Capcom U.S.A. Inc. v. Data East Corp.

Capcom filed a motion for preliminary injunction to enjoin Data East from distributing the video game “Fighter's History,” which Capcom alleges infringes upon its copyrights for the “Street Fighter II” series of video games. Capcom introduced Street Fighter II in 1991, whereas Data East introduced Fighter’s History in 1993. Capcom alleges that Data East's Fighter's History copied the distinctive fighting styles, appearances, special moves and combination attacks of many of Street Fighter II's characters, as well as the control sequences used to execute their moves. Data East claimed that there was nothing original about Street Fighter II, which used stereotypical characters and common fighting maneuvers.

To prevail on its motion for a preliminary injunction, Capcom had to show either: (1) a likelihood of success on the merits and the possibility of irreparable injury, or (2) that serious questions going to the merits existed and the balance of hardships tipped sharply in its favor. Johnson Controls, Inc. v. Phoenix Control Systems, Inc., 886 F.2d 1173, 1174 (9th Cir. 1989). A showing of a substantial likelihood of success on the merits of a copyright claim raises a presumption of irreparable harm. Johnson Controls, 886 F.2d at 1174. After establishing valid copyrights, Capcom needed to prove that they were in fact copied. Capcom had no direct evidence, but instead relied on the circumstantial weight of Data East's project proposal for Fighter's History which made repeated references to Street Fighter II in addition to the similarities in characters and moves between the two games. Because there was no direct evidence of copying, the Court applied the two part test of access and substantial similarity to assess Capcom's claim of copyright infringement.

First, Capcom easily proved access, as Street Fighter II had been widely disseminated before the development of Fighter’s History. Also, the proposal for Fighter’s History was a nine page document that contained twenty-two references to Street Fighter II. Data East put forth direct evidence of original work including cartoon characters, comic books, movie advertisements, etc., from which Data East claimed to have drawn its inspiration for its Fighter's History characters. The court did not find Data East’s evidence persuasive, as while other outside sources may have influenced the development of the Fighter's History characters, there was no doubt that Street Fighter II characters also provided a significant source of inspiration. Second, Capcom had to establish that Fighter's History was substantially similar to Street Fighter II and that the similarity resulted from protectable expression. Roth Greeting Cards v. United Card Co., 429 F.2d 1106, 1109 n. 3 (9th Cir.1970). The test to establish substantial similarity consists of extrinsic and intrinsic prongs.

To analyze extrinsic similarity a court must filter out those elements of the copyrighted work that are deemed unprotectable, and reserve only protectable expression for comparison under the subjective test. Apple Computer, Inc. v. Microsoft Corp., 821 F.Supp. 616, 623 (N.D.Cal.1993). Capcom had identified a number of alleged similarities between Street Fighter II and Fighter's History. These similarities could be divided into four primary categories: (1) similarities in characters; (2) similarities in special moves and combination attacks; (3) similarities in control sequences; and (4) miscellaneous similarities in the general presentation and flow of the games. Concerning (3), the control sequences could not be expressed in limitless ways. Rather, the expression of an idea and the underlying idea frequently merge in the area of control sequences because the player simply pressed the button corresponding to the move he wishes to have produced on the screen. On the practical level, the universe of possible joystick combinations was further restricted by the need to have the control sequence emulate the natural movements of the body. While the Court was disturbed by these "coincidences" in some of the arbitrary control sequences, it concluded that because the control sequences did not constitute protectable expression, these isolated similarities were not actionable. Concerning (4), Capcom sought to protect a variety of miscellaneous features in Street Fighter II including its "attract mode" and "VS." screens and its method of selecting characters, designating winners and tracking a fighter's vitality during a fight. These features, however, were commonplace and unprotectable under the doctrine of scenes-à-faire. Concerning (1) and (2), Capcom urged that Data East had copied the physical appearance of seven of Street Fighter II's eight playable characters and had reproduced twenty-seven of the characters' special moves for use in its game. The court found that three characters and five special moves in Fighter's History were similar to protectable characters and special moves in Street Fighter II.

The intrinsic prong was applied once all the unprotected similarities and those elements that were not similar as a matter of law had been filtered out through analytic dissection, the remaining protectable expression in the plaintiff's video was compared to corresponding expression in the defendant's video in a subjective analysis of similarity. The subjective determination involved in the intrinsic test employed a reasonable person standard and examined the works for similarity in "total concept and feel." Shaw v. Lindheim, 919 F.2d 1353, 1357 (9th Cir. 1990). Although the Court had concluded that three Fighter's History characters--Matlok, Feilin and Ray, were similar to Guile, Chun Li and Ken in Street Fighter II, the characters were not virtually identical and Data East certainly had not bodily appropriated them for use in its game.

Applying the Ninth Circuit standard for granting a preliminary injunction to the facts infra, the court determined that Capcom had failed to demonstrate a likelihood of success on the merits or even serious questions concerning the merits. The advantage Capcom gained in relying on these stock characters and standard moves was that they were immediately recognizable and familiar to the player. One of the risks consequent to that tactic, however, was that much of Street Fighter II was left unprotectable from competitors' simulations. Based on this analysis, the preliminary injunction was denied.

Thanks to Adam Trost for his assistance with the preparation of this case brief.

In a case of infringement involving one of the earliest video game patents, Magnavox asserted its exclusive licensing rights on television console “ball and paddle” games like the classic PONG.

Pong:

(Photo courtesy of David Winter, Pong Story; (c) David Winter)
The patent-in-suit was U.S. Letters Patent Re. 28,507, a reissue patent originally issued on April 25, 1972. The ‘507 reissue patent was one of several related patents obtained by Sanders Associates, another Plaintiff in this case. In 1967, Sanders became the first to combine toys, games, and television, defining the brand new art of television video games. Sanders’ subsequent patents claimed exclusive rights on a large variety of television games. Two of the asserted claims in the ‘507 patent read as follows:

51. Apparatus for generating symbols upon the screen of a television receiver to be manipulated by at least one participant, comprising:
means for generating a hitting symbol; and
means for generating a hit symbol including means for ascertaining coincidence between said hitting symbol and said hit symbol and means for imparting a distinct motion to said hit symbol upon coincidence.

52. The combination of claim 51 wherein said means for generating a hitting symbol includes means for providing horizontal and vertical control signals for varying the horizontal and vertical positions of said hitting symbol.

Deciphering the above legalese, the ‘507 patent described a common gaming scenario: a player (the hitting symbol) moving around the screen and making contact with a ball (the hit symbol), sending the ball off in a different direction. Sanders, having become a TV console gaming pioneer, had now secured the rights to a set of actions that countless video game designers would want when creating sports games, combat games, and puzzle games, etc.

In 1971, Sanders sold the exclusive licensing rights under the ‘507 patent to Magnavox, who shortly thereafter introduced the first of the ball and paddle, under the name “Odyssey.” It didn’t take long for other game designers to catch on. Atari released the television console classic “PONG” in 1975, after securing a license from Magnavox for the right to make and sell the ‘507-type ball-and-paddle game. More game designers flocked to this new market, and Activision was among the youngest and most ambitious of them.

Odyssey:
Activision designed and manufactured television console games for the Atari 2600, the Commodore 64, and for IBM and Apple computers. It produced a Tennis, Hockey, and Grand Prix game, among others, which followed the general ‘ball and paddle’ format covered by the ‘507 patent. When Activision failed to obtain a license from Magnavox before developing these games, Magnavox and Sanders filed this infringement suit.

Magnavox had much at stake in this case; they had already made approximately $40 million in licensing royalties based on the ‘507 patent and had no desire to be cut out of the loop. The stakes were raised even higher when Activision responded to the infringement action by promptly challenging the validity of the ‘507 patent with 9 pieces of prior art brought before the court. If the court invalidated the ‘507 patent, Magnavox risked losing its entire royalty stream, and being left completely behind by Atari and its television gaming competitors.

Fortunately for Magnavox, the ‘507 patent had previously endured and survived validity challenges in two previous cases. In, The Magnavox Co. v. Chicago Dynamic Industries, 201 U.S.P.Q. 25 (N.D.Ill.1977) and The Magnavox Co. v. Mattel, Inc., 216 U.S.P.Q. 28 (N.D.Ill.1982), ‘507 patent had been challenged against many of the same pieces of prior art offered by Activision. However, since Activision was not a party to those cases, the judge in this case performed an exhaustive review of the technology and the cited prior art references before making an independent decision. In the end, as in the previous cases, the court found that ‘507 patent was valid over the prior art.

Activision now faced an uphill battle, proving that its games did not infringe the claims of the ‘507 patent. Activision’s main argument was that the “means-plus-function” language of the claims (i.e. the means ascertaining coincidence, the means for imparting a distinct motion to said hit symbol, etc.) should be narrowly construed to apply ONLY to the circuitry described in the language of the ‘507 patent. Game circuitry had, of course, changed significantly in the last 10 years, and Activision wanted Magnavox’s claims to apply only to “slicer circuits that make sawtooth waveforms,” the dominant circuit technology of 1970. Most modern games, including Activision’s, now used a microprocessor design. The court, however, declined to limit ‘507 patent, “The use of the microprocessor technology, which became available only after the invention of the ‘507 reissue patent … does not alter the basic nature of those games or avoid the ‘507 reissue patent.”

After holding that Activision’s games did literally infringe, the court further noted that the Doctrine of Equivalents would have also applied in favor of Magnavox. Magnavox had enjoyed wide licensing and much commercial success based on the ‘507 patent. These facts justified a wide range of equivalents, and support the conclusion that Activision’s games were substantially the same as those claimed in the ‘507 patent.

Activision next argued that since Atari had acquired a license from Magnavox to develop games under the ‘507 patent, all purchasers of the Atari 2600 console had either an explicit or implied license to buy and use other games falling under the same patent. The court quickly rejected the explicit license argument, holding that Atari 2600 purchasers only had a license to use that gaming console, not to buy and use other infringing games. Similarly, Atari console buyers did not acquire an implicit license to buy and use Activision games. No evidence had been shown that any game purchasers relied on this legal theory of implicit licensing while purchasing an Activision game. Further, any thoughts by purchasers concerning their freedom to use Activision games came from Activision itself and not from statements or actions of the Plaintiffs. The court similarly dismissed Activision’s argument that using its games in an Atari console constituted a “permitted adaptation” of the license given to every purchaser.

The only minor victory for Activision came when the court found that its infringement of the ‘507 patent had not been willful. Activision’s founders, before starting the company, had brought their business plan to a patent attorney to seek legal advice regarding their proposed games. Since their counsel had failed to mention the ‘507 patent, Activision had acted reasonably in believing that there was no such patent.

Lewis Galoob Toys developed a device called the Game Genie, which allowed the player of a Nintendo Entertainment System game to alter up to three features of the game, such as a game character’s speed or strength, or the character’s number of lives. The Game Genie, which is inserted between a game cartridge and the Nintendo system, functions by replacing the value for a single data byte sent by the game cartridge to the Nintendo system. The Game Genie’s effects are temporary, having no affect on the data that is stored on the game cartridge.

Game Genies:

Nintendo brought suit against Galoob, alleging contributory infringement because the marketing, advertising, promoting, and selling the Game Genie contributed to the creation of infringing derivative works. The district court concluded that (1) “the audiovisual displays created by the Game Genie are not derivative works” and (2), even if the displays were derivative works, “the displays are a fair use.” Nintendo appealed.

II. Analysis

1. Derivative Works

The Ninth Circuit first looked at whether the audiovisual displays created by the Game Genie constituted derivative works. The court began by emphasizing that “a derivative work must incorporate a portion of a protect work in some concrete or permanent form.” The court determined that the derivative work does not have to be “fixed,” as required for copyright protection, but an independent work must be created.

The Ninth Circuit agreed with the district court that no independent work is created by the Game Genie. In making this determination the court made a distinction between products that “enhance” copyrighted works and products that “replace” copyrighted works. In this case, the Game Genie “enhances” the Nintendo game, but it does not “replace” the Nintendo game. The Game Genie, by itself, cannot produce an audiovisual display.

Additionally, the court distinguished this case between two prior cases. In Mirage Editions, Inc., v. Albuquerque A.R.T. Co., 856 F.3d 1341 (9th Cir. 1988), the Ninth Circuit held that ceramic tiles displaying art work taken from a commemorative book constituted derivative works. The ceramic tiles physically incorporated a protected work in a form that could be sold. In addition, the court distinguished Mirage by noting that “sales of the tiles supplanted purchasers’ demand for the underlying work.”

In Midway Manufacturing Co. v. Artic International, Inc., 704 F.2d 1009 (7th Cir. 1983), Artic sold computer chips that could be inserted into a Midway’s arcade game to speed up the rate of play. The Seventh Circuit held that the speeded-up version of Midway’s game constituted a derivative work. The Artic chip “substantially copied and replaced” the original Midway chip. The court also distinguished Midway by noting that the purchasers of the Artic chip benefited financially by selling an altered game to the public.

Therefore, because the Game Genie “does not contain or produce a Nintendo game’s output in some concrete or permanent form, nor . . . supplant demand for Nintendo game cartridges, the court held that the audiovisual displays created by the Game Genie do not constitute a derivative work.

2. Fair Use

The district court held that even if the audiovisual displays created by the Game Genie did constitute a derivative work, Galoob was not liable because the displays are fair use. The Ninth Circuit first made clear that “a party cannot authorize another party to infringe a copyright unless the authorized conduct would itself be unlawful.” Thus, if the use of the Game Genie is a fair use, Galoob cannot be liable for infringement.

The court recognized that the users of the Game Genie are engaged in a non-profit activity, and thus their use is presumptively fair. Nintendo was unable to overcome this presumption. First, relying on Sony Corp. of Am. v. Universal Studios, Inc., 464 U.S. 417 (1984), the court recognized that “a party who distributes a copyrighted work cannot dictate how that work is to be enjoyed.” Thus, once users have paid for the Nintendo game, the Game Genie may be used to make the experience of Nintendo game play more enjoyable.

Focusing on the fourth fair use factor in 17 U.S.C. § 107(4), the court also concluded that Nintendo failed to show harm to the existing and future markets for its copyrighted games. Because the Game Genie is used for a noncommercial purpose, the future harm may not be presumed. The court relied on testimony of Galoob’s expert witness that there would be very little market interest for “junior or expert versions of existing Nintendo games” because the original version “already has been designed to appeal to the largest number of consumers,” and the consumer would feel “cheated or robbed” buying a new game that does not include new material. Additionally, Nintendo admitted to having no plans to market such games.

Therefore, the court held that a consumer’s use of the Game Genie in conjunction with a Nintendo game was a fair use.

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