IP Law Daily, TRADEMARK—S.D.N.Y.: Trademark, copyright inringement counterclaims severed from online gaming false advertising case, (Feb 12, 2025)

By Kenneth H. Ryesky, M.B.A., J.D.

Papaya Gaming counterclaimed that Skillz Platform also used bots, despite its public anti-bot pronouncements.

The federal district court in New York City has partially denied an online game platform operator's motion to dismiss the counterclaims of its competitor in a lawsuit alleging false advertising. The defendant competitor counterclaimed analogous behavior by the plaintiff platform operator and also asserted counterclaims for defamation and trademark and copyright infringement. The court then severed the remaining intellectual property counterclaims from the other remaining issues, finding that resolution of the copyright and trademark infringement would unnecessarily prolong the resolution of the false advertising issues (Skillz Platform Inc. v. Papaya Gaming, Ltd., No. 1:24-cv-01646-DLC (S.D.N.Y. Feb. 7, 2025)).

The solitaire card games that had been a familiar individual pastime for hundreds of years became automated with the development of the personal computer during the late Twentieth Century. The commercialization and expanding popularity of the Internet, which facilitated instantaneous communications between personal computers that are physically separated from one another, often by hundreds if not thousands of miles, set the stage for online gaming competition between two or more individuals. This disruptive technology created opportunities for an online gaming industry, and has led to the development of a vast assortment of online games, many entailing an element of skill in addition to the element of chance.

From its founding in 2021, Skillz, Inc. became a major entity in the online gaming industry through its development of a multiplayer video game competition platform that enables gaming participation through mobile devices in addition to stationary personal computers. The platform can facilitate match-ups between competitors of similar skill levels. The Skillz business model entails players opening an account at no cost, and then, depositing money into the account, from which entry fees to play the various games are debited, and to which winnings are credited. Players can withdraw cash from their accounts (subject to certain conditions and restrictions).

Papaya Gaming, Ltd. and its associated entity, Papaya Gaming LLC (collectively, Papaya) compete with Skillz in the online gaming industry. While each individual event on the Skillz platform entails two players competing against one another, the events on the Papaya platform often entail multiple players competing against one another.

On March 4, 2024, Skillz sued Papaya, alleging that Papaya surreptitiously uses autonomous computer programs (bots) as competitors in its events, and that Papaya retains the entry fees paid by its human customers whenever a bot wins a competitive event. The lawsuit alleged false advertising under the Lanham Act and unlawful deceptive act and practice under New York state law. Papaya's answer, filed on August 5, 2024, included counterclaims against Skillz. Papaya subsequently amended its counterclaims. In addition to its own reciprocal false advertising claims under the Lanham Act and Section 349, Papaya counterclaimed for false designation of origin, copyright infringement, trademark infringement, common law defamation and common law civil conspiracy.

Skillz moved to dismiss Papaya's counterclaims, or, alternatively, to sever the Papaya trademark and copyright counterclaims from the case.

False advertising. The court denied Skillz's motion to dismiss Papaya's false advertising counterclaims regarding Skillz's own products, but granted dismissal regarding Skillz's claims regarding Papaya and other competitors. Here, Skillz has admitted that it does use bots for limited purposes such as testing and development of new games, and for training purposes. But Skillz has made public statement to the effect that it does not use bots. Questions of fact remain, and Papaya has plausibly alleged that Skillz has committed acts that might contravene the Lanham Act and Section 349, which Second Circuit precedent has established entail similar elements of a plausible false advertising allegation.

Papaya's counterclaims also challenge Skillz's statement on its website that gamers can withdraw money from their accounts at any time, when, in practice, Skillz analyzes and verifies each withdrawal request, including a review of the gamer's playing record, before issuing a cheque; the process can take up to six weeks. Skillz's detailed explanation of the gamer's withdrawal process is an article on a separate webpage from Skillz's statements of the gamer's ability to withdraw at any time, so questions of fact regarding whether the article is sufficiently proximate to its advertised "at any time" statement to constitute an effective disclaimer.

Papaya also counterclaimed that Skillz defamed Papaya and other competitors by (1) operating a website that accuses Papaya of using bots in its games; and (2) by circulating and publicizing an article that appeared on a third-party website that Papaya has admitted to using bots in its games. The counterclaim regarding the website failed to plead that the information was not substantially true, and the article on the third-party website, although couched in relatively harsh language of "fraudulent claims" and "scams," constituted opinion in its characterization, and also passed muster for the truth privilege defense to defamation; the article was about the very litigation at issue, and it reported a statement made at a conference by a Papaya attorney that "at the pleading stage, we have not denied the use of bots."

Papaya's intellectual property counterclaims. The court granted Skillz's alternative motion to sever Papaya's trademark and copyright counterclaims from the litigation. Here, Papaya counterclaimed that the Skillz website uses wordmarks and logos duly registered in the U.S. Patent and Trademark Office by Papaya. The logos used by Skillz are arguably similar in color and font to those registered by Papaya. Consumer confusion was alleged by Papaya regarding its logos and wordmarks.

Papaya's logos, being registered as reflected on the USPTO website, have acquired a secondary meaning and accordingly are entitled to protection. Papaya's wordmarks such as "BINGO CASH," "21 CASH," and "SOLITAIRE CASH" were not been alleged to have acquired secondary meaning within the trademark laws, and the counterclaim does not sufficiently explain how they are presented to consumers.

The court denied Skillz's motion to dismiss Papaya's logo infringement counterclaims, but granted its motion to dismiss the wordmark counterclaims.

The remaining trademark and copyright counterclaims were severed. The court found that while most of the intensive discovery thus far (which had occasion to implicate the Hague Convention in the discovery of information stored outside of the United States) dealt with the bot and false advertising issues, the intellectual property counterclaims would require resolution through "a different set of discovery materials, different considerations underlying any settlement discussions, and different arguments," and no party would be materially prejudiced by the severance.

The Case is No. 1:24-cv-01646-DLC.

Judge: Cote, D.

Attorneys: Amy Katherine (King & Spalding LLP) for Skillz Platform Inc. Anthony Joseph Dreyer (Skadden, Arps, Slate, Meagher & Flom LLP) for Papaya Gaming, Ltd.

Companies: Skillz Platform Inc.; Papaya Gaming, Ltd.

Cases: Copyright TechnologyInternet Trademark NewYorkNews