“Tetris” is one of the most popular and influential video games today. Some people remember playing it on their Nintendo Game Boy. Or they played it on the airplane during their 10-hour flight. Or they might have watched the movie that was just released. While the game is easy to learn, how it got to computers and game consoles has as much twists and intrigue as a spy novel.
Alexey Pajitnov was a researcher at the Soviet Academy of Science’s computer center working on speech recognition. When the academy got new computer hardware, he would try to create games supposedly to test the hardware’s computing limits. On June 6, 1984, on a black-and-white computer using very simplistic graphics, he created the first prototype of “Tetris.”
As he fine-tuned “Tetris,” he became addicted, which led to more “fine-tuning.” He showed it to his colleagues, who also became addicted. The game spread throughout Moscow, and the addiction was so bad that the Moscow Medical Institute banned the game due to decreasing productivity.
“Tetris” made its way into Hungary where it caught the attention of Robert Stein of Andromeda Software. He wanted the rights to sell the game to the Western world. He contacted Pajitnov by telex (the predecessor to the fax machine) making a cash offer to get the license to sell the game.
Pajitnov said that he relinquished the rights to “Tetris” to the Soviet Academy for 10 years in 1986. It was also suggested that under Soviet law, “Tetris” was the property of the USSR since it was created in the academy.
Pajitnov responded to Stein, stating that he was interested in making a deal. Pajitnov’s intent was to continue the negotiation with the right authorities. However, Stein believed it to be an acceptance of his offer. No formal contract was signed.
Stein then sold licensing rights to “Tetris” to two companies. Mirrorsoft would have the rights to sell the game in Europe, and similar rights to sell the game in the United States went to Spectrum Holobyte. Both companies were divisions of Maxwell Communications — one of the largest publishing companies in the United Kingdom. Its owner, Robert Maxwell, was worth at least $1 billion at the time.
But just before both companies launched the game, Stein was contacted by Elorg, the government agency that handles the import and export of computer hardware and software in the Soviet Union. Elorg claimed that Pajitnov had no authority to give licensing rights and demanded that future negotiations must be done through them directly. In 1988, Stein and Elorg came to an agreement where Stein would have a 10-year worldwide license for all current and future computer systems.
But the licensing started to get convoluted. Mirrorsoft sold the arcade rights for “Tetris” to Tengen, a subsidiary of Atari Games. Tengen then sublicensed arcade sales in Japan to Sega. Tengen also sublicensed Japanese home game console rights to Bullet-Proof Software’s Henk Rogers. The Japanese home consoles included the Nintendo Famicom, which was the Japanese equivalent to the Nintendo Entertainment System. All of these deals were not disclosed to Elorg nor were they paid any royalties for three months after they were due.
In 1989, Nintendo was getting ready to release its first handheld console, the Game Boy. Both Rogers and Nintendo believed that “Tetris” would be the ideal pack-in game as it would appeal to a wider variety of people and thus sell more consoles. But they needed the rights to sell “Tetris” on handheld systems. Rogers contacted Stein about getting these rights from Elorg. But after contacting Stein several times with no answer, Rogers started to get suspicious. It turns out that Maxwell Communications was also trying to get handheld rights to “Tetris,” and Robert Maxwell sent his son Kevin to talk to Elorg directly.
Rogers, himself, went to Moscow to find Elorg and negotiate. The problem was that he didn’t speak Russian and, as a tourist, was forbidden to make business deals in the Soviet Union. He went to Elorg headquarters uninvited but was able to get an audience with Elorg’s president Nikolai Belikov.
Rogers showed Belikov a copy of “Tetris” for the Famicom home console. Belikov stated that it was an illegal copy of the game because Elorg thought they only gave Stein licensing rights to home computers. At that point, Rogers explained the convoluted licensing and sublicensing structure that involved home computers, arcades, and home game consoles.
Belikov then sent a new contract for Stein to sign before he would agree to discuss handheld rights for “Tetris.” The new contract included penalties for late payments. But the contract also contained a definition for computers as a machine with an operating system, keyboard, monitor and disk drives. Stein signed the contract not knowing about the definition clause and lost any rights to home consoles and handhelds.
Soon after, Belikov and Rogers signed a new contract where Elorg would give the handheld rights to Nintendo.
Belikov also suggested that Nintendo make an offer to sell “Tetris” for home consoles, which included the Nintendo Entertainment System (NES) in the U.S. At the time, it was believed that Tengen was planning to release “Tetris” without Nintendo’s permission. Both companies were not in good terms since Tengen was able to successfully hack the lock-out mechanism on the NES which gave Nintendo control over which games could be played on the system. The best example of this was when Tengen released games, such as “After Burner” and “Shinobi,” that were originally made by its archrival Sega.
Nintendo of America’s president and Rogers secretly flew to Moscow to finalize the home console deal. If word got out, then Tengen (and possibly Maxwell Communications) would also make their offers, and it could turn into an expensive bidding war.
When Roger Maxwell found about the deal between Nintendo and Elorg, it was reported that he contacted senior Soviet bureaucrats and even made a case to President Mikhail Gorbachev. While a government investigation followed, the deal was upheld. Gorbachev had more pressing issues to consider, as the Soviet Union was on its last legs and would dissolve a few years later in 1991.
After finalizing the deal, Nintendo sent a cease and desist letter to Atari Games to demand that they stop manufacturing and sales of “Tetris.” A lawsuit followed and a federal district court ruled that Nintendo had the rightful license to sell “Tetris.” Tengen was forced to destroy its unsold copies and the ones that already sold became collector’s items.
As for Maxwell Communications, the public learned that Robert Maxwell was stealing money from the company pension fund, and the company later went bankrupt. He later died of a heart attack. His son Kevin was chairman of the company and filed the biggest bankruptcy in the UK’s history. He was charged with fraud and was acquitted at trial.
In an unrelated note, Robert Maxwell also had a daughter, Ghislaine. You may have heard of her. She also had some recent issues with the law.
“Tetris” became a worldwide hit and, even today, people are addicted to the game. There are “Tetris” competitions all over the world and some people play the game to the extreme.
For years, Alexey Pajitnov never made money from his creation while he was in the Soviet Union. In 1991, he and his family immigrated to the United States, where he and Rogers formed the Tetris Company. In 1996, his 10-year licensing agreement with the Soviet Academy ended. Elorg, which later became a private company after the dissolution of the USSR, sold its rights to the Tetris Company. At that point, Pajitnov finally made money from his game.
Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at email@example.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.