Publication | ThinkSet

The Case of the Video Game Lawsuit Racket

David Kalat

July 11, 2019

How a patent infringement lawsuit between Atari and Magnavox (over Pong) led to the era of patent trolls

In August 1972, visitors to Andy Capp’s Tavern in Sunnyvale, Calif., saw something new. Next to the jukebox and the pinball machines stood a 4-foot-tall wooden cabinet with a black-and-white television set inside, and the word “PONG” printed across the front.

For a single quarter, players could play a virtual match of table tennis. Two slim white lines slid up and down adjacent to a dotted line that served as the “net,” and players manipulated those lines to volley a “ball” back and forth across the screen. Pong quickly became a sensation, and Atari, the startup that manufactured it, seemed poised to capture much of this new market for video games.

Then came the patent infringement lawsuit. And decades of ramifications.

A “Eureka!” moment—and the first video game patent

Six years before Atari placed the first Pong prototype in a California bar, a visionary engineer and inventor named Ralph Baer sat on the other side of the country, outside the Port Authority Bus Terminal in Manhattan. As detailed in a 2014 tribute, Baer experienced a classic “Eureka!” moment while waiting for a colleague. He grabbed a legal pad and a pencil and sketched out a plan for a mechanism to play video games on an ordinary TV set. His employer, a military contracting outfit called Sanders Associates, was intrigued and financed the development of Baer’s so-called “game box.”

In March 1971—still a full year before the events at Andy Capp’s Tavern—Baer filed for the first video game patent, which he later received.

Sanders Associates licensed Baer’s invention to Magnavox. In the summer of 1972, Magnavox unveiled the Odyssey, the first home video game console. The hardware inside the little brown box allowed players to manipulate graphics on a television screen. One of the built-in games was Table Tennis.

Atari founder Nolan Bushnell saw the Odyssey at a Magnavox product showcase in 1972 and came away with ambitions for making a superior product. He enlisted programmer Allan Alcorn, who was unaware of Baer’s work and had been led to believe the project was a commission from General Electric, and Alcorn created Pong.

In April 1974, Magnavox filed a patent infringement suit against Atari and several other companies marketing their own Pong knockoffs. It has been speculated that Magnavox waited for Atari to make enough money from Pong to be worth suing. An article in the Journal of Intellectual Law details the evolving legal environment surrounding video games in that era.

One could argue that Magnavox had no legal claim to the game of table tennis itself, and its creation was just a means by which to electronically simulate that game, using processes Atari had engineered on its own. Magnavox, however, noted that Baer’s broad-ranging patent covered any technology that used electrical circuits to control dots on a standard television screen.

A financial boon for Magnavox (in lawsuits)

Supposedly, fledgling Atari’s lawyers advised the company that it could beat Magnavox at trial, but that the cost of litigating that case would exceed Atari’s finances. Atari settled for $1.5 million and licensed the technology from Magnavox in order to continue to market Pong and other video games that followed.

Meanwhile, sales of the Magnavox Odyssey spiked because of the success of Pong, as consumers bought Baer’s brown box so they could play their favorite arcade game at home. But despite the fact that Pong could be seen as an advertisement for the game console more than for a competitor, Magnavox sued. And while it would be wrong to call Magnavox a “patent troll” in the modern sense of the term, the company did generate almost three times as many proceeds by filing lawsuits against dozens of other game companies alleging infringements of Baer’s patent than it did from sales of the Odyssey, which Magnavox discontinued in 1975—having sold 350,000 units worldwide at a retail price of $100, or $50 if bought together with a Magnavox TV. All told, Magnavox won over $100 million from the lawsuits alone.

In 1985, Nintendo, a rising star in the home video game console space, fought against Magnavox’s volley of lawsuits with the claim that Baer’s patent was invalidated by prior art. Years before Baer developed his idea, William Higinbotham at the Brookhaven National Laboratory built what is now believed to be the first video game, Tennis for Two, to run on an analog computer. Tennis for Two is clearly similar to Table Tennis in many respects, but the court found one crucial distinction: Higinbotham’s oscilloscope-based game—which actually dated back to 1958 and an era that no one would associate with video games—did not involve television signals, which was a key component of Baer’s patent and the video games at issue.

Atari settled for $1.5 million and licensed the technology from Magnavox to continue to market Pong and other video games that followed.

The lasting effects of the battle over Pong

Magnavox’s lawsuits finally died down in the 1990s, but by then a new phase of patent infringement claims had overtaken the video game industry. Since then, video game manufacturers, like other software and technology companies, have had to contend with the risks of lawsuits filed by non-practicing entities or so-called “patent trolls” that prefer to litigate alleged patent violations instead of exploiting their patents themselves.

In many ways, the true legacy of Ralph Baer’s Table Tennis—a legacy that no one would have predicted and actually took three decades to materialize after his moment of inspiration outside the Port Authority—was not leading the way for a new culture of video gaming, but prefiguring the rise of patent trolls.

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David Kalat