Litigation

9 Months Ended

Sep. 30, 2024

Litigation [Abstract]

Litigation

Litigation

Skillz v. AviaGames

On February 9, 2024, a federal jury in San Jose, California issued a verdict in favor of Skillz in a patent infringement action Skillz brought against a privately-held mobile gaming company, AviaGames, on April 5, 2021 (“Patent Case”). The jury found in favor of Skillz on all issues, determining AviaGames willfully infringed Skillz’s U.S. Patent No. 9,649,564, entitled “Peer-to-Peer Wagering Platform” (the “‘564 patent”) and awarding Plaintiff Skillz Platform Inc. (“Skillz”) its full damages request of $42.9 million. After the jury verdict issued, Skillz requested certain post-trial relief, including that the Court permanently enjoin AviaGames from continuing to infringe the ‘564 patent, award Skillz its attorneys’ fees due to the exceptional nature of the case, and treble the damages awarded by the jury. In addition, Skillz, along with game developer Big Run Studios, Inc. (“Big Run”), brought a separate case against AviaGames for false advertising, copyright infringement, and violations of California’s state unfair competition law in federal court in San Francisco, California (“Unfair Competition Case”). On April 13, 2024, Skillz, Big Run, and AviaGames entered into a settlement agreement with respect to both the Patent Case and Unfair Competition Case pending against AviaGames (the “Litigation Settlement”). In exchange for dismissal of both actions and other settlement terms, AviaGames agreed to pay Skillz and Big Run a total of $80.0 million. On April 12, 2024, the Company and Big Run Studio entered into a Side Letter Agreement providing that a portion of the AviaGames settlement funds allocated to Big Run Studio be utilized to repay the outstanding principal and accrued interest under the Loan and Security Agreement totaling $2.0 million. See Note 4, Balance Sheet Components.

During the second quarter of 2024, the Company and Big Run collectively received $50.0 million from AviaGames pursuant to the settlement agreement. Of the $50.0 million received, Skillz received $48.0 million, $2.0 million of which was for settlement of the amount outstanding under the Loan and Security Agreement with Big Run. Of the $4.0 million allocated to Big Run under the Side Letter Agreement, Big Run received $2.0 million net of the settlement of the Loan and Security Agreement. Beginning in March of 2025, AviaGames is required to pay Skillz an additional $7.5 million annually over a four-year period as royalty payments for AviaGames’ license of the ‘564 patent and its patent family. No portion of these payments are due to Big Run.

For the nine months ended September 30, 2024, the Company recorded a gain from the Litigation Settlement totaling $46.0 million consisting of the net settlement payment of $48.0 million, less the $2.0 million received for settlement of the Loan and Security Agreement. The Company will record the $7.5 million payments to be received in March 2025, 2026, 2027 and 2028 as a gain upon receipt of each payment.

Skillz vs. Voodoo SAS et. al.

On July 1, 2024, the Company filed suit against Voodoo SAS and two affiliate entities, Esport Newco SAS and Esport Newco US Corp. (collectively, "Voodoo") in the United States District Court for the Southern District of New York. The Company asserts that Voodoo uses computer algorithms or “bots” to fix the outcome of tournaments in favor of Voodoo in violation of the Lanham Act's prohibition of false advertising and New York's General Business Law § 349 by advertising its mobile games as "fair," "skill-based," and for "real players only". On August 22, 2024, the Company brought a motion for a preliminary injunction and expedited discovery, and on September 18, 2024, Voodoo moved to dismiss the complaint or, in the alternative, to strike certain allegations. The Company’s and Voodoo’s motions were both mooted when the Company amended its complaint on October 2, 2024. On October 8, 2024, the Company renewed its motion for a preliminary injunction and expedited discovery based on the amended complaint, and Voodoo moved to dismiss the amended complaint on October 16, 2024. The Company expects the preliminary discovery motion and motion to dismiss will both be briefed in November 2024.

Hanna v. Paradise, et al

In March 2024, an alleged stockholder filed a putative derivative complaint, Hanna v. Paradise, et al., in the Delaware Court of Chancery, purportedly on behalf of the Company against certain of the Company’s current and former officers, directors, and certain stockholders. The complaint alleges breaches of fiduciary duties, aiding and abetting breaches of fiduciary duties, and unjust enrichment arising out of the Company’s March 2021 underwritten public offering. The complaint asserts that certain of the director and officer defendants breached fiduciary duties to the Company by allegedly inappropriately selling stock as part of the public offering; that the stockholder defendants aided and abetted these alleged breaches of fiduciary duties; and that all defendants were unjustly enriched by their sales in the public offering. The complaint seeks unspecified damages and restitution for the Company from the defendants and the payment of costs and attorneys’ fees. Defendants moved to dismiss the complaint on June 6, 2024. Plaintiffs responded by voluntarily dismissing 55 of the stockholder defendants but opposing

the motion as to all remaining defendants, including the directors and officers. Briefing on the motion to dismiss was complete by the end of August 2024. The Court has scheduled oral argument on the motion to dismiss for January 7, 2025.

Skillz vs. Papaya Gaming, Inc.

In March 2024, Skillz sued Papaya Gaming, Ltd. and Papaya Gaming, Inc. (collectively, “Papaya”) in the United States District Court for the Southern District of New York The Company asserts that Papaya uses computer algorithms or “bots” to fix the outcome of tournaments in favor of Papaya in violation of the Lanham Act's prohibition of false advertising and New York's General Business Law § 349 by advertising its mobile games as "fair," "skill-based," and for "real players only". In June 2024, the Court denied Papaya's motion to dismiss Skillz’s Complaint in its entirety. In August 2024, Papaya asserted counterclaims against the Company alleging that Company also engaged in false advertising and unfair business practices for purportedly allowing bots in games on the Company’s Skillz platform, defamation for the Company’s involvement in a non-profit organization that collected and published data related to customer complaints to state attorney generals related to Papaya’s and other companies’ alleged fraudulent bot use, and trademark and copyright infringement of design elements of certain games, among other things. The case is proceeding through discovery. The Company has moved to dismiss Papaya's counterclaims in their entirety, and that motion will be fully briefed in November 2024.