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Atari vs. Sega (1994)

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Like many others here, I am interested in video game history. I like to approach this topic through the lens of published court decisions. These records often provide a glimpse of the inner-workings of companies that would not otherwise be publicly available. A few years ago, I did an article for the now-defunct Retrogaming Times Monthly: http://www.retrogamingtimes.com/magazine/rtm100/205.html

 

In 1994, Atari Corporation brought an action against Sega of America in the Northern District of California. The subject matter was a patent infringement dispute, but the decision also provides some insight to the state of the video game market at the time. The formal citation is 869 F.Supp. 783, 32 U.S.P.Q.2d 1237, and the full-text of this decision is freely available online: http://law.justia.com/cases/federal/district-courts/FSupp/869/783/1495595/.

 

Here are some relevant excerpts from the decision.

 

Now Atari has developed a 64-bit system, “Jaguar,” but it has not captured leadership of the market. According to [economic and management expert Gene] Brown, this is because Sega “commands the attention of software developers and desirable retail shelf space as a consequence of its large installed base and game software title availability” such that “the ability to successfully sell a sufficient quantity of Jaguars so as to attract independent software developers is seriously compromised by Sega's presence.” Brown declares that because Sega and Nintendo are preparing to release 32- and 64-bit systems in 1995, Atari is in a “now or never” situation: if it does not obtain a “toehold” in the market now, it may never do so, and may not be able to survive.

 

Note that there is no mention to the forthcoming PlayStation.

 

and

 

The retailers that carry Jaguar declare that the presence or absence of Sega's products would be irrelevant to their decision on how much shelf space to give Jaguar. [Jeffrey] Griffiths [merchandise manager of the Electronics Boutique] declares that products of similar cost manufactured by Nintendo would get the additional shelf space; [John] Sullivan [vice president of Toys R Us] declares that his decision would be made on the amount of sales of Jaguar, the ability of Atari to meet production schedules, and Atari's promotion and advertising support for Jaguar. Both Griffiths and Sullivan were critical of Atari's past performance in providing products on a timely basis, and supporting its products with sufficient advertising.

 

It is undisputed that Atari's primary problem is the lack of Jaguar-compatible software. Atari argues that Sega's dominance in the market prevents Atari from attracting independent software designers, but it makes no showing that Sega's absence from the market would enable it to attract them. Sega's showing that Nintendo, rather than Atari, is Sega's relevant competitor undermines Atari's unsupported argument.

 

Disclaimer: I do not own a Jaguar or a Genesis. These are not my opinions.

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Atari going after Sega for stealing game developers away seems odd. I suppose they must have been thinking of companies like EA and their sports games. But a large part of Sega's success in the early 90's was due to Japanese development (including their own). Atari never had any hope of attracting them, nor were they able to develop a mascot comparable to Sonic at the time (or Mario). And that's got nothing to do with outside developers.

 

I think the sentence *after* the one that's underlined is actually more important: "Atari argues that Sega's dominance in the market prevents Atari from attracting independent software designers, but it makes no showing that Sega's absence from the market would enable it to attract them."

 

These lawsuits smacked of desperation on Atari's part.

 

In some sense any American console maker would have had a really tough time at this point in history. The center of gravity in the console gaming universe had moved to Japan, at least temporarily. Even if Atari had gotten EA and a few other big western developers on board, it probably wouldn't have been enough. The only other American consoles even attempted around that time were the Amiga CD32 and 3DO (which was basically half Japanese anyway). It wasn't until the Xbox that a viable American console existed again, and the Xbox had a tough go of it for largely the same reason as the Jaguar and lost tons of money. MS stayed in the market because they could, but most companies would not have been able to absorb the billions in losses that they did. Even still, Sega had folded up their hardware business at that time and MS ended up with the advantage of an early exclusive deal with them. So MS did have some Japanese support that Atari lacked, but it was ironically with the company Atari had sued for stealing developers. Outside of Sega, MS got table scraps from Japanese developers and it really hurt them.

 

Nowadays western console development has picked up again, but Atari's real problem in the 90's was that their first-party development was completely outclassed by both Sega and Nintendo, and outside of EA, there really weren't many big western developers making console games at the time. Even Tomb Raider was initially primarily a PC game (and it came later than 1994 anyway). No one was going to have a successful console in the 90's without Japan.

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I agree with these comments.

 

Atari is basically taking that the position that it would have been successful if Sega did not exist; the major retailers' response was that they would simply stock more Nintendo products were that the situation. Even if Atari had been successful in receiving the injunction against Sega, they still would have been crushed by Nintendo (and, eventually, Sony).

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This is interesting from a legal perspective -- and also boring because the legalese is difficult for me to understand :-D ... probably because I'm more interested in the products themselves than in the business surrounding them, especially this far in retrospect.

 

While they lost this decision, I think there were several others. There's this piece here on AA that doesn't specify details except for a dollar amount:

Then Atari won several out-of-court settlements with Nintendo and Sega over patent infringements, totaling around $70 million dollars. Things were looking better, but the damage may have been done.

I distinctly remember reading similarly vague language in Next Generation magazine at the time, the upshot being that as part of a settlement, Sega would develop at least one game for the Atari Jaguar. That never happened. of course, probably because Atari went bankrupt first.

 

Atari seems like the biggest patent troll of all the early game companies. I think going after Odyssey 2's "K.C. Munchkin!" was a dick move, doubly so because Atari's licensed Pac-Man was flaming poop.

 

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Pretty remarkable that a corporation which once had complete domination of the marketplace and lost it through it's own stupidity would blame somebody else for their inability to grab a market share.

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Pretty remarkable that a corporation which once had complete domination of the marketplace and lost it through it's own stupidity would blame somebody else for their inability to grab a market share.

 

Seriously. Talk about being completely mismanaged. It is quite amazing that a company would go from making half a billion a year to almost nothing in such a short period of time.

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Posted (edited)
On 12/27/2016 at 10:29 AM, Flojomojo said:

This is interesting from a legal perspective -- and also boring because the legalese is difficult for me to understand :-D ...

 

While they lost this decision, I think there were several others. There's this piece here on AA that doesn't specify details except for a dollar amount:

I distinctly remember reading similarly vague language in Next Generation magazine at the time, the upshot being that as part of a settlement, Sega would develop at least one game for the Atari Jaguar. That never happened. of course, probably because Atari went bankrupt first.

 

 

Still waiting on Virtua Fighter vs Fight4Life game Sega had to make by law plus 3 others. I mean they had to make them how they get out of it? If Jaguar flopped then make for JaguarCD or money needs to change hands at cost of 4 A+ titles judge mandated anyway. If I owned Atari I would demand Sega by law has make me 1 to 4 games even if its for new android or pc vcs or pay me development costs which by now is millions. And how did tengen make Sega games like shinobi and afterburner for nes, arcade rights?

Edited by ataritiger

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I wouldn't have trusted Sega to port anything to the Jag. But then again I wouldn't have trusted Atari either.

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20 minutes ago, JagChris said:

I wouldn't have trusted Sega to port anything to the Jag. But then again I wouldn't have trusted Atari either.

AM2 could have done a great virtua fighter vs fight4life 1997 game ;)

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2 hours ago, ataritiger said:

Still waiting on Virtua Fighter vs Fight4Life game Sega had to make by law plus 3 others. I mean they had to make them how they get out of it? If Jaguar flopped then make for JaguarCD or money needs to change hands at cost of 4 A+ titles judge mandated anyway. If I owned Atari I would demand Sega by law has make me 1 to 4 games even if its for new android or pc vcs or pay me development costs which by now is millions. And how did tengen make Sega games like shinobi and afterburner for nes, arcade rights?

Atari taking all their stock they forced Sega ro buy as part of the settlement of the lawsuit, and selling their company to a disc drive company made it where Sega technically didn't have to, then Atari also was suppose to port 5 games, which I believe tempest 2k. Was the only game.

 

Atari should of stayed on game 1 more year to force Sega to produce 5 games, then spend all resources porting games to Sega Saturn....but they burnt through 30 of the 70 in 2 quarters just keeping lights on.

 

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Posted (edited)
5 minutes ago, Pete5125 said:

Atari taking all their stock they forced Sega ro buy as part of the settlement of the lawsuit, and selling their company to a disc drive company made it where Sega technically didn't have to, then Atari also was suppose to port 5 games, which I believe tempest 2k. Was the only game.

 

Atari should of stayed on game 1 more year to force Sega to produce 5 games, then spend all resources porting games to Sega Saturn....but they burnt through 30 of the 70 in 2 quarters just keeping lights on.

 

Exactly imagine 5 A+ sega games on jag like virtua racing deluxe vfighter etc ;) ! Then 5 Atari on saturn like AvP2 etc.

 

So ok Atari got something from Sega, that I didn't know thx but yes they should held off for year for 4 Sega A+ games law mandated for jaguar

Edited by ataritiger

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35 minutes ago, ataritiger said:

Exactly imagine 5 A+ sega games on jag like virtua racing deluxe vfighter etc ;) ! Then 5 Atari on saturn like AvP2 etc.

 

So ok Atari got something from Sega, that I didn't know thx but yes they should held off for year for 4 Sega A+ games law mandated for jaguar

Yeah, it again, wasn't written that way, the game list was in Sega favor couldn't be mascot, (Sonic and virtua fighter games out)had to be at least a year old etc. More like after burner, alter beast, space harrier,  still would of helped Atari, then the releases on Sega would of helped ataris bottom line

 

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8 minutes ago, Pete5125 said:

Yeah, it again, wasn't written that way, the game list was in Sega favor couldn't be mascot, (Sonic and virtua fighter games out)had to be at least a year old etc. More like after burner, alter beast, space harrier,  still would of helped Atari, then the releases on Sega would of helped ataris bottom line

 

Actually virtua racing was 2 years old by that point and tengen had afterburner on nes so they could do it on jag but I'm talking a+ stuff like virtua racing, i think vf was 2 years old then too etc 

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On 8/1/2021 at 6:39 PM, ataritiger said:

Actually virtua racing was 2 years old by that point and tengen had afterburner on nes so they could do it on jag but I'm talking a+ stuff like virtua racing, i think vf was 2 years old then too etc 

Doesn't change the writing of the contract, Sega was forced to invest in stock in Atari as part of settlement and develope 6 games a year they were not going to use current IP's as they were competing for the same next generation buisness.  I would also guess if you did get said games probably would of just been up ports from genesis like half of jags library.

 

Tengen was owned by Atari's arcade devision, was Time Warner interactive by that point, they had a falling out with Atari a few years earlier in lynx day and didn't develope anything except Liscenced Primal Rage to them.  It was 1st Atari system to not have Atari Arcade ports on it (post split, Atari home owned ip's for Arcades pre split).

 

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I saw some old communications between atari and sega on the sega games on Jaguar matter at one point. Basically atari was predictably asking for the latest and most popular sega stuff and sega was turning around and providing atari with a list of not that popular master system games they could choose from.  Master system games on Jaguar definitely wouldn't have helped anything...

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1 hour ago, sirlynxalot said:

I saw some old communications between atari and sega on the sega games on Jaguar matter at one point. Basically atari was predictably asking for the latest and most popular sega stuff and sega was turning around and providing atari with a list of not that popular master system games they could choose from.  Master system games on Jaguar definitely wouldn't have helped anything...

Master System games on the Master System didn't even help anything. And yes, I know it lived forever in Brazil.

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6 hours ago, sirlynxalot said:

I saw some old communications between atari and sega on the sega games on Jaguar matter at one point. Basically atari was predictably asking for the latest and most popular sega stuff and sega was turning around and providing atari with a list of not that popular master system games they could choose from.  Master system games on Jaguar definitely wouldn't have helped anything...

Yeah if you can find it, the head of sega had an interview post settlement as essentialy with the stock buy they were stake holders in ataris success, so it would be in their best intrest for Atari to succeed it was very tonge and cheek.

 

They were in no way going to support this deal in any realistic way, on the other hand Atari, could  of made good money producing those 6 games as they had at least 6 jag games, that had enough good press to get descent launches and quick cash...I mean it would continue to dwindle a need for Jag but would of kept Atari a float, I mean that was the reason for the pc ports that they got baddies and temptedt out the door before Hasbrouck took over.

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10 minutes ago, Pete5125 said:

Yeah if you can find it, the head of sega had an interview post settlement as essentialy with the stock buy they were stake holders in ataris success, so it would be in their best intrest for Atari to succeed it was very tonge and cheek.

 

They were in no way going to support this deal in any realistic way, on the other hand Atari, could  of made good money producing those 6 games as they had at least 6 jag games, that had enough good press to get descent launches and quick cash...I mean it would continue to dwindle a need for Jag but would of kept Atari a float, I mean that was the reason for the pc ports that they got baddies and temptedt out the door before Hasbrouck took over.

Weren't the legally required to though. Im sure Atari would want cash instead of games though as they had 1 hand on cliff edge but I mean court was 1994 they couldn't bring virtua racing to jaguar in 1995 or 1996? Kinda like why even have a court decision then?

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It was a settlement, sega wasn't happy about sega in good faith gave them a catalog of game choices, even if virtua racing was a choice which it wasn't development time of around a year would of lead into Atari bailing out and merging with a disc drive company. WITH atari canceling all games that weren't 95% done, no way was sega going to have to fulfill the contract.

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Posted (edited)
24 minutes ago, Pete5125 said:

It was a settlement, sega wasn't happy about sega in good faith gave them a catalog of game choices, even if virtua racing was a choice which it wasn't development time of around a year would of lead into Atari bailing out and merging with a disc drive company. WITH atari canceling all games that weren't 95% done, no way was sega going to have to fulfill the contract.

Do you know which 6 games or so it was? I get a trade for cash was better, but 1 sega great title would be cool then trade rest for cash or sega buying atari inventory or whatever. Like eternal champion 64 or golden axe duel adder or something.

https://law.justia.com/cases/federal/district-courts/FSupp/869/783/1495595/#:~:text=Sega's alleged infringement began in,this action in October 1993.

 

Screenshot_20210805-192218_Google.jpg

Edited by ataritiger

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The funny thing was Atari "claiming" Sega was dominating the marketshare like Nintendo before but that was still more desperation.  Especially since Sega & Nintendo were viable competitors so there was no monopoly to keep Atari out like there was in the late 80's.

 

This time Jack changed legal tactics and sued both companies for patent violations!  Yeah, it's a complete dick move but it worked.  Sega and Big N settled which made Atari flushed with cash...and prompted the merger with JTS which had more product than cash while Atari was the opposite.

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7 minutes ago, MrMaddog said:

The funny thing was Atari "claiming" Sega was dominating the marketshare like Nintendo before but that was still more desperation.  Especially since Sega & Nintendo were viable competitors so there was no monopoly to keep Atari out like there was in the late 80's.

 

This time Jack changed legal tactics and sued both companies for patent violations!  Yeah, it's a complete dick move but it worked.  Sega and Big N settled which made Atari flushed with cash...and prompted the merger with JTS which had more product than cash while Atari was the opposite.

The best atari vs Nintendo lawsuit was a loss but still forced Nintendo to change its game policies. The Atari lawsuits are bold but sometimes they either almost worked or worked 😆 

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2 hours ago, ataritiger said:

The best atari vs Nintendo lawsuit was a loss but still forced Nintendo to change its game policies. The Atari lawsuits are bold but sometimes they either almost worked or worked 😆 

http://gdri.smspower.org/wiki/images/0/0c/Sa12121994_1.png

Below are the titles Atari had choose, if Sam had stayed in charge and Jack wouldn't of took over company in 95, keep in mind Jack spent half settlement money to liscence games from known companies like Akklaim and EA.  The sega list was old genesis, game gear, and master system games, nothing next gen, or even 32x/Saturn level...unclear if it was to make 64 bit versions or direct ports. Guessing the later...will never know Atari became a low grade disk drive company.

Screenshot_20210805-222742_Chrome.jpg

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13 hours ago, MrMaddog said:

The funny thing was Atari "claiming" Sega was dominating the marketshare like Nintendo before but that was still more desperation.  Especially since Sega & Nintendo were viable competitors so there was no monopoly to keep Atari out like there was in the late 80's.

 

This time Jack changed legal tactics and sued both companies for patent violations!  Yeah, it's a complete dick move but it worked.  Sega and Big N settled which made Atari flushed with cash...and prompted the merger with JTS which had more product than cash while Atari was the opposite.

I mean yeah what company would want to release games for a system with a possibility of less than 1 million systems out vs sega with 30 million systems out and nes same boat.

 

Just volume alone will make game more successful, and no way would you jeopardize the relationship.  On the other hand Atari was the same monopolistic company early 80s

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