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Lawsuits Against Nintendo Go to Heart of the Way Japan Competes

March 19, 1989|CARLA LAZZARESCHI | Times Staff Writer

Its business is games, and its primary customers are adolescent boys. But don't be fooled. Nintendo is treating its market as seriously as NASA orchestrated the first lunar landing.

No detail is too small, no issue too trivial. Nothing is left to chance.

New games, for example, are evaluated on a scale of zero to 40 long before they are selected for publication. All games developed by outside authors are manufactured, along with the in-house titles, at Nintendo headquarters in Japan. Toy store shelves are checked weekly to monitor sales, and new products are introduced deliberately and in limited supplies to keep business flowing smoothly.

"Nintendo is very paternalistic toward the industry . . . and without that protection, the video game business would already have gone through the same spike and fall that ruined it in the mid-1980s," said Gregory Fischbach, chief executive of Acclaim, a Long Island, N.Y., video game maker. "If Nintendo hadn't provided this marketing control, there would be no business today."

Indeed, Nintendo successfully resuscitated the collapsed market for video games in 1985 and patiently nurtured it into a business expected to generate sales of more than $3 billion this year. But now the Japanese game maker, which controls as much as 80% of the market, has been slapped by disgruntled California competitors with two multimillion-dollar antitrust lawsuits that strike at the heart of Nintendo's approach to reviving the industry.

Scheduled to go to trial later this year, the suits have potentially broad implications for personal computer software publishers and other technology concerns. Many technology and legal experts also say the suits challenge some of the basic business tactics Japanese companies have employed to build--and, in many cases, dominate--markets in the United States.

The suits, filed separately by Atari Games and an unrelated company, Atari Corp., over the last three months, accuse Nintendo of monopolistic practices.

Atari Games, which has developed three video games for Nintendo, maintains that the Japanese company has competed unfairly in the game market by doing two things: insisting on manufacturing every cassette intended for its players and unilaterally deciding how many cassettes each of its outside licensees will get. Taken together, the suit says, those actions essentially dictate the size of the video game market and leave other game and player developers at the mercy of Nintendo.

In the other suit, Atari Corp., the video game maker that dominated the market in the early 1980s, accused Nintendo of monopolizing both the video game and player market by preventing game developers from writing versions of Nintendo-authorized games for rival player makers.

'Into Monopolies'

Analysts say Nintendo's approach to the video game market is tantamount to a computer maker preventing software developers from writing versions of a computer program for competitors' machines. But some U.S. experts also say the company's overall strategy is characteristic of the aggressive yet methodical approach often taken by Japanese concerns to build their businesses, though perhaps taken to an extreme.

"The Japanese are into monopolies," said Jeffrey Tarter, publisher of Soft-Letter, a software market report. "They really believe you can have orderly markets, and they believe the best way to have these orderly markets is to minimize competition."

The notion, accepted in Japan, where the economy is tightly monitored by the government, flies in the face of the free market system, argues Trip Hawkins, founder of Electronic Arts, a San Mateo personal computer game publisher.

Nintendo's response has been that the suits are nothing more than "sour grapes" from the companies that let the original video game craze collapse and then failed to jump back quickly enough when it rebounded several years later.

"I'd hide under the American flag, too, if I were in their shoes," said William White, advertising and marketing director of Nintendo of America, Nintendo Co.'s Redmond, Wash., U.S. subsidiary.

Still, White acknowledges that the Japanese do business differently from their American competitors. "American companies don't play hardball like this," he said. "There's more of a sharing of the pie by American companies. In Japan, it's different: Winners win big and losers lose."

But, as White added, in the United States, the losers also are more than willing to take their case to court.

The suit by Atari Games, considered the more far-reaching of the two cases, seeks $100 million based on the claim that Nintendo's insistence on manufacturing all cassettes intended for its players has restricted Atari Games' market.

At the crux of the suit is the "lockout" chip that Nintendo installs in each game cassette it manufactures. The special chip allows the games to operate in the Nintendo game players and is designed to prevent all but Nintendo-authorized and manufactured games from playing on the system.

Ample Precedent

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