IP Law Daily, COPYRIGHT—N.D. Tex.: Atari Crystal Castle copyright infringement suit against State Farm survives motion to dismiss, (Sep 30, 2024)

By Justin Marcus Smith, J.D.

However, the court did not find gems among other claims Atari asserted in connection with the appearance of a Crystal Castle upright cabinet in State Farm advertising.

State Farm Mutual Automobile Insurance Co. (State Farm) must face an Atari Interactive Inc. (Atari) copyright infringement claim, held a federal district court in Dallas, Texas. However, the court granted State Farm’s motion to dismiss Atari’s unjust enrichment, business disparagement, unfair competition, and false information and advertising claims (Atari Interactive, Inc. v. State Farm Mutual Automobile Insurance Co., No. 3:24-cv-00704-D (N.D. Tex. Sept. 27, 2024)).

Background. In this action, plaintiff Atari asserted the following claims against defendants State Farm, the Marketing Arm, Inc. (TMA), and August Pask Partners LLC (d/b/a Hudson Editorial, or Hudson) (collectively, the State Farm defendants):

• copyright infringement under the Copyright Act of 1976, 17 U.S.C. § 101 et seq.;

• unjust enrichment;

• business disparagement;

• unfair competition; and,

• false information and advertising under Tex. Ins. Code Ann. § 541.052 (West 2023).

Mores specifically, Atari, which alleged it is the owner of exclusive rights to copyrighted works associated with the classic Crystal Castles videogame, complained that a State Farm advertising campaign (“Gamerhood” campaign) infringed on the Crystal Castles copyright. The Gamerhood campaign was said to include a traditional upright arcade game cabinet wrapped to depict the Crystal Castles’ characters and scenes, albeit with a substituted game title, “Witch’s Broom.” Atari nonetheless alleged that State Farm violated its Crystal Castles’ copyright based on allegations that viewers of the State Farm ad recognized the game cabinet as a Crystal Castles cabinet. Atari also pleaded the Gamerhood campaign included false and disparaging statements about Atari and its products that unfairly harmed Atari’s business. The court partly granted and partly denied the State Farm defendants’ Fed. R. Civ. P. 12(b)(6) motion to dismiss on-the-papers.

Infringement plausible. The court held Atari plausibly alleged that it owned a valid copyright covering the disputed “cabinet wrap” and artistic depictions of the Crystal Castles’ Bentley Bear character, as shown in photographic exhibits to the complaint.

As for copying of constituent elements, Atari alleged the center of nearly every video frame of the Gamerhood campaign prominently featured the purported Crystal Castles arcade cabinet bearing Crystal Castles characters and scenes. The court found this enough to plead the elements of copyright infringement.

Usage. The State Farm defendants contended their use of the cabinet wrap was de minimis, but the court found the defendants’ cited cases distinguishable from the facts Atari alleged. In one cited case, a pinball machine only appeared at all times partially obscured in the background of a Hollywood movie. See Gottlieb Dev. LLC v. Paramount Pictures Corp., 590 F.Supp.2d 625 (S.D.N.Y. 2008). Similarly, the use of a disputed mural in another Hollywood movie was de minimis because it only appeared for a few seconds, it was not the focus of the scene, it was never referenced in the film, and it was “completely irrelevant to the Film’s plot.” See LMNOPI v. XYZ Films, LLC, 449 F.Supp.3d 86, 91-92 (E.D.N.Y. 2020).

In contrast, the court found Atari alleged that the arcade cabinet with the disputed Atari wrap appeared “in the center of the video for the majority of the length of the video.” State Farm replaced the game title, but the protected material was otherwise “still largely observable and in focus” with human actors interacting with the cabinet in a way that was apparently central to the ad campaign plot. Atari also alleged that observers identified the wrap as the Crystal Castles wrap. The court concluded Atari plausibly pleaded that the alleged copying was more than de minimis.

Fair use defense. The State Farm defendants also raised the affirmative defense of fair use, but the court agreed with Atari’s objection that the use was, at least for pleading purposes, commercial. State Farm used the cabinet in an advertising campaign.

Applying the elements of fair use, the court found the video Atari submitted did not appear to involve a transformative purpose like criticism or commentary. Instead, State Farm appeared to be using the cabinet wrap to “invoke the same aesthetic tones intended to be evoked by the artwork itself.”

As for the nature of the copyrighted work, Atari’s allegation that the defendants appropriated the expressive, visual elements of the cabinet wrap and game visuals also weighed against fair use.

Turning to the amount and substantiality of the portion of the copyrighted work used, the court found the video included enough of the Crystal Castles wrap to be recognizable as such. This factor also weighed against fair use.

As for the effect on the potential market for or value of the copyrighted work, the most important fair use factor, the court found Atari alleged it presently has an “active licensing business” to extend its brand beyond core videogaming into “other media” like advertising and publishing. Accepting Atari’s allegations as true at this stage, the court concluded it was plausible that State Farm’s unlicensed use would harm Atari’s business. This factor also weighed against fair use.

Last, the court noted that Atari did not plead itself out of court by admitting to all of the elements of the fair use defense. The court accordingly denied the State Farm defendants’ motion to dismiss based on fair use.

No unjust enrichment. The court granted the State Farm defendants’ motion to dismiss the unjust enrichment claim because Texas courts do not recognize unjust enrichment as an independent cause of action.

No disparagement. The court agreed with the State Farm defendants that the Atari complaint did not allege that they made any statements with knowledge of falsity, reckless disregard of falsity, or with ill will or intent to interfere with Atari’s business. Misappropriation for commercial ends, alone, was not enough to infer reasonably that Atari acted in bad faith or intended to harm Atari by publishing false information. The court dismissed Atari’s disparagement claim accordingly.

No special damages. The court likewise did not see any reason to infer special damages. Atari asserted that some individuals expressed dissatisfaction with State Farm’s use of the Atari cabinet, but that did not suggest any dissatisfaction with Atari or that Atari lost any business or goodwill. The court did not buy Atari’s contention that negative reactions directed toward State Farm carried over to Atari. The court said that even if that were the case, it would be by apparent association, not by falsity or disparagement.

No unfair competition. The court agreed with the State Farm defendants that Atari’s unfair competition claim was merely conclusory in basically the same way as the disparagement claim. Moreover, Atari did not plausibly allege that the State Farm defendants made any untrue, deceptive, or misleading assertion about the business of insurance or about a person conducting insurance business. The court therefore agreed with State Farm that Tex. Ins. Code Ann. § 541.052 (West 2023) was not applicable, and the court granted dismissal of the unfair competition claim accordingly.

The Case is No. 3:24-cv-00704-D.

Judge: Fitzwater, S.

Attorneys: Bryan Andre Giribaldo (Pardell Kruzyk & Giribaldo PLLC) for Atari Interactive Inc. Marc A. Fuller (Jackson Walker LLP) for State Farm Mutual Automobile Insurance Co.

Companies: Atari Interactive Inc; State Farm Mutual Automobile Insurance Co.; August Pask Partners LLC; The Marketing Arm, Inc., d/b/a Hudson Editorial

Cases: Copyright TexasNews