It was 1982, and Coleco was celebrating its 50th anniversary. The launch of the ColecoVision was to be a precision operation. The home videogame market was already well established (and practically owned) by the two major players who already had a substantial back catalogue of games before Coleco's contender was even released: the Atari VCS and the Mattel Intellivision. The new deal with Nintendo to deliver the hottest game of the year into people's houses was more than just a potential goldmine, it was the title that could make or break the ColecoVision. In order to capitalize on their investment, Coleco wanted to approach the deal with Nintendo as cautiously as the tight time scale would allow, but were unprepared for dealing with the no nonsense Japanese.
Nintendo of America was a very small operation, and made regular use of a lawyer it had established a good working relationship with, Howard Lincoln. Lincoln, like Shigeru Miyamoto before him, was a complete novice to the videogame industry (as well as much of the manufacturing know how required for videogames), which ultimately granted him a fresh perspective on how proceedings would best be handled. In general, licensing contracts were written so the licensor remained responsible for any legal action arising from licensed products. Seeing no benefit in this for Nintendo should any difficulties crop up, Lincoln wrote a clause into the agreement absolving Nintendo of any responsibilities from legal difficulties brought on by Coleco's license. Naturally, had Coleco's attorneys been given the opportunity to see this clause, they would undoubtedly have disputed, but when suddenly faced with a "sign now or lose the license" order from high within the Nintendo ranks, Coleco was over a barrel and would have signed anything to get the deal. It would prove to be astute foresight on Lincoln's part.
When Randy Rissman, President of Tiger Electronics (manufacturers of dedicated handheld games), saw Donkey Kong, he immediately realized the potential this game had for one of his company's handheld systems. What he did next set a chain of events in motion that would ultimately establish Nintendo as a major player in the videogame ranks, though not before potentially casting it adrift.
Rissman mistakenly assumed the game to be based on the movie King Kong, and rather than approach Nintendo to arrange a license for Donkey Kong, he went to Universal Studios and asked for the rights to develop a game of the movie! Universal's trademark search revealed no reason why such a license could not be granted, and in 1981, sold Tiger the rights it had requested quite out of the blue.
Six months later, the president of Universal Studios, Sid Sheinberg, heard about Donkey Kong and was advised by one of the Studio's lawyers there were strong similarities between the game and King Kong, the movie. Sheinberg arranged a meeting with Arnold Greenberg, CEO of Coleco, insinuating that Universal was interested in investing in his company.
At the meeting, instead of discussing the joint venture he thought he was there to negotiate, Greenberg was threatened with immediate legal action if he didn't pay royalties on the King Kong likeness. Panicked that a massive corporation like Universal Studios, with unlimited legal resources, was bearing down on him just as the Coleco was about to launch, packaged with the Donkey Kong game that was the key to establishing their machine, Greenberg rashly agreed to Sheinberg's demands. It was an unusual agreement that wasn't so much a copyright license as a "covenant not to sue." So long as Coleco paid Universal some Donkey Kong royalties, Universal would refrain from suing them! Once again, Coleco was backed into a corner by hastily signing paperwork.
Now that Donkey Kong was on their radar, Universal traced the game all the way back to Nintendo. The same demands made to Coleco were issued to the Japanese company. They were ordered to cease all marketing of Donkey Kong products, destroy all Donkey Kong inventory and produce a full statement of profits made from the franchise within 48 hours. Nintendo were as baffled as they were irate.
Another meeting was arranged, and this time Nintendo were also invited. Still incredibly anxious about the impending launch of their new console, Coleco played Devil's advocate to Universal Studios, pushing their licensor to sign an agreement promising royalties to the movie makers. Present for Nintendo were Minoru Arakawa (president of Nintendo of America) and his outside legal council, Howard Lincoln. Lincoln did not feel quite so threatened, mainly due to the clause he had shrewdly written into the agreement with Coleco, but also because his own copyright searches had not thrown up any evidence that Donkey Kong actually did breach any Universal owned rights, despite the people at the table insisting they did.