In Crystal Castles, the arcade game released by Atari in 1983, the player controls Bentley Bear, a bruin tasked with collecting gems scattered throughout a castle while avoiding enemies intent on thwarting his quest. Last year, State Farm released a six-second digital ad that featured actors standing in front of, and interacting with, a Crystal Castles arcade-game cabinet. The cabinet was modified to replace the “Crystal Castles” title with “Witch’s Broom” but otherwise was left intact. Included in the complaint was the following screen shot from the ad:

The titular switcharoo didn’t fool die-hard gamers, a number of whom posted comments on social media correctly identifying the relabeled console. A few even reacted negatively to the use (e.g., “You think a bastardized Crystal Castles cabinet is going to make you seem cool to gamers? Think again”).

Atari sued State Farm (as well as the advertising agency and production company that created the ad) for copyright infringement, unjust enrichment, business disparagement, unfair competition, and false information and advertising. District Judge Sidney A. Fitzwater (N. D. Texas) granted the defendants' motion to dismiss all of the claims, except for the copyright infringement claim, which will be the focus of this post.

The court began by finding that Atari had “plausibly” pleaded a claim for copyright infringement since Atari had alleged that (1) it owned copyrights in the Crystal Castles cabinet wrap (including in the artwork for Bentley Bear and other characters featured on the wrap), and (2) without permission, the defendants had “prominently featured” the cabinet In “the center of nearly every video frame.” 

Next, the court rejected the defendants' argument that the copyright claim should be dismissed because the use of the cabinet wrap was de minimis. To determine whether use of copyrighted material in an audiovisual work is de minimis, courts focus on the observability of the copyrighted work, including the duration of time the work is visible and the prominence of the work in the scenes. The arcade cabinet appears on screen in the center of the video for the majority of the commercial. Although the actors in the commercial stand in front of the cabinet and partially obscure it, “the images on the cabinet are still largely observable and in focus, and the characters are shown interacting with the cabinet such that it is appears to be a central part of the plot.” Moreover, the fact that several people published social posts correctly identifying the Crystal Castles game console, despite the substituted title, supported that the artwork on the console was observable. The court distinguished previous cases where copyright claims were rejected as de minimis. E.g., Gottlieb Development LLC v. Paramount Pictures Corp. (appearance of a pinball machine was de minimis because it was always in the background, partially obscured, and not central to the plot), and LMNOPI v. XYZ Films, LLC  (use of a mural was de minimis because it appeared briefly and only in the background, was partially obscured, and was not the focus of the scene).

Finally, the court refused to dismiss the copyright claim on fair use grounds. Accepting as true the allegations in the complaint, the court concluded that all four statutory factors weighed against a finding of fair use. A very brief rundown:

• Purpose and Character of the Use. The arcade cabinet was not used to make commentary or criticism or for any other transformative purpose. Instead, it was used “to invoke the same aesthetic tones intended to be evoked by the artwork itself.” Moreover, the use – in an advertisement – was for commercial purposes.
• Nature of the Copyrighted Work. The cabinet artwork is an expressive, visual work, and not a factual work. 
• Amount and Substantiality of Portion Used. The majority of the artwork from the cabinet wrap was visible in the spot (even if partially obscured by the actors in the video).
• Effect on the Market. It is “plausible that the widespread, unlicensed use of Atari’s copyrighted works would impact [Atari's] alleged licensing business.”

At this preliminary stage of the proceedings, we don't know why the defendants changed the title of the game on the console but stopped short of replacing the artwork on the cabinet wrap.  Atari speculates in its complaint:

“Defendants knew what they were doing. State Farm misappropriated Atari’s iconic intellectual property for its own commercial ends. While they made a half-hearted attempt to cover the mark and name Crystal Castles that appears at the top of the cabinet, they did not obscure any of the other Atari intellectual property that covers the cabinet. That’s because Defendants wanted realism to show gamers that a big insurance company (State Farm) understands them and was relatable, i.e., State Farm wanted to take the cultural benefits of Atari’s IP without paying for it.”

I doubt that the defendants used the Crystal Castles artwork because they wanted “realism” or for other creative or strategic reasons. It seems much more likely that they either assumed that the artwork would not be visible in the finished spot or that the issue was overlooked in the hurly-burly of production. Of course, had they replaced the cabinet art with their own, they almost certainly would have avoided this lawsuit altogether.

Atari Interactive, Inc. v. State Farm Mutual Auto. Ins. Co., No. No. 3:24-CV-0704-D, 2024 WL 4343050 (N.D. Tex. Sept. 27, 2024)