Universal City Studios, Inc. v. Nintendo Co., Ltd.

• Decision Date: 15 July 1986
• Docket Number: Nos. 1221,1335,D,s. 1221
• Citation: 230 USPQ 409,797 F.2d 70
• Parties: , 230 U.S.P.Q. 409, 1986 Copr.L.Dec. P 25,985 UNIVERSAL CITY STUDIOS, INC., Plaintiff-Appellant, Cross-Appellee, v. NINTENDO CO., LTD. and Nintendo of America, Inc., Defendants-Appellees, Cross- Appellants. ockets 86-7077, 86-7099.
• Court: U.S. Court of Appeals — Second Circuit

Page 70

797 F.2d 70

55 USLW 2152, 230 U.S.P.Q. 409, 1986

Copr.L.Dec. P 25,985

UNIVERSAL CITY STUDIOS, INC., Plaintiff-Appellant, Cross-Appellee, v. NINTENDO CO., LTD. and Nintendo of America, Inc. Defendants-Appellees, Cross- Appellants.

Nos. 1221, 1335, Dockets 86-7077, 86-7099.

United States Court of Appeals, Second Circuit.

Argued June 16, 1986.

Decided July 15, 1986.

Michael W. Schwartz, Wachtell, Lipton, Rosen & Katz, New York City (David Gruenstein and Richard H. Weiss, of counsel), for plaintiff-appellant, cross-appellee.

John J. Kirby, Mudge, Rose, Guthrie, Alexander & Ferdon, New York City (Thomas G. Gallatin, Jr., Shelley B. O'Neill and Robert J. Gunther, Jr., of counsel), for defendants-appellees, cross-appellants.

Before MESKILL and KEARSE, Circuit Judges, and METZNER, District Judge. ^*

METZNER, District Judge:

This is an appeal from a judgment, entered after a bench trial, of the United States District Court for the Southern District of New York, Sweet, J. The judgment disposed of counterclaims brought by the defendants, Nintendo Co., Ltd. and Nintendo of America, Inc. (Nintendo), against plaintiff Universal City Studios, Inc. (Universal), a subsidiary of MCA, Inc. We affirm.

BACKGROUND

This case represents the latest round involving the allegation that Nintendo infringed Universal's trademark in King Kong when it marketed its popular video game Donkey Kong. Judge Sweet decided in 1983, on motions for summary judgment, to dismiss Universal's complaint of trademark infringement and unfair competition against Nintendo. Universal City Studios v. Nintendo Co., 578 F.Supp. 911 (S.D.N.Y.1983). This court affirmed that judgment. Universal Studios v. Nintendo Co., 746 F.2d 112 (2d Cir.1984).

The district court then proceeded to try Nintendo's counterclaims against Universal. On July 29, 1985, the district court ruled for Nintendo on part of its tortious interference counterclaim; for Nintendo on its vicarious copyright infringement counterclaim; and against Nintendo on its unjust enrichment counterclaim. Universal City Studios v. Nintendo Co., 615 F.Supp. 838 (S.D.N.Y.1985). The court also awarded Nintendo punitive damages for tortious interference, attorney's fees for successfully defending against Universal's trademark infringement claim, and attorney's fees for successfully prosecuting its vicarious copyright infringement counterclaim. Each party now appeals to this court on each of the claims it lost below.

The dispute between Universal and Nintendo first arose when Donkey Kong became enormously popular in 1981 and 1982. The game was played by millions of Americans, including some of the top management at Universal, who concluded that it reminded them of King Kong. Universal had been greatly interested in the original 1933 "King Kong" movie, a "Son of Kong" sequel, and a 1976 remake of the original.

In 1975 a dispute had developed between Universal, RKO Radio Pictures, Inc. (RKO), and the Dino DiLaurentis Corporation (DDL), as to who could produce a remake of the film "King Kong." RKO had produced the original film in 1933, which was based upon a book by Merian C. Cooper, who also co-authored the screenplay. In 1975, RKO licensed DDL to produce a remake, a result that upset Universal, which claimed that it had been offered the license in negotiations.

In August 1975 Universal filed suit in federal court for the Central District of California seeking a declaratory judgment that the copyright on the King Kong story had lapsed, that the story was in the public domain, and that Universal could produce a On November 24, 1976, the district court found that the King Kong story, as embodied in the original novel, had become part of the public domain, and that RKO had a copyright only in "the copyrightable matter" which was contained in the 1933 movie but not in the original novel. Universal City Studios, Inc. v. RKO General, Inc., et al., C.V. 75-3526-R (C.D.Cal. Nov. 24, 1976) (Findings of Fact and Conclusions of Law). The court found that Universal could make a movie based on King Kong as long as it did not infringe on the copyrightable scenes of the 1933 movie. Id.

                remake without infringing the rights of RKO or DDL.    Universal City Studios, Inc. v. RKO General Inc., et al., C.V. 75-3526-R (C.D.Cal.1975).  RKO counterclaimed asserting, among other things, that Universal had diluted its trademark in King Kong.  At the conclusion of a four-day bench trial, Universal's regular outside trial counsel, Stephen Kroft, argued that King Kong could not be a trademark because it had no secondary meaning and was part of the ordinary English language
                

The court denied relief on RKO's counterclaim alleging trademark dilution, adopting Universal's argument that there had been no such dilution and, further, that:

"1) There is no evidence that the title 'King Kong' has a secondary meaning by which the public [in 1976] indentifies such title with RKO or the motion picture.

2) The name 'King Kong' has become part of the ordinary English language."

Id. The court reduced these findings to a judgment (the RKO judgment) ¹ on November 24, 1976.

Richard Cooper, Merian's heir, was a defendant in the RKO litigation and had filed a cross-claim against RKO. On December 6, 1976, the court entered an interlocutory judgment which determined that Merian Cooper's agreement with RKO had given RKO the right only to produce the 1933 movie and the "Son of Kong" sequel. Richard Cooper v. RKO General, Inc., C.V. 75-3526-R (C.D.Cal. Dec. 6, 1976).

The district court later entered findings of fact and conclusions of law in conjunction with a final judgment (the Cooper judgment) on Richard Cooper's cross-claim. The court incorporated its previous findings from the interlocutory judgment and concluded that, as between RKO and Cooper, Cooper possessed all rights in the name, character and story of King Kong other than the rights in the 1933 movie and the sequel "Son of Kong." The court also found that RKO's license with DDL for the remake of King Kong, and its licenses with certain toy manufacturers, had breached RKO's original limited assignment from Merian Cooper. Therefore, RKO owed Richard Cooper the profits accrued from these breaches. The court consistently noted, however, that its determination of Richard Cooper's cross-claim did not affect any other person and did not affect its finding that the King Kong story was in the public domain.

It is clear from the above that Cooper did not hold any trademark rights against the world in King Kong. Any such rights that might exist would be solely against RKO.

After the entry of the Cooper judgment, Cooper assigned all of his rights in King Kong to Universal for $200,000. The primary value of the assignment, it appears, was Cooper's right to receive certain revenues DDL would pay to RKO under DDL's license to produce a King Kong remake. DDL released that remake in December 1976.

In the years following the RKO case, Universal made no effort to license King Kong. In 1981, however, O.R. Rissman, the president of Tiger Electronics Toys, Inc. (Tiger), saw a new Donkey Kong video In the summer and fall of 1981, Nintendo filed applications for a copyright and trademark for Donkey Kong and began to market the game in the United States. Nintendo also reached an agreement with Coleco Industries, Inc. (Coleco), which provided that Coleco would produce Donkey Kong in cartridge form for use with a home video game it was beginning to market. Nintendo reached similar agreements with other third parties, including Atari, which agreed to market a similar video cartridge, and with Ruby-Spears, which received an option to use the Donkey Kong name and character in a cartoon series.

arcade game in Japan, and decided that Tiger should produce a similar game. In September 1981 he received from Universal an exclusive King Kong license for video games.

In the spring of 1982 Universal began to assert that it had trademark rights in King Kong which were being infringed by Donkey Kong. In April 1982 Universal asserted to Coleco and Nintendo that their cartridge infringed Universal's rights in King Kong. Coleco promptly agreed to settle and to pay Universal 3 per cent of its profits from Donkey Kong sales. Nintendo refused to settle, however.

At about this same time Universal took action to revoke its license with Tiger, apparently because that license contained an exclusivity provision which would prevent Universal from granting a license to Coleco. Universal first terminated Tiger's license, but after Nintendo remained adamant in refusing to settle, Universal advised Tiger that it would reconsider terminating its license if Tiger made some modifications to its game. Tiger then made some minor alterations, and Universal granted a modified license which included a nonexclusivity provision.

On June 29, 1982, Universal filed suit against Nintendo in the Southern District of New York, using the local law firm of Townley & Updike as counsel. In the fall and winter of 1982 Universal moved aggressively to persuade Nintendo's Donkey Kong licensees to establish license agreements with Universal. Universal reached an agreement with Atari which provided that Universal would not sue Atari, and that Atari would pay Universal 3 per cent of the gross wholesale sales of Atari's Donkey Kong cartridges. Universal also reached a similar agreement with Ruby-Spears.

On January 3, 1983, Universal sent "cease and desist" letters to all of Nintendo's licensees restating the claims in Universal's complaint. (Universal had obtained the list of licensees in discovery in its suit against Nintendo.) Universal demanded that each licensee either cease marketing Donkey Kong products or obtain a license from Universal.

During this period Universal aggressively sought to persuade Nintendo's two other major licensees, Milton Bradley (which had a Donkey Kong board game), and Ralston-Purina (which had a license for a Donkey Kong...