by Crane, Whitehead, and Miller in 1979, started developing third-party VCS games using their knowledge of VCS design and programming tricks, and began releasing games in 1980. Kaboom! (1981) and Pitfall! (1982) are among the most successful with at least one and four million copies sold, respectively. In 1980, Atari attempted to block the sale of the Activision cartridges, accusing the four of intellectual property infringement. The two companies settled out of court, with Activision agreeing to pay Atari a licensing fee for their games. This made Activision the first third-party video game developer and established the licensing model that continues to be used by console manufacturers for game development. Activision's success led to the establishment of other third-party VCS game developers following Activision's model in the early 1980s, including U.S. Games, Telesys, Games by Apollo, Data Age, Zimag, Mystique, and CommaVid. The founding of Imagic included ex-Atari programmers. Mattel and Coleco, each already producing its own more advanced console, created simplified versions of their existing games for the 2600. Mattel used the M Network brand name for its cartridges. Third-party games accounted for half of VCS game sales by 1982. Decline and redesign In addition to third-party game development, Atari also received the first major threat to its hardware dominance from the Colecovision. Coleco had a license from Nintendo to develop a version of the smash hit arcade game Donkey Kong (1981), which was bundled with every Colecovision console. Coleco gained about 17% of the hardware market in 1982 compared to Atari's 58%. With third parties competing for market share, Atari worked to maintain dominance in the market by acquiring licenses for popular arcade games and other properties to make games from. Pac-Man has numerous technical and aesthetic flaws, but nevertheless more than 7 million copies were sold. Heading into the 1982 holiday shopping season, Atari had placed high sales expectations on E.T. the Extra-Terrestrial, a game programmed in about six weeks. Atari produced an estimated four million cartridges, but the game was poorly reviewed, and only about 1.5 million units were sold. Warner Communications reported weaker results than expected in December 1982 to its shareholders, having expected a 50% year-to-year growth but only obtaining 10–15% due to declining sales at Atari. Coupled with the oversaturated home game market, Atari's weakened position led investors to start pulling funds out of video games, beginning a cascade of disastrous effects known