NOTE: just to make clear – these are just the personal views of Gamer/Law. Also, we do not have any relationship with anyone involved in the litigation! Thanks.
Rather belatedly, here are my thoughts on the latest developments in the Activision/Infinity Ward executives lawsuit.
Background: A couple of weeks ago, I blogged about former Infinity Ward executives Jason West and Vince Zampella launching a lawsuit against their former employer Activision for “substantial royalty payments” relating to Call of Duty: Modern Warfare 2. The lawsuit followed Activision’s sacking of the duo on the grounds of “breach of contract and insubordination”. My early thoughts here.
Now, West and Zampella’s complaint (the US legal document which sets up their lawsuit) has been released and sets out further detail about their allegations. I’ve taken a look at it and here are my thoughts…
The initial section complaint is pretty colourful in its drafting: it is filled with pretty barbed anecdotes about how terrible Activision (and Bobby Kotick) is, made even more colourful with bold italic sections – which is the legal equivalent of yelling while jumping up and down on your desk. Example: paragraph 1 of the complaint –
“Modern Warfare 2 – a video game that has already been responsible for over $1 billion in sales and was recently hailed by Activision itself as the largest launch of any entertainment product ever“.
The remainder of the complaint is drafted in rather more sedate legalese (with a few exceptions) and goes on to summarise the facts underpinning the lawsuit. Here’s a summary of the summary:
- Activision bought up 100% of Infinity Ward in the early Noughties for $5m. Infinity Ward generated a lot of revenue and critical acclaim for Activision through the Call of Duty series.
- Activision approached studio heads West and Zampella after the release of Call of Duty 4: Modern Warfare to develop a sequel to the game, and offered to extend their employment contracts.
- West and Zampella were initially reluctant, and were concerned over Activision’s involvement in Infinity Ward. Activision apparently had “forced Infinity Ward’s employees to continue producing the games at break neck pace under aggressive schedules.” West and Zampella were concerned about creative burnout and that they were being asked to develop sequels instead of new IP.
- However, “ultimately, Activision offered West and Zampella sufficient additional consideration to induce them to continue as co-heads of Infinity Ward and to work on Modern Warfare 2. The parties reached a March 31, 2008 Memorandum of Understanding that would keep Infinity Ward a part of Activision.”
Now, pause there. We have not yet had the chance to review the MoU yet but, from what we know, the idea that the MoU would somehow “keep Infinity Ward a part of Activision” possibly suggests a misunderstanding of the legal position. Activision already owned Infinity Ward, having acquired a 100% of the legal entity’s shares. All the MoU could do is keep West and Zampella on board. Does that mean West and Zampella have confused themselves with Infinity Ward? Of course, I could be entirely wrong, if for example Infinity Ward control would somehow revert to West and Zampella unless the MoU was entered into – but there doesn’t appear to be any factual grounds for that argument at present.
The complaint goes on to summarise the purpose of the MoU:
- “First, the MoU gives West and Zampella creative authority over the development of any games under the Modern Warfare brand (or any Call of Duty game set in the post-Vietnam era, the near future or the distant future) including complete control over the Infintiy Ward studio”
- “Second, the MoU gives West and Zampella the right to oeprate Infinity Ward independently and to choose to develop new intellectual property after they completed Modern Warfare 2”
- “Third…Activision agreed to pay Plaintiffs and the Infinity Ward studio additional compesnation, including a pool of Restricted Stock Units, stock options, a royalty for any Call of Duty game, a technology royalty, and a royalty for Modern Warfare 2 and future titles”.
So, the MoU is signed, Infinity Ward charges ahead, Modern Warfare 2 is released with great acclaim and financial success. However, West and Zampella then say that Activision decided to “launch a pre-textual investigation into West and Zampella to create a basis to fire the two co-heads of Infinity Ward before the Modern Warfare 2 royalty payment would be paid in the ordinary course, on March 11, 2010“.
The complaint goes into some detail about the baselessness of the investigation, with outside legal counsel apparently interrogating West and Zampella for six hours in a “windowless conference room” while refusing “to tell either West or Zampella what specific acts or omissions Activision believes they had committed or what was prompting the investigation“. West and Zampella were told only that Activision was “investigating potential “breaches of contract” and “violations” of Activision policies, and threatened that anything less than their full cooperation with the inquisition would constitute “insubordination”, which itself would justify their termination“.
The factual section of the complaint finishes with Activision’s subsequent termination of West’s and Zampella’s employment, refusal to pay any royalties to them and its establishment of a new “dedicated business unit” to manage and control the Call of Duty franchise going forward.
The complaint concludes by stating West and Zampella’s key legal claims are for:
- Damages for breach of contract, breached of an implied duty of good faith and wrongful termination, estimated value over $36m
- A declaration by the court essentially vindicating West’s and Zampella’s position and, in particular, agreeing that they have creative control over the Call of Duty series
- “A preliminary and permanent injunction against [Activision]…from violating Plaintiffs’ rights with respect to the development, release and exploitation of any Modern Warfare game or Call of Duty game set in the post-Vietnam era, near future or distant future” (more on that below)
(Pause there to give myself a sad self-congratulatory pat on the back for having predicted West and Zampella would seek an injunction!)
Legal thoughts:
As I said earlier, the complaint is rather colourfully drafted in places – I would guess with a view to public consumption. It is quite detailed factually, but comparatively lighter at this stage on the detail of the legal arguments. For example, it refers to an Employment Agreement and the MoU but does not cite any clauses from them in support of West and Zampella’s argument (though this is no doubt due to commercial sensitivity). It refers to claims for breach of contract, wrongful termination and the request for a preliminary and permanent injunction against Activision but does not set out much detail on the bases for these claims.
So, why isn’t this the complete picture? Three reasons:
(i) commercial sensitivity: West and Zampella don’t want to disclose publicly too much about their arrangements with Activision;
(ii) strategy/the nature of the allegations: West’s and Zampella’s argument is that the whole investigation into them was a sham and there’s only so much they can say about that, especially if they were kept in the dark by Activision at the time; and
(iii) the nature of the document: the complaint is only the first piece of the legal jigsaw, the next piece being Activision’s reply and then (probably) a rejoinder from West and Zampella.
For these reasons, it’s far too early to take a view as to where the merits of the lawsuit lie. On the one hand, if (and it’s a very big if) West and Zampella’s argument the investigation was trumped up are proved in court to be correct, then it will be interesting to see how Activision justifies its actions. On the other hand, once we have heard Activision’s side of the story and reviewed the terms of the MoU, it may be clear that West and Zampella are in the wrong. Welcome to the Russian Roulette that is commercial litigation!
What happens next?
As I said (were you not reading me, fool?) Activision will need to prepare its reply (probably this will be made available in the internets in the next week or so), followed probably by a rejoinder from West and Zampella. This early stage of setting out the parties’ cases in the court documents can go back and forth for a while.
The most interesting thing about the lawsuit currently is what West and Zampella will do about their claim for a preliminary injunction against Activision – which essentially means that they want a Court order banning Activision from taking any further steps with the Call of Duty or Modern Warfare franchises until the question of who has ultimate creative control over them is decided at trial (which is probably months away). Will they say the matter is urgent and try to push their injunction application into court as soon as possible? In fact, with Activision’s plans to release further DLC for Modern Warfare 2, it’s possible that this hearing is already on the stocks (though we’ve not heard anything to confirm that yet).
The reason they might want to push it into court as soon as possible is obvious: if they can control Activision’s use of Call of Duty then it gives them great bargaining power. On the other hand, it’s a high risk strategy: injunctions aren’t just a legal walk in the park, there are specific tests that they would need to convince a judge that it should be granted. Moreover, the hearing would also be an early opportunity for the parties to state their legal cases in court and for the judge to give an early indication as to who he/she thinks has the better case, which could be an important legal and psychological factor in the lawsuit. Hopefully more info on this aspect of the lawsuit will be made public in the near future…
Leaving that to one side, more generally the litigation will go on to see mutual disclosure of relevant documents, witness evidence and quite possibly expert evidence – all of which are likely to be dissected in public and could quite possibly yield further details of the commercial arrangements in place between Activision and Infinity Ward. There will eventually be a round of court hearings on procedural matters (I see the front page of the complaint has a Case Management Conference – which is generally a procedural hearing – listed for 21 June 2010).
Going forward, unless either side can show urgency, it will probably be several months before the matter gets to trial – assuming of course that it doesn’t settle before then. So far, the signs of settlement don’t look promising, with Activision commenting the lawsuit is meritless and West/Zampella making some pretty barbed comments about Bobby Kotick in the complaint, but lawsuits seldom settle before they are properly bedded in, so there’s plenty of time for negotiations to get underway if the parties were that way minded.
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