Data East USA, Inc. v. Epyx, Inc.

In 1984, Data East released an arcade fighting game called Karate Champ.[2][3] The game was a commercial success in arcades,[4] becoming the top grossing cabinet in both Japan and America.[5][6] The game once again became a best-seller when it was re-released for home computers,[4] becoming the first game to receive a "Diamond Award" from the Software Publishers Association for sales above 500,000 units.[7] Karate Champ is considered the first fighting game,[2] and the player versus player version is the first fighting game to allow two players to fight each other.[8]

In 1985, System 3 began producing a karate game of their own, when their programmer and artist walked off the project. They approached game developer Archer Maclean to salvage the project, who decided re-start development by emulating other popular arcade martial arts games, such as The Way of the Exploding Fist.[9] The final product was International Karate, which was published as World Karate Championship by Epyx in North America.[10][11] The game went on to sell over 1.5 million copies in the United States, as the first European-made game to top the Billboard software charts.[10]

The success of International Karate attracted scrutiny from competitors,[9] and Data East alleged that the game had copied their game Karate Champ without authorization.[12] Maclean began to receive questions about the games' similarities, and he responded that two games about organized karate matches are likely to be similar.[9] There indeed were similarities such as the scoring systems, referees, and several fighting moves.[12] Also the games both one combatant wearing white, and the other wearing red, with a bonus round between matches where the combatants break bricks and dodge objects.[13] Data East sued Epyx for copyright infringement, as well as infringement in Karate Champ's Trademark and Trade Dress.[13]

Courts have used the substantial similarity test to determine whether one work has unlawfully copied another, while allowing copying in instances where the similarities are not owned by anyone.[14] One of the most influential cases in this area was Atari v. Amusement World from 1981, where the court listed numerous similarities between the games Asteroids and its alleged clone, Meteors.[14] Despite twenty-two similarities, the court determined that these were unprotected ideas that are inherent to the game concept of shooting rocks in space.[12] At the time, it was one of the only cases to rule in favor of the defendant, based on the idea-expression distinction that copyright does not protect broad ideas, only unique expression.[15] Using similar principles, the court concluded that the video game K.C. Munchkin! infringed several protected elements of Pac-Man, in Atari, Inc. v. North American Philips Consumer Electronics Corp.[16] At the time, courts had started to apply complex copyright principles to video games to show that certain elements are ineligible for copyright protection. This includes the scènes à faire doctrine that generic scenes cannot be owned by anyone, as well as the merger doctrine that no one can own the expression to an idea if that's one of the only ways to express it.[14]

The case was heard in the United States District Court for the Northern District of California, where the court ruled that Epyx had infringed upon Data East's copyright, but not their trademark.[1] One of the issues was whether Epyx had accessed Data East's game. Since they provided no evidence that they created their game independently, the similarities were strong enough for the district court to infer that Epyx likely purchased it and discovered the underlying program.[17] Even though the district court acknowledged a few cosmetic differences between the games, they still concluded that the idea expressed in both games is identical.[1] A major factor in the ruling was the determination that the average consumer, a 17.5 year old male, would subjectively regard the two games as substantially similar.[17] The court ordered a permanent injunction against Epyx, and an impoundment that restrained Epyx from further sale or distribution of World Karate Championship.[18] Epyx was required to recall all copies of the infringing work.[9]

Judge Stephen S. Trott wrote the opinion for the United States Court of Appeals for the Ninth Circuit.

Epyx appealed the case to the United States Court of Appeals for the Ninth Circuit, alleging that the district court was mistaken about the substantial similarity between the games.[1][19] Epyx did not dispute that Data East owned a valid copyright in Karate Champ, but disputed that there had been direct copying, and that the similarities between the games were evidence of copyright infringement.[1] The central issue in the appeal was whether the similarities between the games were result of unlawful copying, or if they were the inherent result of making a game about karate.[17]

Writing for the appeal court, Judge Stephen S. Trott noted that copyright disputes seldom have evidence of one party directly copying another.[1] Thus, Data East needed to provide circumstantial evidence that Epyx had copied them, including evidence that Epyx had access to Karate Champ while making World Karate Championship, and that the two games were substantially similar.[1] To determine the question of substantial similarity, Judge Trott applied the framework used in the copyright case Sid & Marty Krofft Television Productions Inc. v. McDonald's Corp., with an additional analysis of elements that fall outside of copyright protection.[17] An analysis of substantial similarity should exclude unprotectable elements, which are eliminated by applying the idea-expression dichotomy, the merger doctrine, and the scènes à faire doctrine.[14] The court summarized the principle that "no substantial similarity of expression will be found when the idea and its expression are inseparable."[1]

The court found that the games shared fifteen characteristics.[20] However, the court determined that these characteristics, "which consist of the game procedure, common karate moves, the idea of background scenes, a time element, a referee, computer graphics, and bonus points, result from either constraints inherent in the sport of karate or computer restraints."[1] This echoed the analysis in Atari v. Amusement World, explaining that the variety of possible expression was limited by the technology, thus raising the likelihood that any game's expressive elements would merge with the idea.[14] Since the two games were not similar enough to constitute copyright infringement, the question of access became moot.[17] The court further explained that "the visual depiction of karate matches is subject to the constraints inherent in the sport of karate itself," and many of the similar elements are "indispensable, or at least standard" to creating a karate game.[21] Since many of these features are stereotypical of karate, they are not protected by copyright.[20] After excluding unprotectable elements, such as functional rules and generic scenes related to karate, the court determined that the remainder of the games were not substantially similar.[12] Judge Trott further stated that a 17.5 year old male would not find the games similar, contradicting the finding of the lower court.[17] The appeal ruled that the district court had erred in their analysis, and ordered the injunction to be lifted.[1]