MyPlayCity's Major Step Forward Towards Victory Against Conduit

ALEXANDRIA, Va., May 23, 2012  /PRNewswire/ -- In a recent and very strongly worded decision, the United States District Court for Southern District of New York concluded that Conduit Limited (www.conduit.com) violated MyPlayCity, Inc.'s (www.myplaycity.com) trademark rights and engaged in unfair competition with MyPlayCity.  The Court further concluded that Conduit unjustly enriched itself at MyPlayCity's expense.  The specific amount of damages which Conduit must pay to MyPlayCity because of Conduit's illegal conduct are to be determined by a jury at some point in the future.

Background

MyPlayCity, a leader in the casual game industry, creates, develops and distributes various casual games through websites such as www.myplaycity.com.  MyPlayCity spent substantial resources developing its goodwill and acquiring recognition of its federally registered trademark MyPlayCity® in connection with its games and services. 

Conduit licenses its online platform to companies such as MyPlayCity which allows companies to create customized toolbars.  Customized toolbars can be downloaded and installed by users on their web browsers giving the user quick and easy access to companies' online material. In exchange for licensing its toolbar, Conduit keeps a portion of the revenue that is earned every time a consumer uses the toolbar.

In early 2008, MyPlayCity and Conduit entered into agreements which allowed MyPlayCity to create toolbars bearing MyPlayCity's trademark. The toolbars were available through Conduit's website as well as MyPlayCity's websites and provided access to MyPlayCity's games. Under the agreements, MyPlayCity and Conduit were to share the revenue generated by the toolbars which was promoted under the MyPlayCity® trademark.

Dispute

In early part of 2009, Conduit wished to obtain more favorable terms for its relationship with MyPlayCity.  Conduit wanted MyPlayCity to exclusively use Conduit's online platform for creating MyPlayCity-branded toolbars, thereby restricting MyPlayCity's ability to form business relationships with other companies.  After MyPlayCity refused to heed to Conduit's demands, in September, 2009, Conduit alleged that it had terminated the prior agreements with MyPlayCity.  Even after Conduit stated that it had terminated the agreements with MyPlayCity, Conduit still continued to distribute the toolbars containing MyPlayCity's trademark and allowing access to MyPlayCity's content.  In fact, Conduit distributed these toolbars well after numerous demands by MyPlayCity to cease such practice and even after the lawsuit was filed by MyPlayCity.  Conduit refused to share with MyPlayCity the revenues which Conduit received after Conduit said that it had terminated the agreement, even though these revenues were received as, a result of Conduit's use of MyPlayCity's games and trademark.

Litigation

On March 1, 2010, MyPlayCity filed a suit in United States District Court for Southern District of New York.  In that suit, MyPlayCity sought an injunction against Conduit's use and distribution of MyPlayCity's trademark.  MyPlayCity also sought damages resulting from Conduit's use of the trademark, violations of the agreements, failure to pay MyPlayCity's proper and agreed share of the revenue during the life of the agreements, infringement of MyPlayCity's registered copyrights and misuse of MyPlayCity's confidential information.  In response, Conduit asserted that, based on the limitation of liability clause which Conduit had included in the agreements, MyPlayCity was prevented from recovering more than $5000.00 for Conduit's wrongdoing, regardless of how much money Conduit made as a result of its wrongdoing.

Initially, on July 29, 2011, the Court, without making any factual finding as to whether any of the Conduit's conduct was egregious, issued an opinion granting Conduit's motion in part, holding that the limitation of liability provision "limits Conduit's liability for all type of damages to $5000.00."  However, when Conduit asserted that its liability was limited to $5,000.00 for all of its wrongdoing, the Court clarified that it had not ruled that the $5,000.00 limitation of liability cap applies to MyPlayCity's claims that are based on Conduit's conduct after the termination of the agreements (i.e. post termination use and distribution of the Toolbars and trademark).

The Court recently issued an important and, in many respects, final decision and order. On the one hand, the Court confirmed that the damages incurred by MyPlayCity prior to when Conduit said it had terminated the agreements were limited to $5000.00 in light of limitation of liability clause and found that Conduit, by distributing the toolbar post-termination, did not violate MyPlayCity's copyrights in the games hosted on MyPlayCity's servers.  On the other hand, however, the Court found that Conduit nonetheless violated the Lanham Act, including federal trademark infringement and unfair competition, and engaged in common law trademark infringement and unjust enrichment claims.  Below is a brief summary of the Court's conclusions:

Federal Trademark Infringement and Unfair Competition Claims and Common Law Trademark Infringement Claim.  The Court found that by terminating the agreements, Conduit effectively terminated its license to display MyPlayCity's trademark on the toolbars.  The Court further concluded that, because Conduit continued to distribute MyPlayCity's trademark after the license to do so was terminated, Conduit infringed on MyPlayCity's trademark in violation of the Lanham Act and common law trademark infringement.  (See pp. 32-37 of the Court's decision.)

Common Law Unfair Competition. The Court, after examining all available evidence, ruled in favor of MyPlayCity that Conduit had violated the common law rule prohibiting unfair competition because "there is ample evidence of [Conduit's] bad faith, and no evidence of lack of bad faith to counter it."  (See pp. 37-40 of the Court's decision.)

Unjust Enrichment Claim. The Court further ruled that MyPlayCity was also prevailed on its claim for unjust enrichment claim stemming from Conduit's post-termination use of the MyPlayCity's trademark because "equity and good conscience require that MyPlayCity [MyPlayCity] not go uncompensated for such use."  (See pp. 40-43 of the Court's decision.)

Punitive Damages. The Court did not allow punitive damages in connection with Conduit's breach of contract, Lanham Act and unjust enrichment claims.  However, because punitive damages are proper if "a defendant's conduct has constituted gross, wanton, or willful fraud or other morally culpable to an extreme degree," the Court agreed that MyPlayCity may be able to obtain punitive damages based on Conduit's common law trademark infringement and unfair competition.  The measure and extent of any punitive damages will be decided by a jury.  (See pp. 43-45 of the Court's decision.)

Alexander Rodichev, MyPlayCity CEO, commented "While MyPlayCity intends to pursue its right to obtain proper payment from Conduit for the period up to when Conduit claims it terminated the agreements, MyPlayCity is nonetheless pleased with the decision by the Court and confident that, when MyPlayCity presents the facts to the jury, MyPlayCity will be fairly compensated for the damages caused by Conduit's unscrupulous business practices and actions.  We are also looking forward to a jury decision that we believe will render punitive damages which would both penalize Conduit for its behavior and deter such dishonest and injudicious behavior in the internet industry."

SOURCE MyPlayCity, Inc.