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Universal City Studios, Inc. v. Nintendo Co. Ltd., 797 F.2d 70 (2d Cir. 1986) (full-text).

Factual Background[]

The dispute between Universal City Studios, Inc. (“Universal”) and Nintendo Co., Ltd. (“Nintendo”) 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 filed a lawsuit against Nintendo, alleging claims for trademark infringement and unfair competition. Universal alleged that Nintendo infringed Universal's trademark in King Kong when it marketed its popular video game Donkey Kong.

Trial Court Proceedings[]

After filing the lawsuit, Universal sent “cease and desist” letters to all of Nintendo's licensees demanding that each licensee either cease marketing Donkey Kong products or obtain a license from Universal.

The facts described above gave rise to three Nintendo counterclaims. First, Nintendo claimed that Universal's "cease and desist" letters threatening litigation against Nintendo's third party licensees tortiously interfered with Nintendo's contractual relations with those licensees. Second, Nintendo claimed that Universal's modified agreement licensing Tiger's King Kong video game vicariously infringed Nintendo's copyright in Donkey Kong. Third, Nintendo contended that Universal's agreements with Coleco, Atari and Ruby-Spears tortiously interfered with Nintendo's agreements with those three companies and resulted in unjust enrichment.

The trial court, on motions for summary judgment, dismissed Universal's complaint for trademark infringement and unfair competition against Nintendo. The trial court then proceeded to try Nintendo's counterclaims against Universal. The trial 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. 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.

Appellate Court Proceedings[]

The appellate court affirmed the trial court’s rulings. The appellate court held that Universal tortiously interfered with contractual relations by sending "cease and desist" letters to Donkey Kong licensees, that an award of attorney's fees was proper, that an award of punitive damages on tortious interference counterclaim was appropriate, that Universal had vicariously infringed the Donkey Kong copyright by licensing the competing King Kong game, and that Nintendo was not entitled to damages for alleged tortious interference with licensing agreements.

The court stated that

first, Universal knew that it did not have trademark rights to King Kong, yet it proceeded to broadly assert such rights anyway. This amounted to a wanton and reckless disregard of Nintendo's rights. Second, Universal did not stop after it asserted its rights to Nintendo. It embarked on a deliberate, systematic campaign to coerce all of Nintendo's third party licensees to either stop marketing Donkey Kong products or pay Universal royalties. Finally, Universal's conduct amounted to an abuse of judicial process, and in that sense caused a longer harm to the public as a whole. Depending on the commercial results, Universal alternatively argued to the courts, first, that King Kong was a part of the public domain, and then second, that King Kong was not part of the public domain, and that Universal possessed exclusive trademark rights in it. Universal's assertions in court were based not on any good faith belief in their truth, but on the mistaken belief that it could use the courts to turn a profit.