Skillz, an American gaming company, has sued Israeli game developer Papaya for millions, alleging that the use of bots harmed its revenue, a claim Papaya has denied. 

Proceedings began this week in a New York court in the lawsuit Skillz filed against the Israeli gaming company Papaya. The lawsuit, which seeks damages in the hundreds of millions of dollars, was filed more than two years ago, and the hearings, held before a jury of eight, are expected to last about two weeks. 

Skillz was founded in 2012 and went public in the US in 2020. Over the years, both its valuation and revenues have declined sharply, and its current market value stands at approximately $39 million, a drop of more than 98% since its IPO.

Papaya, founded in 2019, is considered a leading company in the skill-based gaming category, with four active mobile games and more than 15 million daily tournaments.

According to the lawsuit, Papaya allegedly misrepresented its games by using bots (non-human players) across its apps, thereby creating unfair competition in the market. Skillz claims this caused it damages amounting to hundreds of millions of dollars.

According to Skillz’s attorneys, the company’s dramatic financial decline is a direct result of Papaya’s past use of bots and misleading advertising. Skillz claims that Papaya was required to disclose its previous use of bots and that, if it had done so, Papaya would not have been able to win Skillz’s customers and market share.

In response, Papaya’s attorneys stated the evidence will show that there is no connection between Skillz’s alleged business failure and Papaya. According to Papaya’s attorneys, Skillz’s revenue decline stems from a deliberate decision by the company to reduce investment in marketing expenses. Regarding the false advertising claims, Papaya’s counsel previewed evidence Papaya says contradicts Skillz’s allegations. Papaya also stated the evidence will show that, unlike Skillz, Papaya places significant emphasis on user experience, as reflected in the high ratings its games receive.

Papaya’s attorneys also foreshadowed evidence that Papaya produces fair, skill-based games only, and described to the jury how the company matches players and how its revenue model works. At the end of Papaya’s opening presentation, Papaya’s attorneys challenged Skillz’s claim of hundreds of millions of dollars in damages, arguing that there is no connection between the financial performance of the two companies.

As quoted in a report published yesterday on Bloomberg Law, Papaya’s attorneys explained at trial that Skillz’s financial troubles began “long before Papaya was founded.”

Additionally, during the trial, Papaya stated the evidence will show that the bots it previously used, central to Skillz’s claims, were used solely to fill empty tournament slots and to create fair balance, and eventually made Papaya lose money during that time period.

The Bloomberg Law report also noted that this is not Skillz’s first lawsuit on the matter, and that the company has previously filed similar claims against other competitors.

More than a decade ago, a new category in gaming emerged in the United States, real-money skill-based games, which quickly became one of the leading segments in the industry. Over time, several companies came to lead this space, including Israel’s Papaya Gaming and the more established American company Skillz.

Real-money skill-based games are mobile applications that take games requiring high levels of skill, such as solitaire, bubble games, and others, and allow users to compete against each other, where the best player wins. Users can also choose to deposit real money and win cash prizes as they improve and win more games. One of the key challenges in this category is “matchmaking”, ensuring fair tournaments by matching players based on similar skill levels and abilities.