The Gray Market of Game Emulators

Retro gaming fans that have collected enough coins over the years recently had their chances to bid on “Nintendo World Championships” (NWC), an NES game specifically created in 1990 for Nintendo tournaments in 29 cities across the country, loosely inspired by 1989’s “The Wizard” starring Fred Savage.  To date, there are 90 copies of the original gray cartridges used in the competitions as well as another 26 gold ones that were produced specifically for winners of a Nintendo Power sweepstakes.

Once bids approached six figures, the auction garnered national publicity as the collectability of these games has become an industry in itself, separate from actually playing the games.  Two of these cartridges were even featured items on an episode of “Pawn Stars,” where the seller was willing to part with one each of the gray and gold for a mere $35,000.

But what if you don’t have the kind of disposable income (or patience to blow in a twenty-five year old cartridge) to play such a classic?  What are gamers to do then?

More frugal and morally-flexible gamers (as it pertains to Intellectual Property law) can locate the ROM of the same “Nintendo World Championships” game on a given website with the same effort it takes to find one of the auctions for the actual cartridge.  One download later, they can then enjoy the same 6 minutes and 21 seconds of “Super Mario Bros.,” “Rad Racer” and “Tetris” provided by the original cartridges in competition.

It has been said imitation is the sincerest form of flattery, but for video game manufacturers – emulation has become the greatest form of infringement.  The law provides (under §106) copyright holders with certain exclusive rights, including the reproduction and distribution of copies of the protected work, the preparation of derivative works, and public display and performance of their copyrighted work.  To the manufacturers and copyright holders, the issue is quite clear and unambiguous.  Supporters conversely argue that emulators should be legal within the “fair use” exception to copyright law.

The “fair use” doctrine provides a defense for those otherwise guilty of copyright infringement if they can legally justify their use of the protected work applying four factors, all of which apply with some degree of judicial discretion.  Market effect, the factor perhaps given the greatest weight, has protected as fair use instances of infringement in the interest of promoting competition and advancement while preventing monopolies among developers.  The seminal cases hold that reverse engineering is “fair use” as it pertains to the development of future games and systems.  While these holdings allow developers to manufacture and consumers to buy systems that play the original cartridges (such as this masterpiece), other systems like Ouya are not above suspicion that their technology may contribute to piracy, as they already run emulated games including “Super Mario 64.”

The copying and platform-shifting from cartridge or disc to computer file of the games (ROMs) themselves is in some ways a legal gray area in copyright law, since no definitive case law exists.  ROMs are undoubtedly reproductions of copyrighted works; their distribution an absolute further infringement of the express copyright.  Proponents defend the possession and use of ROMs through loosely-connected justifications in existing law: preserving old media (games) no longer in production and backing up an otherwise legally-owned copy of a game.  The preservation argument could really only be made by libraries or other archival institutions, not private users.  The latter “backup” argument may have some legal weight (currently untested), provided there is no distribution of the ROM and it is done by an individual only for personal use.  While the use of devices like video recorders or MP3 players have been ruled permissible methods of “time-shifting” – for later, private, non-commercial use – courts have distinguished the use of these reproductions for solely personal reasons from other devices and systems that involve the distribution of protected material.  Distribution of games via conversion to digital media, or “space-shifting,” is even further removed from the legality of fair use – as made abundantly clear by holdings in the Napster cases.  Video game manufacturers have even attempted to refute the “backup copy” rationale by demonstrating their willingness to replace defective games and the durable nature of ROMs.  Furthermore, courts have held that downloading backup copies [of games] is prohibited even where the user/downloader owns a previous copy of that particular copyrighted material.

Nintendo has attempted to counteract the commercial impairment of their copyrighted games by entering the emulation market on their own, providing access to classic games via the WiiU’s Virtual Console, posting legal notices on their website, offering rental access to games and initiating litigation against violators of their copyrights.  Despite making these suggested efforts, console manufacturers remain vulnerable as emulation has only fueled piracy.

The Entertainment Software Association (ESA) identifies internet piracy as the main problem facing the U.S. market, although we are not alone in dealing with what has become a worldwide epidemic.

Canada is the leading exporter of circumventing technologies, such as flashcarts.  Mexico and India have piracy rates of 75% or greater.  Laws against internet piracy remain unenforced in Russia, with 47 known optical disc plants producing pirated video games which then spread to Western Europe.  The largest impact however is in China, where an aggregate piracy rate over 90% exists, resulting in the seizure of more than 250,000 counterfeit Nintendo products in 2005 alone.

Nintendo continues to engage in lawsuits around the world, especially as they pertain to the sale of aforementioned flashcarts, or R4 cartridges.  These cartridges are another type of platform-shifting, permitting users to store multiple games on one flash drive.  Recently outlawed in Japan and made illegal to import, sell or advertise in the U.K., they have an enormous impact on Nintendo DS sales globally.  In their efforts to police violators, Nintendo has filed lawsuits around the world to mixed results.  While they gained legal victories in Hong Kong and Italy, a civil suit was lost against a French manufacturer, when France’s highest court reasoned that Nintendo’s devices should be more accommodating to third-party developers.  Back home in August 2013, Nintendo sued the appropriately named for promoting and selling pirated titles and services to modify the Wii console to play the aforementioned illegal software.  The Florida-based company, considered the only authorized dealer of flashcarts in the U.S., has been subsequently shut down as a result.  This is to say nothing of the additional onus placed on console manufacturers to monitor the use of their games on websites like Twitch, where users potentially employ emulators and modded ROMs while streaming their gameplay experience.

For a company as reliant as Nintendo on their first-party games and established consumer goodwill, classic titles offer potential revenue and competitive balance against companies like Sony and Microsoft, not to mention the numerous emulators and ROMs available as mods for existing systems or for free on the internet.  “NES Remix 2” was made available for download on the WiiU in April 2014, offering a sample of favorite games as well as a “Championship Mode” very similar to the original NWC game, replacing “Rad Racer” and “Tetris” with “Super Mario Bros. 3” and “Dr. Mario” in the timed scoring challenge.  Estimates have placed Nintendo’s Virtual Console sales at only 1% of their total revenue – indicating either room for improvement or further justifying the dispositive market impact outlined in the case law of diminishing sales and interfering with the marketability of current products.

Regardless of the purchase prices ($4.99 for NES downloads, more for SNES and N64 titles; and $29.99 for most 3DS games), emulators clearly have a competitive advantage.  With the failure of courts (and consumers) worldwide to recognize and enforce the dual copyright nature of videogames, as noted by the World Intellectual Property Organization (WIPO), and global piracy more rampant in today’s market than ever, the issue is whether the game industry can continue to monetize its titles, both classics and new releases, in the same way the music, television and film industries have been doing for decades.

About Thomas Ludan

Thomas Ludan is an official contributor to Law of the Game. He is an attorney in Miami, Florida and currently licensed to practice in both Florida and Wisconsin. As a recent graduate of Florida Coastal, he is an active member of the Intellectual Property and International Law sections of the Florida Bar, Wisconsin Bar and ABA. The opinions expressed in his columns are his own. Reach him at Thomas[dawt]Ludan[aat]gmail[dawt]com.

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