Phase 10 inventor's lawsuit sets up high-stakes fight

January 5, 2009
In the world of card games, Phase 10 is a whale. About 3 million copies of the rummy variation are sold each year, second only to Uno. The game has been the top seller for Plainfield-based Fundex Games Ltd. for years.

But now the 50-employee company has been dealt a wild card: The man who created Phase 10 in 1982, Michigan resident Kenneth Johnson, is suing to yank the firm's rights to make and market the game.

Johnson accuses Fundex of copyright infringement, trademark dilution, fraud, conversion and theft in the suit, which was filed in December in U.S. District Court in Indianapolis. Johnson claims the privately held company has withheld royalties, granted sub-licenses without his consent, failed to include Johnson's copyright notice on card games, and registered the Phase 10 mark for itself in the United Kingdom and France.

Fundex has not yet responded in court, but an attorney for the company said the allegations don't have merit.

"Fundex denies the claims and will vigorously defend its rights to Phase 10," said Mitchell Roth, an attorney with Chicago law firm Much Shelist PC.

Johnson's attorney, T. Joseph Wendt of locally based Barnes & Thornburg LLP, declined to comment. Johnson could not be reached for comment.

The principals of Fundex struck a deal for the game in 1986, paying Johnson a flat $60,000 and assigning him royalties on all future sales. The parties amended the agreement in 1996 and 2003, but the gist remained the same: Fundex had the right to market and sell Phase 10 and the first right to market new products related to the game, in exchange for royalty payments.

The lawsuit says Johnson discovered in the summer of 2008 that Fundex wasn't living up to its end of the deal. He spelled out his concerns in two letters to the company. And he notified Fundex of plans to review its records on Phase 10, as allowed in the contract, but when his auditors arrived a month later the company refused to provide the requested information.

So Johnson, who received a trademark for the game in 1994, told the company on Nov. 1 that he was canceling the deal. When Fundex continued to market and sell the game, he filed suit. The featured game on Fundex's Web site at press time was a board game called "Phase 10 Twist."

The dispute appears to have arisen at least in part over the company's push to repurpose and repackage the card game in multiple forms, including a mobile version.

Fundex in 2007 sold Canadian mobile-game publisher Magmic Games the rights to develop a downloadable version of Phase 10, to be sold to mobile phone customers for a one-time fee of $6.99. Fundex gets about $1 per download. The company would not disclose the terms of the deal.

Fundex is a small player in the $20 billion box-game industry. Rhode Island-based Hasbro Inc., controls 75 percent of the segment. California-based Mattel Inc. has about 10 percent, with a handful of other companies fighting over the rest.

Fundex gets about half of its roughly $20 million in revenue from licensed games, with the rest coming from company-created games or standbys like chess and checkers and other products, CEO Chip Voigt said.

Voigt, 48, declined to discuss the lawsuit or describe the importance of Phase 10 to the company's prospects. He founded the company with his father, Pete, who was involved in the development of Uno for Illinois-based International Games Inc. before it was acquired by Mattel in 1992. Pete Voigt is now retired.

Chip Voigt said the dispute is the first time Fundex has faced a legal action related to a game it licenses.

"In our industry, from time to time disputes arise," he said. "We're continuing on."

The suit does not specify how much in damages Johnson will seek, only that it will exceed $75,000. 
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