The Penny Arcade controversy refers to an issue in 2003, in which the webcomic Penny Arcade posted a fake video game advertisement called American McGee's Strawberry Shortcake, in reference to American McGee's Alice - a twisted and violent take on Lewis Carroll's works. American Greetings was offended by the webcomic's joke, and issued a cease-and-desist letter demanding removal of the allegedly offending content, to which the webcomic complied. Jerry Holkins (as Tycho) later issued a statement regarding the issue.
They did, however, lampoon the incident by portraying an American Greetings staff as a Nazi raising a Roman salute.. In 2011 a strip entitled "Reprise" revisited the issue, due to the release of Alice: Madness Returns, another American McGee game. Gabe suggested to Tycho in the comic to parody a toy line that isn't "under constant surveillance", which resulted in a parody of Rainbow Brite.
Some argue that Penny Arcade's case was not covered under the fair use doctrine because the use of the characters in this case was for satire; they claim that fair use only protects the unauthorized use of copyrighted characters in parodies of the original material, and that satire and parody are totally different concepts. Others, however, take the view that parody and satire are equally protected by law, most especially the First Amendment clause in the United States Constitution.
Various other TV shows, including Drawn Together, Robot Chicken, and South Park have since also parodied or satirized Strawberry Shortcake in one way or another but at this time have met no reported retaliation from American Greetings.
Many fans, however, agreed that the case occured because the authors of Penny Arcade were not aware that American Greetings has just recently revived the franchise and published their satirical strip too close to the launch date of the franchise. This view was acknowledged by the authors in the revival comic.