Capcom U.S.A. Inc. v. Data East Corp. 1994 WL 1751482 (N.D. Cal. 1994) 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.
Thinking of writing a tell-all book of strategies for your favorite video game? You may want to think twice.
Publications International (“PIL”) published a book, entitled “Action Strategies for Mortal Kombat,” subtitled, “An Unauthorized Players’ Guide.” Midway, owners of the copyright and trademark registrations for the popular video game, promptly sued PIL for copyright infringement and trademark infringement. Midway’s Complaint referenced the 200+ game screen images from the book, the use of the trademark names “Midway” and “Mortal Kombat” in the book title and text, and the use of characters and character names from the game.
PIL moved to dismiss the copyright claims on the grounds that its use of names and photographs from the game constituted “fair use” under 17 U.S.C. § 107. This statutory defense to copyright infringement provides that, “the fair use of a copyrighted work … for purposes such as criticism, comment, news reporting, teaching, scholarship, or research, is not an infringement of copyright.”
Using the summary judgment standard, the Court denied almost all of PIL’s dismissal motions. Regarding the copyright infringement claim, the key issue was whether PIL’s book used a substantial portion of the copyrighted work to make it a derivative work. The determination of whether the borrowing was substantial requires a qualitative and quantitative review of the facts in the case. Accordingly, the Court denied summary judgment for copyright infringement, holding that PIL had not met its required burden of proving insubstantial borrowing.
Regarding trademark infringement of the name, “Mortal Kombat,” the Court also refuses to grant PIL’s summary judgment motion. The Court did not accept PIL’s argument that the front cover disclaimer, “An Unauthorized Players’ Guide” prevented any potential customer confusion as to the source of the book. Rather, the Court stressed that likelihood of customer confusion is another issue of fact, and that summary judgment is inappropriate until more discovery can be done.
However, regarding trademark infringement of the name “Midway,” the Court granted PIL’s motion to dismiss. The book did not mention Midway in the title or use Midway’s mark at all. In fact, only once in the book is Midway even mentioned, in a passage identifying them as the licensor of the home versions of the video game. The Court held that this usage, as a matter of law, is not trademark infringement.
1985 WL 9469 (N.D. Cal. 1985)
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.
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.
975 F.2d 832 (Fed. Cir. 1992)
I. Statement of Facts
Nintendo designed a program, the 10NES, for its Nintendo Entertain System (NES) to prevent the NES from accepting unauthorized game cartridges. The 10NES was programmed onto chips located in the NES console and in each game cartridge. Thus, only 10NES-enabled cartridges could “unlock” access to the NES console.
After a failed attempt to replicate the 10NES program, Atari, in December 1987, licensed the technology from Nintendo under strict licensing terms. Nintendo themselves placed Atari’s games in 10NES-enabled cartridges, and limited Atari, as well as other licensees, to five new NES games per year.
In early 1988, Atari applied to the Copyright Office for a reproduction of the 10NES source code, which the Copyright Office provided to Atari based on a false allegation by Atari that Atari needed the copy for pending litigation. There in fact was no pending litigation.
Based on the acquired source code, Atari developed its own program, the Rabbit program, which generated signals indistinguishable from the 10NES program and gave Atari access to the NES without Nintendo’s license conditions. The line-by-line instructions of the programs vary because Atari used a different microprocessor and programming language.
Nintendo brought suit against Atari alleging copyright infringement (and patent infringement, among other allegations). Atari brought several claims against Nintendo and asserted a copyright misuse defense. The United States District Court for the Northern District of California granted Nintendo’s request for a preliminary injunction based on copyright infringement. Atari appealed.
The Federal Circuit observed that while it had jurisdiction based on patent infringement claims included in the action, the court applies the law of the regional circuits, the Ninth Circuit in this case, to resolve issues of copyright law.
The Federal Circuit stated that “[t]o prevail on its copyright infringement claim, Nintendo must show ownership of the 10NES program copyright and copying by Atari of protectable expression from the 10NES program.” Ownership of the 10NES program was not in dispute, and thus, Nintendo had to prove only the copying of protectable expression.
A. Copyright Protection Extends to Computer Programs
The court determined that computer programs fall under the statutory definition of “literary works,” and thus copyright protection extends to computer programs and to instructions encoded on computer chips. “The expression adopted by the programmer is copyrightable element of a computer program,” but “the actual processes or methods embodied in the program are not within the scope of copyright law.” Thus, “[a]t a minimum, Nintendo may protect under copyright the unique and creative arrangement of instructions in the 10NES program.”
B. Reproduction of an Unauthorized Copy from the Copyright Office Is Infringement
Next, the court held that “Nintendo is likely to show successfully that Atari infringed the 10NES copyright by obtaining and copying the source code from the Copyright Office.” Atari obtained a copy from the Copyright Office by providing false information about a pending litigation, therefore obtaining an unauthorized reproduction. Thus, Atari infringed Nintendo’s copyright based on the reproduction of an unauthorized copy from the Copyright Office.
C. Efforts to Reverse Engineer Alone Do Not Support Copyright Infringement
Next, the court determined that the “Copyright Act permits an individual in rightful possession of a copy of a work to undertake necessary efforts to understand the work’s ideas, processes, and methods of operations.” Thus, “reverse engineering object code to discern the unprotectable ideas in a computer program is fair use.” This fair use, however, does not extend to commercial exploitation of protectable expression, and in addition, requires an individual to possess an authorized copy. The court thus held that reverse engineering of an authorized copy of the 10NES program that is necessary to understand 10NES is fair use, however, “Atari could not use reverse engineering as an excuse to exploit commercially or otherwise misappropriated protected expression.”
D. Substantial Similarity Exists Between Atari’s Rabbit Program and Nintendo’s 10NES Program
The court then also held that “Nintendo is likely to prove substantial similarity between the Rabbit and 10NES programs sufficient to support its infringement claims.” The court primarily relied on the fact that Rabbit incorporated unnecessary features, including features that were deleted from the original 10NES program. Thus, the court concluded that “copying of fully extraneous instructions unnecessary to the 10NES program’s functionality” suggests copying, not independent creation.
E. Copyright Misuse
Atari argued as a defense to copyright infringement that Nintendo misused its copyright. Because there was no statutory basis for the copyright misuse defense, the court determined that the defense was solely an equitable doctrine. Therefore, while copyright misuse may be a viable defense, any party seeking the defense must have clean hands. Atari was ineligible to invoke the defense because of its lie to the Copyright Office to obtain a copy of the 10NES program.
The court therefore held that the district court did not err by granting the preliminary injunction against Atari.
30 U.S.P.Q.2d 1401 (N.D. Cal. 1993)
Following a 1992 Federal Circuit ruling upholding a preliminary injunction in favor of Nintendo (see Atari Games Corp. v. Nintendo of America, Inc., 975 F.2d 832 (Fed. Cir. 1992) (Atari I)), the District Court for the Northern District of California now settled several summary judgment motions in the quarrel over Atari’s alleged infringement of Nintendo’s 10NES security program.
As described in Atari I, the 10NES program is a combination of “lock” software embedded into a chip in the NES gaming console, and “key” software in each Nintendo game cartridge. The lock and key send synchronized encoded data streams back and forth which unlock the console when an authorized game is inserted. When an unauthorized game is inserted, the console remains locked, thus preventing game manufacturers for designing NES-compatible games without receiving keys from Nintendo.
In 1986, Atari began efforts to replicate the 10NES program, hoping to make its own games compatible with Nintendo’s more popular console. When Atari’s attempts to dissect the microchips and reverse engineer the program failed, Atari obtained the source code from the United States Copyright Office. Using this copy of the source code, Atari successfully created its own “Rabbit” program, to mimic the interactions of the Nintendo games / console. Although the Rabbit was developed using a different microprocessor and different computer language, it sent data streams to the Nintendo console identical to those sent by Nintendo games. Since Nintendo could no longer stop Atari from building Nintendo-compatible games technologically, it was determined to stop them legally. This lawsuit followed; Nintendo filed for copyright infringement of the 10NES security program and infringement of U.S. Patent No. 4,799,635 (“the ‘635 patent”).
The Court first took on the issue of whether the data streams sent from the game cartridges to the gaming console constituted copyrightable expression. Nintendo argued that these “data songs,” were copyrightable, since Congress had explicitly extended copyright protection to computer software. The Court disagreed, drawing the distinction between a copyrightable computer program and mere computer data which was not eligible for copyright protection. Computer statements that manipulate data fall within the definition of computer program, but the data being manipulated does not. Likewise, the periods of “silence” in communication between the game cartridge and the console are not protectable by copyright. The Court noted that while data notes and variable silences might be copyrightable within a musical composition, they are not copyrightable as a means to enable data communication. Accordingly, the Court granted Atari’s summary judgment motion on the issue of copyrightable expression.
However, the Court limited Atari to copying only the portions of the 10NES program required to send the correct data sequence to the Nintendo console. Atari sought to copy the entire 10NES program to ensure compatibility with future versions of the Nintendo console. Atari feared that if it didn’t copy the entire 10NES program, Nintendo may update the next version of the console to monitor portions of the data stream that are currently unmonitored, allowing the console to once again distinguish between Nintendo and Atari games. The Court sided with Nintendo on this issue, holding that Atari may not copy portions of the program needed only for future compatibility. The Court noted the importance of the balance in public policy between the dissemination of valuable ideas within an industry and the protection of a manufacturer’s “lead time” in the market. In other words, Atari has the right to adopt Nintendo’s technology, but only after Nintendo presents it to the marketplace. If Atari could copy present code for future compatibility, it could drastically reduce the time needed to reverse engineer Nintendo’s next version of the 10NES. This would tip the balance in favor of game developers, and inhibit the market for new gaming consoles.
Nintendo, largely unable to avail itself of copyright protection for its 10NES data stream sequences, also relied on a traditional patent infringement claim. The key issue in the infringement of Nintendo’s ‘635 patent, covering the 10NES program, was largely one of claim construction. Claim 1 of the ‘635 patent recited, in part:
“[R]esetting said main data processor unit unless the execution of said first authenticating program by said first processor device exhibits a predetermined relationship to the execution of said second authenticating program by said second processor device” (emphasis added).
The Court faced a problem with claim 1, namely that a predetermined relationship between the execution of programs is an inherently ambiguous statement. Treating Nintendo as its own lexicographer, the Court relied on the specification and prosecution history of the ‘635 patent to hold that claim 1 requires a predetermined relationship between the data exchanged by the programs, rather than just a predetermined relationship between the programs themselves.
Having determined the meaning of the ‘635 patent claims, the Court held that the data output by Atari’s Rabbit program did indeed have a predetermined relationship to the data output by Nintendo’s gaming console. The Court points out that Atari does not manufacture both the games and the console, and therefore cannot literally infringe on the language of claim 1, which requires two devices. However, Atari’s accused Rabbit program has no other use besides interaction with the NES console; therefore Atari’s liability may be based on contributory infringement. Accordingly, the Court granted Nintendo’s summary judgment motion for patent infringement on this claim.
Nintendo also moved for dismissal of Atari’s anticipation and obviousness defenses to infringement. The Court examined the standards for anticipation and obviousness, then examined U.S. Patent No. 4,736,419 (“the Roe patent”) under both of these standards. Indeed, the Roe patent, which described an electronic locking system based on physically implanted electronic keys, resembled the ‘635 patent in many respects. The abstract of Roe even notes, “[T]his lock system may be used in video game hardware, personal computers, and the like to prevent use of copied or ‘pirated’ software programs.”
The Court noted that despite many similarities, Roe fails to teach the use of reset pins which generate RESET signals to prevent unauthorized chip use. Accordingly, the Court holds that the ‘635 patent is not anticipated by Roe, and grants summary judgment on this issue to Nintendo.
However, the Court denied Nintendo’s summary judgment motion with respect to obviousness. The Court noted that reset pins were common in the microprocessor field at the time of the invention, referring specifically to the Famicom home computer system (“Famicom”), designed in part by the inventor of the ‘635 patent, which uses reset pins to disable a microprocessor. The Court reasons that the combination of these references likely makes the ‘635 patent obvious. Further, the motivation to combine these references can be found in the Roe patent itself, which mentions its possible adaptation to video games. Although the Court stopped short of granting summary judgment to Atari on the issue of obviousness, it noted that Atari would likely prevail at trial. The Court reasoned that Atari would likely succeed in showing that there are no significant differences between the usage of the reset pins in the ‘635 patent and the usage of the reset pins in the Famicom system. Two months later, however, an eight-member jury rejected Atari’s position, and found that the infringed claims of the ‘635 patent were not invalid for obviousness.
Nintendo had won on patent infringement, but before they enforce this ruling they would also need to address Atari’s patent misuse defense and antitrust counterclaims. In March 1994, before the adjudication of these issues, the two sides settled.
In an elegant display of its interopability, developer Newbie has demonstrated the Xbox 360’s ability to connect to portable media devices such as the PlayStation Portable (PSP) and iPod devices. Read more at Team Xbox.
Lewis Galoob Toys, Inc. v. Nintendo of America, Inc.
964 F.2d 965 (9th Cir. 1992).
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.
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.