Yesterday Atari Games filed a lawsuit against Nintendo for $100 million. Atari says that Nintendo is unfairly monopolizing the video game market. Because Nintendo requires its third-party licensees to purchase the cartridge components from them, Atari Game claims that they are receiving only a small percentage of the game cartridges they’ve ordered. This has had a disastrous impact on sales and they feel it’s unfair that Nintendo controls the market in this manner. Atari Games has been a licensee with Nintendo under the name Tengen and has marketed three games: Pac-Man, Gauntlet, and R.B.I. Baseball.
Atari Games has apparently cracked the code for the NES’s lockout chip and plans to ditch Nintendo completely and create their own cartridges for the system. This would no doubt violate their licensing agreement with Nintendo and we fully expect Nintendo to retaliate with a lawsuit of their own in the coming weeks. If Atari Games is successful this could be the beginning of the end for Nintendo’s licensing programming and could lead to another video game crash like the one we saw in 1984. We’ll be watching this closely!
Claims Japanese Rival Monopolizes Market: Atari Games Sues Nintendo for $100 Million
By: Carla Lazzareschi
December 13, 1988 L.A. Times
Atari Games Corp. on Monday sued rival home video giant Nintendo Co. for $100 million, claiming it has unfairly monopolized the multibillion-dollar-a-year home video game market.
And, in a related move, an Atari Games subsidiary launched a line of Nintendo “clone” home video games on cassettes that are compatible with the Nintendo video player but not authorized by the Japanese game maker.
Nintendo, whose U.S. operations are based in Redmond, Wash., declined to comment on the moves.
The two-pronged attack, which coincides with the pre-holiday rush for home video game systems, challenges one of the basic business strategies that has helped give Nintendo more than 80% of the home video game market: manufacturing all cassettes intended for its players.
Although Nintendo licenses more than 30 firms to develop game software and to market the completed game cassettes for its video player, the company insists on manufacturing and encoding all of the cassettes. The company claims this requirement assures that all game cassettes meet its quality standards and that the supply of games does not exceed demand.
However, Atari Games claims the requirement freezes out competition since all licensees must buy their game cassettes from Nintendo, in limited quantities set by the company. Atari Games, which is unrelated to computer maker Atari Corp., has had a licensing agreement with Nintendo for three games: Pac-Man, Gauntlet and RBI Baseball.
Frustrated by Supplies
“We have been able to get only a small fraction of the games we want (to sell) into the market,” said Dennis Wood, senior vice president for Atari Games in Milpitas, Calif. “We are so frustrated by our inability to get the proper supplies.”
In its suit, filed in U.S. District Court in San Francisco, Atari Games said it had lost between $30 million and $35 million as a result of the lack of adequate supplies. Atari is seeking three times its direct losses in its $100-million lawsuit.
In addition to the court challenge, Atari Games said Monday that it had replicated the game cassette’s computer chip that Nintendo has used to ensure that only Nintendo-made games are played on its machines. Atari Games likened its achievement to developing “the functional equivalent of a key that unlocks the lockout system.” The first games that Atari will market on its “clone” cassettes are Pac-Man, Gauntlet and RBI Baseball.
[Source: L.A. Times | September 13, 1988]