Nestle, Atari settle lawsuit over Kit Kat campaign

By Jonathan Stempel

(Reuters) - Nestle SA has settled a lawsuit in which Atari SA accused the Swiss food company of using the hit 1970s video game "Breakout" without permission to sell Kit Kat bars.

U.S. District Judge Yvonne Gonzalez Rogers in Oakland, California, dismissed Atari's copyright infringement case on Wednesday after the companies settled, court records show.

"The action was resolved through a mutually acceptable confidential settlement agreement," Nestle said in an email on Thursday. Atari and its lawyers did not immediately respond to requests for comment.

"Breakout," a follow-up to the classic game "Pong," was created by Apple Inc co-founder Steve Wozniak with help from fellow co-founder Steve Jobs. It required a player to knock down rows of colored bricks with a paddle.

Atari accused Nestle of replacing the bricks with brown Kit Kat bars and using them in a Kit Kat Bites commercial titled "Kit Kat: Breakout" that showed adults and children using paddles to knock the bars down.

Nestle and its U.S. and U.K. affiliates did this to encourage "nostalgic Baby Boomers, Generation X, and even today's Millennial and post-Millennial 'gamers'" to buy Kit Kat, Atari said in court papers last August.

The ad ran only in the United Kingdom and stopped running before Atari filed its lawsuit, Nestle has said.

Last week, Nestle said it would sell its U.S. candy business to Italy's Ferrero SpA for $2.8 billion.

Nestle plans to keep selling Kit Kat globally, but not in the United States, where Hershey Co owns the brand.

(Reporting by Jonathan Stempel in New York; Editing by Lisa Von Ahn)