Posted 1/16/11 : Machine manufacturer returns for a second bite
There's big money involved in a US trademark infringement action being prosecuted by machine manufacturer WMS Gaming which resurfaced this week.
According to reports in the Fulton County Daily Report, the Waukegan, Illinois company is seeking over $287 million from online gambling group Party Gaming, a publicly listed corporate based in Gibraltar.
The case dates back four years, when WMS brought an action against the Gibraltar company, alleging use of the names "Jackpot Party" and "Super Jackpot Party" on its Internet games, and claiming that these infringed 1997 trademarks WMS had registered for its machines.
On that occasion Party Gaming did not make an appearance, claiming the US courts did not have jurisdiction. It was consequently hit by a $2.6 million judgement which WMS has since claimed was inadequate.
Now a federal appeals court in the States has ruled that WMS can continue to pursue the case as it seeks $287 million from Party Gaming. The court agreed that the award already made was not sufficient to provide full redress for the machine manufacturer.
WMS lawyers originally sought a default judgement of $287 million, representing profits earned by Party Gaming from its US operations in 2004, 2005 and 2006 and claimable under federal trademark laws allowing a mark-holder to demand "an equitable accounting of profits" from an infringer.
The company's legal representatives claimed it was entitled to all of Party Gaming's U.S. profits for those years, even from games not in violation of its marks. Under §35 of the Lanham Act, which governs trademark law, a winning plaintiff is entitled "to recover (1) defendant's profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action."
Because Party Gaming never provided any breakdown of its profits from non-infringing games or offered any evidence why there should be an offset for business or other expenses, WMS argued, it should turn over all of its profits from the years it was in violation.
However Judge Blanche Manning hearing the original action in the US District Court for Illinois North scaled down the claim to what she felt was a "reasonable" estimate of WMS" actual damages from the infringement – $2.6 million – based upon WMS' own estimated actual damages from 2004, which the judge multiplied by three.
Unhappy with the result, WMS took the case to the 7th U.S. Circuit Court of Appeals in September, and the court agreed with WMS' submission, sending the case back to Manning and ordering the lower court to revise its order.
Along with its ruling, the appeals court noted that Party Gaming had not entered an appearance during the proceedings, and was also under a contempt order; it therefore forfeited its right to contest WMS' showing of its profits.
"Courts consistently find that when a trademark plaintiff offers evidence of infringing and the infringer fails to carry its statutory burden to offer evidence of deductions, the plaintiff's entitlement to profits under the Lanham Act is equal to the infringer's gross sales," wrote the court.
Appeal judges referenced a 1916 U.S. Supreme Court decision – Hamilton-Brown Shoe Co. v. Wolf Bros. & Co., – in which the Court addressed a trademark infringement case where it was difficult to ascertain "what proportion of the profit is due to the trademark, and what to the intrinsic value of the commodity."
In that case, the Court wrote, "it is more consistent with reason and justice that the owner of the trademark should have the whole profit than that he should be deprived of any part of it by the fraudulent act of the defendant."
WMS executive director Jeffrey Michel, appears confident that the new claim will prove successful for his company.
"I'm expecting that we will get the full amount, and I am not expecting Party Gaming to put in an appearance," Michel said, adding that even if Party Gaming attempts to make an appearance, "…the evidentiary segment has been closed, and I don't foresee any reduction in that [$287 million] amount."
Michel declined comment when asked whether Party Gaming had any U.S. assets that could be seized, or whether there was any other strategy in place to force the company to comply.
Approached for comment on the issue, Party Gaming Communications Director John Shepherd said in an email: "This issue is about jurisdiction. Party Gaming has never had any physical assets located in the US but is perfectly prepared to defend the merits of this claim in the appropriate jurisdiction.
"The Co[mpany] has made this point repeatedly to WMS. Both WMS's claims and the remedy it seeks are without foundation and justification."
It hasn't all been bad news in a legal sense for Party Gaming, however. Last week the company prevailed against a 2006 class action suit in which online punters alleged the company had allowed other gamblers to collude in order to cheat unsuspecting players.
The case was dismissed by U.S. District Judge Ann Aldrich of the Northern District of Ohio, who ruled that the dispute should more properly be heard in Gibraltar.
Party Gaming has not operated in the United States since the promulgation of the Unlawful Internet Gambling Enforcement Act in 2006. Last year it negotiated a $105 million settlement with the US Department of Justice to clean the slate on its pre-2006 presence in the United States, removing the threat of prosecution in respect of that period.
Party Gaming is currently merging with Bwin Interactive to create the world's largest online gambling corporate.