Console War Atari vs. Nintendo

Tengen was an Atari subsidiary now mainly remembered as one of the few publishers of unlicensed Nintendo Entertainment System (NES) games. In the 80s, Nintendo imposed strict licensing terms on third-party developers, partly informed by the video game crash. Publishers could release no more than five NES games per year, and Nintendo reserved the right to demand changes. Publishers also had to buy their cartridges directly from Nintendo and guarantee two years of NES exclusivity for each title. These practices are difficult to explain solely as quality assurance.

A chip shortage in 1988 means that, only months after Tengen became a licensee, Nintendo can no longer keep up with cartridge production. Tengen loses money because — according to estimates — only one tenth of the demand can be covered. Secretly, such a case has already been taken care of. Tengen had illegally acquired the 10NES lockout chip code at the US Copyright Office and had been able to replicate it by reverse engineering. They have cracked the NES with it and henceforth the possibility to publish games without agreement with Nintendo. The subsequent dispute runs until 1994 and has resulted, among other things, in the release of sensitive data being re-regulated by the Copyright Office; the procurement of the code by Tengen is also found to be clearly illegal (whereupon Tengen must cease the production of NES games). The practice of reverse engineering, however, is legally guaranteed in principle by the verdict of the judge. A parallel lawsuit by Ataris against Nintendo’s monopolistic business practice has the effect of loosening the licensing conditions for manufacturers and retail chains.

There is a certain irony in the fact that both Coleco/Atari and Atari/Nintendo are at the core of patents and their illegal use — and that Atari is losing the lawsuit for the same reason that Coleco won it only a few years earlier.

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