by Steven Kent
Coleco created an excellent version of Donkey Kong that came closer to matching arcade gameplay and graphics than any earlier game cartridge, selling it exclusively as a pack-in with ColecoVision as an incentive to purchase the system, which went on sale in July 1982. After six months Coleco began selling VCS and Intellivision versions of Donkey Kong.
We knew that we had to have a hot piece of software to launch the product because software sells hardware. We got it from a little company called Nintendo—Donkey Kong. Donkey Kong was exclusive to ColecoVision for the first six months, and we packed it in with the system. If you owned an Atari or Intellivision, you couldn’t get Donkey Kong for the first six months.
It was a pretty good marketing strategy. Six months later, when enough people had bought ColecoVision, we wanted the profit from the Atari and Intellivision owners, so we sold Donkey Kong as third-party software.
—Michael Katz
Fortune magazine later wrote:
The uncontested smash hit of the year was Coleco, which celebrated its 50th anniversary last year (1982) by more than doubling sales to over $500 million and quintupling earnings to about $40 million. The Hartford-based toy manufacturer is headed by two brothers: Arnold C. Greenberg, 49, president and chief executive officer, and Leonard, 55, chairman. It has long specialized in plastic swimming pools, tricycles, and hand-held electronic games, but in 1982 it introduced three successful video products: tabletop games, cartridges that fit Atari and Intellivision equipment, and its own ColecoVision.1
Battle of the Kongs2
O. R. Rissman, the president of an American handheld game manufacturer named Tiger Electronic Toys, first saw Donkey Kong while visiting Tokyo in the summer of 1981. He liked what he saw. When he returned to the United States, he sent a letter to Universal Studios, requesting a license to make video games and handheld games based on King Kong.
Loretta Sifuentes, a Universal/MCA vice president involved in licensing properties such as King Kong, received Rissman’s request. Before entering such agreements, Universal’s licensing department typically conducted trademark searches to monitor retail activity.
At the time, Universal’s only active King Kong license was with Ben Cooper, Inc., a company that manufactured King Kong masks and costumes. Sifuentes ran a trademark search on September 25 and discovered several minor uses of King Kong.
This report revealed numerous third-party trademark registrations of the King Kong name often in conjunction with a picture of a gorilla. Universal’s merchandising and law departments decided not to take any action against those listed in the report because there was very little activity in licensing King Kong at Universal.3
Unaware of Donkey Kong and satisfied that everything was in order, Universal Studios granted Tiger the license in September 1981.
Nintendo of America began selling Donkey Kong in July 1981. By October, the game was selling at the rate of 4,000 arcade units per month.
Sifuentes ran another trademark search in January 1982, which revealed a pending agreement between Nintendo and Coleco for the cartridge and tabletop license of Donkey Kong. She took the information to Steven Adler, another Universal vice president in charge of licensing, and the two executives decided to go to an arcade and evaluate the game.
After analyzing the game play, Sifuentes and Adler concluded that no one was really interested in licensing King Kong and that Tiger probably planned to use its King Kong license merely to copy Donkey Kong. They discussed whether they should continue offering licenses for King Kong. No action was discussed or taken to challenge the Donkey Kong application.4
In April 1982, Sid Sheinberg, president of MCA and Universal, heard about Donkey Kong and asked Robert Hadl, a lawyer with copyright experience working as the Universal vice president in charge of legislative matters, about the game in a memo. At Sheinberg’s request, Hadl took his children to an arcade and played Donkey Kong. Unlike Sifuentes, Hadl decided that Donkey Kong’s story of a giant gorilla breaking loose and carrying a woman to the top of a building came too close to the story of King Kong.
Around that time, Sheinberg arranged a meeting with Arnold Greenberg to discuss Universal Studios investing in Coleco. Greenberg had no reason to suspect that the meeting was about anything else. Video games were in their heyday. Warner Communications had made a great deal of money through its ownership of Atari, Gulf/Western had recently purchased Sega, and several other large companies had expressed interest in breaking into the video-game industry.
The meeting was held on April 27, 1982. It began with a splashy Hollywood luncheon and ended with Sheinberg threatening Arnold Greenberg.
Universal called me and Arnold out to California. We thought we were going out there to meet with Universal people to talk about how we could work together, you know, maybe even form some kind of venture together or something of that nature. We met with Sid Sheinberg and Lou Wasserman, and I remember they had Steven Spielberg there.
And then Sid pulled Arnold on the side and said, “You know something, we’re going to sue you if you don’t give us some kind of a royalty on Donkey Kong because you’re in violation of our copyrights as it relates to King Kong.”
Arnold came back and was very concerned because here we were going to ship ColecoVision, which included Donkey Kong inside the package. He was concerned that Universal might try to get a temporary restraining order or something.
—Al Kahn
On April 28, Universal sent telexes to Nintendo and Coleco, claiming “sole and exclusive ownership of all rights (except book publishing rights) in and to the name, title, character, and story ‘King Kong’ and ‘Kong’ … including, without limitation, the right to exploit, license and sell games, toys, video displays and other forms of merchandising based upon or using the ‘King Kong’ name, title and character.”5 Sheinberg demanded that Nintendo and Coleco stop marketing Donkey Kong, destroy all Donkey Kong inventory, and submit a complete account of profits made through the game. He also threatened to take the case to court if both companies did not settle within 48 hours.
After considering his options, Greenberg decided to back down. Universal Studios was so big and its legal resources were so vast, he could see no way to stand up to it in court. By May 5, Greenberg agreed in principle, obligating Coleco to pay royalties to Universal. The formal agreement was signed one week later.
Arnold was very concerned, so he signed a deal with Universal, which was really a strange deal. It was a covenant not to sue. It wasn’t really a license agreement for Universal. Arnold started paying royalties on any shipments of Donkey Kong to Universal in exchange for Universal’s pledge not to sue Coleco.
—Al Kahn
Hiroshi Yamauchi, president of Nintendo Co. Ltd. in Japan, was baffled and angered. First Nintendo could not penetrate the U.S. market. Now that it had, an enormous and powerful company was threatening to sue him.
Nintendo and Coleco were not the only companies that received threatening messages from Universal. When Robert Hadl discovered the licensing agreement with Tiger Electronics, he angrily called a meeting with Loretta Sifuentes.
He was upset upon learning that Universal had licensed Tiger, and “wanted to know on what basis [Universal] had made a license,” noting the Tiger agreement to be a lousy license because it offered only a small return to Universal and because its exclusivity provision could prevent Universal from concluding its agreement with Coleco.6
On May 4, Sheinberg sent a mailgram to Tiger Electronics, threatening to terminate its licensing agreement unless Tiger submitted its game for approval. Tiger sent materials explaining the game the following day.
Minoru Arakawa and Howard Lincoln flew down to represent Nintendo in a meeting with Coleco and Universal Studios on May 6. Robert Hadl restated the claim that Donkey Kong infringed upon Universal’s trademark for King Kong. Lincoln responded that Nintendo had run a trademark search and found numerous unlicensed uses of “King Kong,” and that he had discovered that Universal had only appli
ed for the name within the last decade.
Greenberg did not inform Arakawa and Lincoln about his arrangement with Universal. Instead, he urged Arakawa to sign an agreement with Universal.
I didn’t realize that Coleco had already cut a deal with them behind our back, prior to the time we had the first meeting. We were puzzled by how Coleco kept pushing for an agreement. We knew that we had drafted the agreement with Coleco such that we didn’t have any liability vis-à-vis Coleco, but we suspected that Universal didn’t know that.
—Howard Lincoln
The day after their meeting with Nintendo, executives from Universal discussed purchasing $30 million of Coleco debentures in a separate meeting with Coleco executives.
Sheinberg canceled Universal’s marketing agreement with Tiger Electronics on May 8, stating that the proposed King Kong game was substantially similar to Donkey Kong. Rissman not only refused to let Universal terminate the agreement but also in a later letter began questioning Universal’s ownership of the name.
During the May 6 meeting, Robert Hadl said he would have a document—a chain of title—sent to Nintendo. The chain of title was important because it would establish Universal’s claim on King Kong. The document did not arrive.
Howard Lincoln called Hadl the following week, asking for the chain of title. Hadl restated his demand that Nintendo pay Universal royalties on Donkey Kong but did not send a chain of title.
Minoru Arakawa had great faith in Howard Lincoln. Based on Lincoln’s recommendation, he chose to fight Universal rather than settle out of court. The decision could have cost Arakawa his job. Even when his father-in-law, Hiroshi Yamauchi, questioned this decision, Arakawa continued to support Lincoln.
The next time that Arakawa and Lincoln met with Universal was a luncheon at Universal Studios. Lincoln and Arakawa called Hadl and said that they wanted to set up a meeting. Hadl arranged a small luncheon with the Nintendo executives and Sid Sheinberg on May 21, believing that Nintendo was ready to concede Universal’s ownership of King Kong and settle the dispute. He was wrong.
Mr. Arakawa and I decided that we would go down and simply tell him that we’ve come to tell you to your face that we would pay you if we thought we were liable, but we had done our homework and we were not prepared to pay anything because we hadn’t done anything wrong. We just wanted to essentially look him in the face and tell him that. It seemed to be the honorable thing to do.
As it turned out, maybe Hadl had led him [Sheinberg] to believe that we had come down to reach some type of a monetary settlement with him. And it was really funny because it was not what he was expecting and his reaction was shock.
—Howard Lincoln
Lincoln and Arakawa had decided not to give in to Universal’s demands, even if it meant that they would have to present their case in court. Lincoln had researched Universal’s claim and come to the conclusion that the claim on King Kong was weak at best. If he was right, Universal Studios’ lawyers would not be able to win in court, despite their unlimited legal resources.
Arakawa, Lincoln, Hadl, and Sheinberg had a quiet meal at Universal Studios. As the lunch finished, Sheinberg, possibly hoping to win over Arakawa the same way he had enticed Greenberg, mentioned that Nintendo might have future business dealings with Universal after settling the Donkey Kong affair.
Lincoln responded with a calculated and unflinching statement, telling Sheinberg that after a full investigation, he did not accept Universal’s claim to King Kong and that Nintendo would not pay the studio royalties on Donkey Kong. Sheinberg exploded. “You’d better start saving money to pay your attorney’s fees,” he shouted, then added that Universal was very litigious and that the “litigation department even turned a profit.”7
Realizing that the case would end up in court, Hadl reopened discussions with Tiger Electronics, stating that Universal would consider issuing a nonexclusive license to Tiger if it altered its King Kong game by: (1) putting a fire hat on the hero character; (2) replacing the barrels the ape was throwing with bombs; and (3) making the floors of the building the hero was climbing horizontal instead of slanted. These changes were supposed to differentiate Tiger’s King Kong game from Donkey Kong. O. R. Rissman demonstrated the new game to Hadl at a Sears store in early June, and the changes were approved.
On June 29, 1982, Universal filed suit against Nintendo, claiming that Universal Studios owned all rights to King Kong by virtue of agreements with RKO Pictures, Inc., the studio that made the original King Kong movie, and the heirs of Merian C. Cooper, the man who wrote King Kong. That same day Universal also announced its licensing agreement with Coleco.
Sheinberg’s attack did not stop with the lawsuit. By this time, Nintendo had grossed more than $180 million from sales of approximately 60,000 Donkey Kong arcade machines. Nintendo had also licensed the Donkey Kong name and character to more than 50 companies, for everything from cereal boxes and board games to Saturday morning cartoons.
Determined to make an example out of Nintendo, Universal obtained a list of all of Nintendo’s licensees, contacted them, and threatened them with liti gation if they did not abandon their relationships with Nintendo. The only licensee that stayed with Nintendo was Milton Bradley, whom Universal never took to court.
As they prepared for their day in court, Howard Lincoln and John Kirby, the lawyer that would represent Nintendo in court, flew to Nintendo’s Japanese headquarters to take depositions. At this time, Lincoln first met Hiroshi Yamauchi. He also took statements from Shigeru Miyamoto, the man who had designed Donkey Kong.
I met Mr. Miyamoto in connection with the Donkey Kong litigation on my first trip to Kyoto. I was such a poor international traveler…. My car stalled on the way to the airport and I almost missed my plane. Then I checked my bags to Tokyo, even though we were going to Osaka.
I got to Kyoto and met Mr. Yamauchi for the first time. And it was in connection with the litigation that I first met Mr. Miyamoto. He was a young guy, really young. I remember that he came into Yamauchi’s office where there’s a big and very formal conference room. Yamauchi and Arakawa and other people were there.
The door opened and there was a disheveled—I wouldn’t call it disheveled—but he was a little bit disheveled and his hair went in ten different directions. And it was this guy, Miyamoto. At that time, I don’t think I really knew what it was that he had accomplished in creating Donkey Kong.
He had showed us the drawings and the way in which he had come up with the game, but he was working for Mr. Yokoi [the head of engineering] at the time. As I recall, he was new to Nintendo and pretty much a junior guy.
—Howard Lincoln
As they prepared to meet Universal in court, Arakawa offered Lincoln a job at Nintendo. Lincoln accepted. By the time the case went to court, Lincoln was the senior vice president of Nintendo of America, rather than its outside counsel.
The case was heard before Judge Robert W. Sweet of the United States District Court for the Southern District of New York and lasted for seven days, during which time Kirby had a Nintendo employee demonstrate Donkey Kong in the court, then compared the game with clips from the movie King Kong.
As it turned out, Universal Studios did not own King Kong. In fact, Universal’s profit-earning litigation department had recently proved that no one owned the character. In 1975, Universal had taken RKO to court, claiming that the original King Kong was more than forty years old and was now public domain.*
Judge Sweet ruled that Universal’s claims were not valid. Sid Sheinberg’s words about profiting through litigation were repeated somewhat ominously in the judge’s summary of the case.**
Throughout this litigation, Universal knew, as a result of the RKO litigation, that it had no rights to any visual image of King Kong from the classic movie or its remake.8
Nonetheless, Universal, when it seemed beneficial, made sweeping assertions of rights, attempting to extract license agreements from companies incapable of or unwilling to confront Universal’s “profi
t center.”9
Once Nintendo demonstrated that King Kong was public domain, Universal’s lawyers were unable to demonstrate that remaking King Kong gave Universal Studios ownership of it. In the end, no chain of claim was ever delivered, in or out of court. Universal’s lawyers were also unable to prove “the likelihood of confusion between Donkey Kong and King Kong,”10 and Universal’s efforts to scare the companies that licensed Donkey Kong gave Nintendo grounds to seek extensive damages for lost revenues.
Tiger Electronics did not fare much better than Universal. Judge Sweet ruled that Tiger’s King Kong game infringed upon Donkey Kong and let Nintendo choose to collect either statutory damages or Universal’s profits from licensing the game. Nintendo chose to collect Universal’s licensing fee, which totaled $56,689.41.
… Donkey Kong’s particular expression of a gorilla villain and a carpenter hero (with or without a fire hat) who must dodge various obstacles (whether bombs or fireballs) while climbing up ladders (whether complete or broken) and picking up prizes (umbrellas and purses) to rescue a fair-haired (whether knotted or pigtailed) hostage from the gorilla is protractible against Universal and its licensees.11
Judge Sweet’s decision cleared Nintendo and placed Universal in the unfortunate position of having to answer to the companies it had threatened. Coleco wanted its royalty money refunded. Atari had agreed to pay royalties on the VCS version of Donkey Kong, which came out a few months before the case went to court. After Nintendo won, Atari also demanded its money back. Even Ruby-Spears, the company that did the Donkey Kong cartoon show, lodged a claim against Universal Studios.