Atari Games Corp. v. Nintendo of America Inc.

was partially caused by the overabundance of games, seen in this 2014 excavation of a landfill used in the Atari video game burial. Until 1980, the Atari VCS was the only major console on the market, with all games produced in-house, by Atari, Inc. After several Atari employees left to found Activision in 1979, Atari sued them for violating a non-disclosure agreement, and attempted to prevent Activision from producing games for the Atari console. The court refused to grant an injunction against Activision, and the two companies settled out of court in 1982, leading to the first official third-party video games for the Atari VCS. Soon after, the United States saw the proliferation of video game consoles, as well as many low-quality games produced by third-party developers. In 1982, the number of Atari games on the market grew from under 100 to over 400 by the end of the year, and experts began to warn of an oversupply. The number of games over-saturated the market, and was a factor that led to the video game crash of 1983 in North America. Around this time, Nintendo was planning to enter the North American console market by launching a version of its Japanese Family Computer (Famicom) console. To differentiate the Famicom from failed consoles in America, Nintendo rebranded it as the Nintendo Entertainment System (NES) and its cartridges as Game Paks, with a design reminiscent of a VCR. To limit the flood of games that led to the 1983 crash as well as bootlegging problems seen in Asia, Nintendo created the proprietary 10NES system, a lockout chip that would only allow the NES to play a cartridge with an authorized "key". Game developers were only authorized if they agreed to Nintendo's licensing terms, preventing any developer from releasing more than two games per year, and limiting "inappropriate" content such as religious themes or excessive violence. The strategy allowed Nintendo to avoid some of the mistakes of other consoles in the market, including the older Atari 2600. By the end of the decade, it was estimated that Nintendo's products were in 15–20 million homes in America, or 30% of American households. Nintendo accounted for 80% of the video game market at an estimate $2.7 billion in sales per year, which was more than the market for all home computer software. Reverse engineering , it needed to contain Nintendo's proprietary 10NES chip. In 1986, Atari Games formed a subsidiary called Tengen to produce third-party games for the NES. Meanwhile, Atari also attempted to reverse engineer the 10NES, which included monitoring communications between the console and cartridge chips, chemically peeling layers from the chip, and microscopically examining the code embodied in the chip's silicon. When Atari failed in their efforts, they negotiated to become an official Nintendo licensee in 1987. In addition to complying with the 10NES lockout system, Atari agreed to a standard term where their games would be exclusive to Nintendo for two years. However, Atari continued their efforts to decipher the 10NES. Both parties motioned for a preliminary injunction against the other, with Nintendo asking the trial court to stop Atari's infringement of the 10NES copyright, and Atari asking the court to stop Nintendo's misuse of that copyright to commit antitrust violations. == Ruling ==

. District court The two cases were consolidated by The District Court for the Northern District of California. The court heard both parties' motions for preliminary injunctions, and Nintendo prevailed in both instances. Nintendo argued that Atari infringed their copyright by copying their code from the Copyright Office, making an intermediate copy of their code during the reverse engineering process, and creating a program substantially similar to their code. The court found that Atari had acquired the 10NES source code from the Copyright Office under false pretenses, and concluded that Nintendo was likely to succeed in their claim for copyright infringement, should the case proceed to trial. Thus, Atari was enjoined from selling any unauthorized games until said trial. Atari initially appealed both decisions, but decided to dismiss their own motion for a preliminary injunction. Appeal The appeal was heard by United States Court of Appeals for the Federal Circuit, which affirmed the lower court's injunction against Atari. The appellate court found that the 10NES contained protected expression, applying the precedent from Computer Associates International v. Altai to establish that the 10NES code was expressed in a unique way that is not inherent to the idea. The court also ruled that Nintendo had proven a likelihood of success in their copyright claim, because Atari made unauthorized copies of the 10NES code from the Copyright Office, and that Atari's Rabbit program was also substantially similar to Nintendo's 10NES. However, the appeals court differed from the lower court's reasoning on the question of reverse engineering and fair use. Determining that intermediate copying is not actionable in of itself, the appeals court stated that "reverse engineering, untainted by the purloined copy of the 10NES program and necessary to understand 10NES, is a fair use". However, fair use in intermediate copying does not extend to commercial exploitation of protected expression. Moreover, Atari could not invoke fair use because they used an unauthorized copy of the code, obtained from the Copyright Office under false pretenses. Lastly, the court rejected Atari's defense that Nintendo was misusing its copyright, because Atari had "unclean hands" after lying to the Copyright Office. == Effects ==

later lost a 1992 lawsuit against Galoob involving the attachable Game Genie hardware, where Codemasters successfully reverse engineered the Nintendo Entertainment System. The lawsuit finally reached a settlement in 1994, with Atari Games paying Nintendo for damages and use of several intellectual property licenses. Atari and Nintendo had several contemporaneous lawsuits, including a dispute over the rights to publish Tetris. Other companies were able to circumvent the 10NES lockout system, but they faced barriers to selling those games in stores, unlike Atari. In the book The Video Game Explosion, Dominic Arsenault noted that Atari could afford an expensive legal battle with Nintendo, while most developers simply agreed to Nintendo's terms. Under further legal pressure, Nintendo soon began to shift their legal strategy. Nintendo began to ease their licensing restrictions to avoid accusations of monopoly. By the early 1990s, Nintendo began losing developers to the Sega Genesis, and the competition forced Nintendo to make further concessions to developers. Nintendo also sued Blockbuster to prevent them from renting their games, == Legacy ==

was decided a month later, when Accolade successfully invoked fair use while reverse engineering the Sega Genesis (pictured above).|left The case was decided one month before Sega v. Accolade, another video game case about reverse engineering. Allan M. Soobert of the UIC Law Review reacted by calling for balanced legislation, to protect copyrighted software from piracy and unauthorized copying, while also protecting the right to reverse engineering. David L. Hayes of the UIC John Marshall Journal of Information Technology & Privacy also reacted that if disassembly was interpreted as copyright infringement, then "copyright law would, in effect, provide the equivalent of a patent monopoly." Intellectual property lawyer S. Gregory Boyd notes that copyright has a longer duration than patent protection, limiting all rivals who might copy their technology for the next century. Multiple legal scholars have criticized the 2000 Digital Millennium Copyright Act (DMCA) for upsetting the balance struck in the Atari and Accolade cases. In the Journal on Telecommunications and High Technology Law, Joe Linhoff criticized the DMCA for including anti-circumvention rules that make it impossible for competitors to create alternative compatible platforms. Craig Zieminski of the Journal of Technology Law & Policy also criticized the DMCA, arguing that "the unprecedented shifts in copyright doctrine – idea protection, ancillary market protection, and contract law's usurpation of copyright law – are warning signs" that the right to reverse engineering is being curtailed. == References ==