kong in connection with its electronic game, and thereafter the officers of Universal began to focus on Donkey Kong and its success as an arcade game.
By April of 1982, the Donkey Kong arcade game had reached the notice of Universal's top executives, who then were considering a relationship with Coleco Industries, Inc. ("Coleco"), a toy maker, either by way of an investment or a joint venture. Aware of Coleco's intent to produce a home video cartridge version of Donkey Kong under license from Nintendo, Universal's representative at a meeting with Coleco for the first time voiced the claim that Donkey Kong violated Universal's rights in King Kong. The following day telexes were sent to Coleco and Nintendo asserting Universal's rights. Universal made or sought no formal opinions or writings clarifying its rights. Coleco was on the threshold of entering the market place with its fully developed Donkey Kong game, and in an exercise of business judgment, Coleco capitulated to Universal's demand and entered into an agreement to pay to Universal 3% of its gross revenues from the sale of Donkey Kong cartridges in exchange for a covenant by Universal not to sue.
After two meetings with Universal representatives, Nintendo declined to make any concessions to Universal. In the course of these meetings, Universal's representative stated that Universal's litigation had been a profit center for the company and that Nintendo should start saving its money for legal fees. On June 6 this action was commenced with accompanying press releases.
Thereafter Universal successfully convinced two other Nintendo licensees to enter into Coleco-like agreements. From these agreements, Universal has received to date $4,765,371.48. In January 1983, having received a list of Nintendo's licensees in discovery, Universal's counsel wrote to the licensees, threatening litigation if agreements with Universal were not reached. As a consequence of these letters, Nintendo lost $94,219.41 in guaranteed royalties due under certain of its license agreements.
Nintendo, in the course of this litigation has incurred substantial legal fees and now seeks damages on its counterclaims for the (1) misappropriation of its rights in Donkey Kong and Universal's consequent unjust enrichment arising out of its agreements with Nintendo's licensees, (2) vicarious copyright infringement by Universal arising out of the distribution of the Tiger/King Kong home video cartridge, and (3) tortious interference with Nintendo licenses. Universal has moved to dismiss these claims on legal and factual grounds.
Universal's rights, merchandising or otherwise, Universal's intent and knowledge in asserting those rights, and the consequences which flowed from Universal's acts must be determined.
Universal is, and has been, no stranger to the courts. Its rights in King Kong resulted from agreements arising out of litigation commenced by Universal in 1975 to challenge the rights of RKO Radio Pictures, Inc. ("RKO") in its 1933 movie King Kong and its grant to the Dino DiLaurentiis Corporation ("DDL") to remake the movie (the California litigation). Universal successfully sought to establish that the King Kong story was in the public domain. Involved also were the rights of Richard Cooper, the heir of Marian C. Cooper, the author of the King Kong story which first appeared in print in 1932. The California litigation was ultimately resolved by way of settlement and judgments entered in that litigation, as found in this court's opinion reported at 578 F.Supp. 911 (S.D.N.Y. 1983) (the earlier opinion).
In the earlier opinion on cross motions for summary judgment, Nintendo's defenses to Universal's claims of infringement were upheld, and the complaint was dismissed on the overall holding that Nintendo had violated no Universal rights. The grant of summary judgment was upheld on appeal on the ground that there was no likelihood of confusion between Donkey Kong and King Kong. Universal City Studios, Inc. v. Nintendo Co., Ltd., 746 F.2d 112 (2d Cir.1984). Nothing in the record to date has altered any of the findings and conclusions previously stated, and they are adopted and incorporated as part of the instant findings and conclusions.
Thereafter, the parties continued their discovery on the unresolved Nintendo counterclaims and from May 20 to 28 presented evidence in a bench trial. It is upon that evidence, including the depositions and exhibits as well as the facts previously found in the earlier opinion, that the following facts and conclusions are based.
Because of the recurrence of such emotionally and legally charged concepts as bad faith, tortious interference, and vicarious infringement, it is necessary to examine not only the parties' corporate identities, but also the knowledge and intent of certain of their officers during the events which took place from the fall of 1981 through 1983. Because corporate knowledge and intent is a mosaic made up of smaller bits and pieces of motivation held by various Universal officers and employees, from its Chief Operating Officer to its Divisional Officers, as well as its lawyers, in house and outside, for convenience and hopefully clarity the parties will be described and the participants will be listed alphabetically, with their principal role in the transactions at issue summarized.
Nintendo Co., Ltd. is a corporation organized under Japanese law and founded in 1889, with its principal place of business in Kyoto, Japan, and branches in five other Japanese cities. It is engaged in the manufacture, assembly and sale of video arcade games, hand held games, playing cards, mah-jong games, tuggle board games and amusement arcade games. Nintendo of America, Inc. is a corporation organized under the laws of the State of Washington in 1981, with its principal place of business in Redmond, Washington. Nintendo of America, Inc. is engaged in the importation, assembly, manufacture and sale of video arcade games and table top games, as well as the importation of hand held video games. During its fiscal year ending September 30, 1981, the sales of Nintendo of America, Inc. were approximately $4.7 million and its net revenues were approximately $64,000. For fiscal 1982 Nintendo had sales of $111 million and net revenues of $22 million.
Universal is a wholly owned subsidiary of MCA, Inc. having its principal place of business at 100 Universal City Plaza, Los Angeles, California. It is engaged generally, through its "Universal Pictures" division, in the...
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