The Ultimate History of Video Games: From Pong to Pokémon and Beyond—The Story Behind the Craze That Touched Our Lives and Changed the World (61 page)
Authors: Steven Kent
The case was supposed to be heard by Judge Robert F. Peckham, a judge who had tried similar cases and whose views were thought to be sympathetic toward entrepreneurs.
The case was originally assigned to a federal judge here in San Francisco named Peckham, with whom we had some familiarity. We had been the plaintiff in a copyright infringement case and knew his thoughts on the copyright process and intellectual property laws in general associated with computer technology. We felt very comfortable with having him as the judge.
Unfortunately, he had a heart attack early on in the case and the case had to be reassigned. We were reassigned to a brand new federal judge named Barbara Caulfield, and she was a disaster.
—Alan Miller
When the two sides met in court, Sega asked Judge Caulfield to bar Accolade from manufacturing Genesis-compatible games and for Accolade to abandon future attempts to reverse engineer Genesis technology. For its part, Accolade asked the court to stop Sega from manufacturing or selling Genesis III consoles.
Sega began the case by establishing that Accolade’s games contained illegal reproductions and adaptations of Sega Enterprises, Ltd.’s copyrighted material. Accolade defended its position by appealing to the Fair Use Doctrine.
The criteria to be considered in determining whether a particular use is fair use include:
The purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;
The nature of the copyrighted work;
The amount and substantiality of the portion used in relation to the copyrighted work as a whole; and
The effect of the use upon the potential market for or value of the copyrighted work.
15—Judge Barbara A. Caulfield
In Judge Caulfield’s decision, she stated that the Fair Use Doctrine offered Accolade no protection. Since Accolade was a game manufacturer, the Genesis-compatible games were clearly made for financial gain. They would compete with Sega-licensed games in the marketplace, and she felt that they might indeed diminish the value of Sega’s copyrighted work.
Accolade’s game cartridges compete directly with those of SEL [Judge Caulfield’s notation for Sega Enterprises Ltd.], which has likely lost sales as a result of Accolade’s copying. In addition, since SEL’s disassembled code is an “unpublished work,” it is subject to a narrower scope of fair use.
16—Judge Barbara Caulfield
As to the charges of trademark infringement, Judge Caulfield sided with Sega. In her decision, she pointed out that Accolade copied the S-E-G-A code that triggered the Sega logo and licensing message. Accolade’s lawyers explained that there was no way of knowing that the TMSS code would bring up the trademark and licensing messages when the code was added to the games. Accolade engineers had simply recognized that this small file could be found in games that worked on the new console and was not present on games that were screened out. In her decision, Judge Caulfield dismissed this argument.
Accolade boldly inserted SEL’s code into its games before SEL released the Genesis III into the marketplace, and thus without fully realizing the consequences. Accolade took that risk, and cannot now shift the responsibility to SEL and SOA (Sega of America).
17—Judge Barbara Caulfield
Accolade’s lawyers argued that Genesis III would not read a game unless it contained the TMSS code, and by definition the code would trigger the trademark messages. This argument, however, was severely weakened when a Sega engineer named Takeshi Nagashima was called to testify. Nagashima claimed that competitors could create games that would work on Genesis III without the TMSS code. He then produced two cartridges that did not have the code. When he demonstrated them before the court, they ran without displaying S-E-G-A or the licensing message. Sega offered the cartridges for inspection by Accolade’s defense team but refused to allow Accolade engineers to inspect the cartridge or to reveal how the code had been modified.
On April 3, 1992, Judge Caulfield ruled in favor of Sega and enjoined Accolade from “disassembling, translating, converting, or adapting” the codes in Sega’s games. She also ordered Accolade to stop manufacturing, distributing,
and developing Genesis-compatible products. The decision meant that Accolade, a relatively small company, was stuck with thousands of worthless cartridges. Six days later, at Sega’s request, Judge Caulfield added an order that Accolade recall all Genesis-compatible games within ten business days. Though the recall was quickly repealed, the rest of Caulfield’s injunction remained in effect for several months.
She imposed an injunction against Accolade from doing any work at all with Sega cartridges. We could not sell the cartridges we had developed. We had to immediately stop development on all of our Sega-related products. This was just terrible. Just to fight the injunction, we had to pay at least a half million dollars in legal fees, and the commercial damage associated with this injunction ultimately proved to be somewhere around $15 to $25 million to our company.
She bought Sega’s argument that it was impermissible to study computer systems and figure out how they worked, and in addition, to bring out competitive software. This was a fundamental step backward from the way that product development had always been done in the Valley and in general throughout the world.
—Alan Miller
Accolade appealed the decision, and the case went before Judge Stephen Reinhardt of the Ninth Circuit Court of Appeals on July 20, 1992. Judge Reinhardt interpreted the Fair Use Doctrine differently than Judge Caulfield. He understood the doctrine to suggest that when there is no other means of understanding how a system works, and when a legitimate reason exists for needing to gain that understanding, reverse engineering was indeed a fair use of copyrighted technology. He applied a similar approach toward the false trademark message.
The question is whether the computer manufacturer may enjoin competing cartridge manufacturers from gaining access to its computers through the use of the code on the grounds that such use will result in the display of a false trademark. Again, our holding is based on the public policies underlying the statute. We hold that when there is no other method of access to the
computer that is known or readily available to rival cartridge manufacturers, the use of the initialization code does not violate the Act even though that use triggers a misleading trademark display.
18—Judge Stephen Reinhardt
Judge Reinhardt noted that the TMSS file, which contained somewhere between 20 and 25 bytes of data, was minuscule when compared to the 500,000 to 1,500,000 bytes of data contained in the entire game. The data in the games, according to Reinhardt were overwhelmingly original and deserved to compete in a free market. This, he felt, was to the benefit of the public.
There is no basis for assuming that Accolade’s
Ishido
has significantly affected the market for Sega’s
Altered Beast
, since a consumer might easily purchase both; nor does it seem unlikely that a consumer particularly interested in sports might purchase both Accolade’s
Mike Ditka Power Football
and Sega’s
Joe Montana Football
, particularly if the games are, as Accolade contends, not substantially similar.
19—Judge Stephen Reinhardt
Sega’s attorneys defended the original decision by pointing out that their client had invested time and capital designing and manufacturing the Genesis. Even after Genesis shipped, Sega continued spending millions of dollars marketing it. They characterized Accolade as a “free rider,” benefiting from time and investment. Reinhardt dismissed this argument, however, as the “‘sweat of the brow’ rationale for copyright protection.”
He was also unimpressed with Nagashima’s demonstration of a game cartridge that initialized in Genesis III without activating the trademark signals. Reinhardt stated that “At most, the Nagashima affidavit establishes that an individual familiar with the operation of TMSS can discover a way to engineer around it.” Just as Judge Caulfield had said that Accolade took a risk in adding the TMSS code and could not be excused by claiming it did not know that using the code would result in a trademark abuse, Judge Reinhardt now held Sega responsible for attaching its trademark to an unlicensed game.
Sega knowingly risked two significant consequences: the false labeling of some competitors’ products and the discouraging of other competitors from manufacturing Genesis-compatible games. Under the Latham Act, the former conduct, at least, is clearly unlawful.
20—Judge Stephen Reinhardt
Though he did not completely absolve Accolade of all wrongdoing, Judge Reinhardt struck down the injunctions handed down by Judge Caulfield. The immediate ramifications of Judge Reinhardt’s rulings were short lived. Within a year of the trial, Accolade released a basketball game titled [Charles]
Barkley Shut Up and Jam!
as an official Sega licensee. The long-term ramifications of the case were significant, however.
Sega Enterprises v. Accolade
has been cited in nearly every video game trial involving reverse engineering and unlicensed products since 1993.
In 1988, Nintendo announced that there was a worldwide shortage of the ROM chips used in Famicom and NES game cartridges. All publishers, Nintendo included, would be given chip allotments that averaged approximately 25 percent of their original orders. This development had a two-edged effect. Many company executives complained that they were not able to sell as many games as they hoped. On the other hand, the shortage ensured that nearly every cartridge that was manufactured that year got sold. Consumers seemed to purchase anything they could find as long as it carried the label “Nintendo.”
Overall, our licensees enjoyed the shortage because everything they produced got sold, but everybody wanted to have a little more than allocated.
—Minoru Arakawa, president, Nintendo of America
Some licensees simply accepted the shortage, while others accused Nintendo of purposely inventing the shortage in an effort to further control the market. Hide Nakajima and Atari Games accused Nintendo of America of unfair competitive practices. Other nonrelated complaints were leveled against
Nintendo as well. In a 1989 case, the Tramiels accused Nintendo of shutting Atari Corporation out of the marketplace and filed a $500 million suit. In another suit, filed in 1991, Nintendo found itself in court against the attorneys general of all fifty states and the District of Columbia.
The attorneys general accused Nintendo of a variety of offenses that seemed to borrow from all of the suits that had been filed against Nintendo. They accused the company of price fixing, shutting out competitors, overregulating licensees, and bullying retailers. New York Attorney General Robert Abrams, who led the investigation and ensuing case, said that Nintendo threatened to slow down or cut off supplies to retailers who lowered the price of the games by as little as six cents. When the case finally went before Judge Sweet, the same New York judge who presided over
Universal Studios/MCA v. Nintendo
, it focused mostly on allegations of price fixing and ended in a settlement.
The results of the case are almost humorous. On October 17, 1991, Judge Sweet approved a rather absurd settlement in which Nintendo agreed to mail coupons giving consumers who had purchased NES systems between June 1, 1988, and December 31, 1990, a $5 discount on the purchase of their next game cartridge. To make sure that the people who might have purchased the consoles got the message, Nintendo agreed to run advertisements in
TV Guide, USA Today
, four video game magazines, and 800 newspapers. According to the terms of the agreement, Nintendo would have to make up the difference if the coupon sales added up to less than $5 million in discounts. Nintendo also agreed to pay the states and the District of Columbia $1.75 million for their administrative costs and $3 million for other uses.
Nintendo will pay $3 million to the Attorney Generals for use at the States’ option for one of the following purposes: antitrust enforcement, deposit into a state antitrust revolving fund, defraying the costs of experts used in multistate antitrust investigations, benefiting those unidentified consumers for whose benefit the settlement was entered, or payment into a state’s treasury.
21—Judge Robert Sweet
In an article titled “Please, Br’er Fox! Don’t Throw Me in the Briar Patch!”
Forbes
described the settlement as less than punishing for Nintendo.
The deal Nintendo cut to settle antitrust complaints by the Federal Trade Commission and some states turns out to be another shrewd move by the Japanese videogame manufacturer. Nintendo agreed to mail 5 million $5 coupons good on Nintendo cartridges, plus pat-myself-on-the-back letters from some local attorney generals. That’s some punishment. Nintendo has just put a new 16-bit machine on the market, but the coupons are only good for the old eight-bit cartridges. So the deal helps clear old inventory as well as bring in lookers for the more powerful new sets.
Please, Br’er Attorney General … !
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