Clash in the Courtroom: Nintendo's Legal Challenges

Article by Kathryn Bailey? | Posted October 29, 2010

Over the course of its rise to power in Japan, Nintendo and its chairman, Hiroshi Yamauchi, developed a not entirely undeserved reputation for ruthlessness.

Showing no quarter to his enemies, Yamauchi kept even his business partners on a relatively short leash, and nothing changed when it came time to expand overseas. Nintendo of America was happy to follow in Yamauchi’s footsteps, mixing an amiable demeanor with bareknuckle market tactics, which garnered them their own share of critics throughout the ’80s and early ’90s.

Nintendo was bold when it came to legal challenges. One of their first victories came over MCA Universal, in which attorneys Howard Lincoln and John Kirby managed to refute the media giant’s claim over Donkey Kong and even prove that they sued in bad faith. Over the next several years, Nintendo sparred with a number of companies over issues including piracy, videogame rentals and cheat devices, all of which Nintendo hotly opposed. But these were mere sideshows compared to their bitter fights with Tengen.

Tengen president Hideyuki Nakajima had no shortage of disdain for Nintendo of America and its president, Minoru Arakwa, who had accidentally insulted him by falling asleep while they were having dinner. Their legendary legal battles stemmed mainly from Nintendo’s licensing rules, which effectively put the industry under lock and key. But the companies battled over issues, too.

Nakajima chafed at Nintendo’s refusal to give him special licensing terms, and had his engineers attempt to reverse engineer and bypass the 10NES chip. When that failed, they took a more direct approach -- they got the plans for the device from the U.S. patent office and effectively waltzed in through the front door.

Armed with the ability to manufacture their own games, Tengen sued Nintendo for $100 million, alleging that it had an illegal monopoly. Nintendo struck back hard the following year, countersuing Tengen for copying the lockout chip, and warning retailers not to sell the renegade company’s games. Afraid of losing shipments, the stores quickly agreed.

Early decisions went Nintendo’s way, as they were able to prove that Tengen hadn’t developed the lockout solution on their own. Nevertheless, the battle lingered in the courts for years.

It was during this time that Nintendo faced off against Tengen in an entirely different battle, this time for the right to publish a little game called Tetris. Thanks to a massive negotiating error on the part of Mirrorsoft, Nintendo found itself in the position to acquire the right to produce a handheld and console version of the game, which would invalidate Tengen’s own sub-licensing agreement in the process. It was too good an opportunity to pass up.

The two had it out in the courts, but this time Tengen was overmatched. It quickly became clear that Mirrorsoft only had the rights to the computer version of the game, and could not grant Tengen the game’s license. Nintendo was eventually able to wrest away the rights to Tetris from its most bitter foe, but there were other problems on the horizon. The early ’90s saw rising economic tensions between the U.S. and Japan, and Nintendo’s market dominance had gotten the attention of the U.S. government.

Nintendo protested bitterly against what they perceived to be scapegoating on the part of the government, but that didn’t stop the New York Attorney General’s Office from suing for antitrust violations. They had plenty of evidence on their side too, as Nintendo had become well-known for their strict licensing terms, retailer intimidation, and their insistence on using a certain type of semi-conductor chip which was only manufactured in Japan. For once, Nintendo was nervous.

In the end, though, the case wasn’t much more than a publicity stunt, and they were able to escape more or less unscathed. As part of their settlement, they agreed to pay $3 million in damages and issue $5 in coupons to every person who bought a Nintendo game between June 1988 and December 1990. Their punishment was little more than a slap on the wrist, and arguably encouraged customers to buy even more games.

Nintendo later settled with Tengen, and the latter even went back to being a licensee for a brief time before being wiped out for good by the Time-Warner merger. But while Nintendo was ultimately victorious, their business practices would eventually come back to haunt them. As the ’90s progressed and Nintendo’s market clout steadily diminished, former licensees were all too happy to jump ship for more favorable agreements.

As the ’80s became the ’90s, all of Nintendo’s success in the courtroom couldn’t save them from the inevitable decline. It would be a very long time before they returned to the position of industry dominance they enjoyed during the 8-bit era.

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