The game & watch devices were practically a bunch of mini games that were nowhere comparable to gaming standards like the SNES, N64, and Gameboy. Despite that, it sold in the millions and appeared in Smash as a character.
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TBF, The G&W had some very strong positives for its time. First of all, it was the only portable your average Joe / Jane could realistically get before the Game Boy and similar consoles. Sure, LCD games are pretty limited - but in an era when showing portable visuals were incredibly difficult to even display it's a plus to be simple. It saves vital battery life since that tech was far from ready.* I find it telling that Gunpei Yokoi got the idea for G&W by seeing a bored businessman play on a calculator while on a train.
Had Sakurai been stricter and used
a definition similar to Ahoy's, G&W would not be in since he'd be an electronic game character. Ahoy also brings up the U.S. patent - G&W is an "Electronic toy with a game function" according to it (there's the loophole for ROB too). Well, if Sakurai allows electronic toys with game functions, that's a boon by itself.
*(That persisted with the Game Boy - sure, simple visuals, but Yokoi knew that battery life was at a premium. If you ask me, I'm just happy recharging is a simple process nowadays instead of back then.)