Page:Sega Enterprises v. Accolade.pdf/20

 of a false designation of origin in connection with goods or services where such use is “likely to cause confusion, or … mistake.” Id. § 1125(a). Both Sega and Accolade agree that the screen display of the Sega trademark and message creates a likelihood of consumer confusion regarding the origin of Accolade’s games. The question is: which party is legally responsible for that confusion? We disagree with the answer given by the district court.

The district court found that Accolade bore primary responsibility for any consumer confusion that resulted from the display of the false Sega Message. However, Accolade had no desire to cause the Sega Message to appear or otherwise to create any appearance of association between itself and Sega; in fact, it had precisely the opposite wish. It used the TMSS initialization code only because it wanted to gain access for its products to the Genesis III, and was aware of no other method for doing so. On the other hand, while it may not have been Sega’s ultimate goal to mislabel Accolade’s products, the record if clear that the false labeling was the result of a deliberate decision on the part of Sega to include in the Genesis III a device which would both limit general access and cause false labeling. The decision to use the SEGA trademark as an essential element of a functional device that regulates access and to cause the SEGA trademark and message to be displayed whenever that functional device was triggered compels us to place primary responsibility for consumer confusion squarely on Sega.

With respect to Accolade, we emphasize that the record clearly establishes that it had only one objective in this matter: to make its video game programs compatible with the Genesis III console. That objective was a legitimate and a lawful one. There is no evidence whatsoever that Accolade wished Sega’s trademark to be displayed when Accolade’s games were played on Sega’s consoles. To the contrary, Accolade included disclaimers on its packaging materials which stated that “Accolade, Inc. is not associated with Sega Enterprises, Ltd.” When questioned regarding the Sega Message and its potential effect on consumers, Alan Miller testified that Accolade does not welcome the association between its product and Sega and would gladly avoid that association if there were a way to do so. Miller testified that Accolade’s engineers had not been able to discover any way to modify their game cartridges so that the games would operate on the Genesis III without prompting the screen display of the Sega Message.

In contrast, Sega officials testified that Sega incorporated the TMSS into the Genesis console, known in Asia as the Mega-Drive, in order to lay the groundwork for the trademark prosecution of software pirates who sell counterfeit cartridges in Taiwan and South Korea, as well as in the United States. Sega then marketed the redesigned console worldwide. Sega intended that when Sega game programs manufactured by a counterfeiter were played on its consoles, the Sega Message would be displayed, thereby establishing the legal basis for a claim of trademark infringement. However, as Sega certainly knew, the TMSS also had the potential to affect legitimate competitors adversely. First, Sega should have foreseen that a competitor might discover how to utilize the TMSS, and that when it did and included the initialization code in its cartridges, its video game programs would also end up being falsely labeled. Sega should also have known that the TMSS might discourage some competitors from manufacturing independently developed games for use with the Genesis III console, because they would not want to become the victims of such a labeling practice. Thus, in addition to laying the groundwork for lawsuits against pirates, Sega knowingly risked two significant consequences: the false labeling of some competitors’ products and the discouraging of other competitors from manufacturing Genesis-compatible games. Under the Lanham Act, the former conduct, at least, is clearly unlawful.

“[T]rademark policies are designed ‘(1) to protect consumers from being misled…; (2) to prevent an impairment of the value of the enterprise which owns the trademark; and (3) to achieve these ends in a manner consistent with the objectives of free competition.’ ” Anti-Monopoly, Inc. v.