Timegame Studios, developer of the Section 8 first person shooter, has just won an interesting lawsuit against publisher SouthPeak Interactive (via Houston Press and Courthouse News). The case is a useful reminder of both the strength and weaknesses of arbitration, as well giving us some useful practical tips for drafting good publishing agreements (skip to the end of the post for that). I’ve written a summary of the case below. (more…)
A UK High Court judge has found games publisher SouthPeak liable for inducing copyright infringement in a long-running legal battle between CDV, a German distributor of games including Velvet Assassin and Pirates vs Ninjas, and Gamecock, a SouthPeak subsidiary. The judgment follows a November 2009 Court ruling which saw CDV win a breach of contract claim against Gamecock and SouthPeak.
Background: the legal battle between CDV and Gamecock
The root of the battle lies in a 2008 distribution agreement between CDV and Gamecock, under which Gamecock agreed to license exclusively to CDV seven games (“Dementium“, “Insecticide“, “Mushroom Men“, “Velvet Assassin“, “Hail to the Chimp“, “Pirates vs Ninjas” and “Stronghold Crusader Extreme“).
CDV claimed that it had paid Gamecock advances of over $7 million but that, contrary to their agreement, four of the games were not delivered in time for a pre-Christmas 2008 release. CDV therefore gave a notice to part-terminate its agreement with Gamecock and subsequently sued Gamecock for damages for breach of contract, as well as arguing that SouthPeak was liable for inducing copyright infringement and breach of contract. Gamecock and SouthPeak defended the lawsuit, arguing that CDV had no right to terminate the contract.
In November 2009, Mrs Justice Gloster published her judgment which found in favour of CDV on the breach of contract claims for three of the four games. However, she reserved her judgment regarding CDV’s claim against SouthPeak for (i) inducing copyright infringement; (ii) inducing breach of contract; and (iii) legal costs.
The new judgment
In her second judgment published on Friday, Mrs Justice Gloster ruled as follows:
(1) SouthPeak liable for inducing copyright infringement
Mrs Justice Gloster ruled that she was:
“Satisfied, on the basis of the evidence before [her] at trial, that CDV has established on the balance of probabilities that SouthPeak US has both participated in, and authorised, the infringing activities in relation to the making, distribution, and sale” of the four CDV games in question.
In a nutshell, the legal reasoning went like this: Gamecock had licensed games to CDV, but when Gamecock breached its agreement with CDV it forfeited those rights to CDV and therefore the copyright in the games became CDV’s. However, Gamecock refused to admit this and tried to sell the games itself, which constituted copyright infringement. SouthPeak, as Gamecock’s parent, was found liable for inducing that copyright infringement.
(2) SouthPeak not liable for inducing breach of contract
CDV had claimed that SouthPeak, as Gamecock’s parent, had induced Gamecock to breach its contract with CDV and should be liable for damages. Mrs Justice Gloster ruled that CDV failed in this argument.
Legal nutshell: if Alan has a contract with Bob and Chris persuades Bob to breach that contract, then Alan can sue Bob for breach of contract but can also potentially sue Chris for inducing the breach of contract. However, case-law states that Chris has to intend to induce a breach of contract. There is no liability if Chris didn’t realise he was inducing Bob to breach the contract with Alan.
Here, Mrs Justice Gloster held that SouthPeak did not realise it was acting wrongly, in fact its witnesses gave evidence “to the effect that they believed that they were entitled to act as they did” and there was nothing “which suggested that they did not genuinely believe that Gamecock and the other defendants were entitled to act in the way which they did“. Therefore, CDV lost its claim for inducement of breach of contract.
(3) SouthPeak liable for CDV’s legal costs
Mrs Justice Gloster ruled that “SouthPeak US must, jointly and severally with the other Defendants, pay the Claimant’s costs of the claim and of the counterclaim, including any reserved costs”. We do not know exactly how much those costs were (yet), but they are likely to be substantial.
Lessons to be learned:
- If you need your contractual partner to complete its side of the contract by a specified time, make sure you draft that clearly in the contract and specify exactly what steps you will be entitled take to ensure the timeframe is met and, if not, what compensation/alternative action you can take (example clauses you might want to think about: ‘time of the essence’, liquidated damages, interest, specific or alternate performance clauses). And, if they let you down, you may need to get down to Court fairly quickly (which is apparently what CDV did).
- If your contractual partner claims to terminate a games distribution contract with you due to your breach, then you also run the potential risk of a copyright infringement action if you keep performing the
contract by marketing/distributing/selling his products/games.
- It is also possible in these circumstances that your parent group/publisher could face an inducement to breach of contract claim, but any such claim would need to meet strict legal criteria to success.
- If in doubt, take legal advice from commercial dispute lawyers. As we always say at Gamer/Law, a little legal advice early on can save a lot of time and money down the line.
Confused? Want to discuss further? You know where to find us…
Thanks for 1709 for the initial heads-up!