Game Over Chapters 11 &12

Nintendo Under Fire

• The clock ticked on Nintendo’s invulnerability. It had made too many enemies to survive all these attacks unscathed. – Referring to Nintendo being sued

simultaneously by Atari, Magnavox, Alpex Computer, and Jan Coyle.

Nintendo’s Rival; Tengen

• Namco acquires Atari Japan

• Nakajima (former executive of Atari Japan) works for Namco and forms subsidiary in the US.

• Buys out Atari Games for around $10 million

Nintendo’s Rival; Tengen

• Nakamura sells Atari Games to Nakajima and Warner

• Nakajima aspires to become a licensee of Nintendo

• Atari cannot do so under the “Atari” name due to a prior agreement, so they form Tengen.

Nintendo’s Rival; Tengen

• Nintendo accepts Tengen as a licensee but refuses to make exceptions for them

• Arakawa tries to make up by sharing reports, details of day to day operations and retailer info. – Mistake!

Chip Shortage

• Tengen receives 25% of its initial order

• Nintendo accused of trying to keep supply low and prices high

• Did Sharp have chips available?

The Controversy

• Tengen decides to go around Nintendo

• Attempts unsuccessfully to reproduce Nintendo’s code

• Accessed Nintendo’s copyright information by filing an affidavit claiming that the information was under litigation

The Controversy

• Atari’s engineers reproduced the chip and named it “Rabbit”

• Achieved by reverse engineering?

• Tengen was now able to produce and sell NES-compatible cartridges

The Fight

• Atari sued Nintendo for violation of antitrust laws

• Nintendo counter sues and begins pre-empting Tengen– 1989 Consumer Electronics Show– Threatens retailers with litigation

The Fight

• Atari found guilty of using unlawful means to obtain copyright information

• Atari sues Nintendo for patent infringement

• Nintendo has enough muscle to survive but its many enemies forecast poorly on its future

Chapter 12

• Representative Dennis Eckart researched Nintendo and put a file together about their activities

• Accused Nintendo of antitrust activities• On December 7th he held a news conference

recommending an investigation• Justice department gave case to FTC• In 1990 Nintendo decided to ease licensing

restrictions

Chapter 12 cont…

• Required to sign a consent decree• Required to give out rebates• Video rental stores caused problems for

Nintendo• Couldn’t win any ruling to prevent the rental of

games• In 1989 Blockbuster was hit with a preliminary

ruling

Chapter 12 cont…

• Infiltrated huge counterfeiting ring involving the Taiwanese government and companies

• 1990 Nintendo had to handle discrimination claims by implementing an affirmative action program

• The Game Genie wins a case against Nintendo in 1991

• “First crack in the fortress that Nintendo has established in the video game market”

Questions

Q. What was the cause of tension between Nintendo and Atari Games?

A. Nintendo refused to make allocation exceptions for Tengen, and subsequently shared valuable information to “smooth ruffled feathers” which Atari used against them once they got hold of Nintendo’s copyrighted information.

Questions cont…

Q. What did the FTC have Nintendo sign and what did it promise?

A. It was called the “consent decree” and it promised that Nintendo would refrain from price fixing. (It would not reduce the supply of Nintendo products to dealers, impose different credit terms on them, or terminate those who failed to adhere to minimum suggested prices.)