Tencent Gaming Unit Must Pay $8.5 Million in ‘Freemium’ Dispute

(Bloomberg) -- Tencent Holdings Ltd.’s Supercell gaming unit was ordered to pay $8.5 million in royalties to Japan’s Gree Inc. in a patent trial over features used in popular online games.

Supercell games infringed four patents, a federal jury in Marshall, Texas, found Friday. The $8.5 million, which was less than Gree was seeking, covers past and future sales, the jury said. The jury also found that the infringement was willful, so District Court Judge Rodney Gilstrap could increase that amount by as much as three time the figure set by jurors.

The dispute is over features in “freemium” games, a portmanteau of the words “free” and “premium,” that are free to download but make money by letting users buy virtual items or upgrade during the game. Gree was one of the pioneers of the technique, also known as gacha.

Gree claimed Supercell’s Clash of Clans, Clash Royale and Brawl Stars games infringed its patents for methods for controlling and presenting downloadable games to smartphone players, controlling their in-game purchases and transfers of objects between players, and enhancing the visual effects for multi-player mobile games.

Supercell denied using any of the patented technology, and argued that the patents were invalid. The jury rejected Supercell’s invalidity arguments.

Tencent bought an 84% share of Supercell for $8.6 billion in 2016. The Finnish company makes some of the most popular games for mobile devices. Even after eight years, Clash of Clans ranks in the top 5 most popular strategy games in the iPhone App Store. Supercell Chief Ilkka Paananen said in February that the company of 300 employees recorded a profit of $577 million on revenue of $1.56 billion last year.

By itself, Supercell ranked as the fourth-biggest publisher by revenue, according to a March report by researchers at App Annie. Shenzhen, China-based Tencent, which gets a third of its revenue from online games, topped the list.

Gree reported 71 billion yen ($680 million) in revenue last year but it and other Japanese game developers were starting to see falling revenue, in part from overseas game competition, before the pandemic lockdown gave a boost to sales.

Supercell had filed its own suit against Gree in 2017, but the case was dismissed last year after a federal judge invalidated a Supercell patent for obtaining login information.

Supercell had tried to get the trial postponed, saying its Finnish witnesses refused to come to the U.S. because of the coronavirus pandemic. Finland has had fewer than 8,800 Covid-19 cases, and fewer than 350 deaths, according to data from Johns Hopkins University. The request was denied, with U.S. Magistrate Roy Payne noting that there’s already been a trial in the district without problems. In that case, Apple Inc. was hit with a $506 million verdict over wireless communications.

The case is Gree Inc. v. Supercell Oy, 19-70, U.S. District Court for the Eastern District of Texas (Marshall)

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