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Former Infinity Ward exec vs Activision lawsuit - an initial analysis

Former Infinity Ward executives have launched a high-profile lawsuit against Activision for royalty payments over Call of Duty: Modern Warfare 2. Lawyer Jas Purewal discusses the lawsuit and what it means for Activision and the Modern Warfare franchise

 

Activision
 

[This post is reproduced from http://www.gamerlaw.co.uk/.  You can speak with Jas via Twitter: www.twitter.com/gamerlaw 

 
Former Infinity Ward executives Jason West and Vince Zampella have launched a lawsuit against former employer Activision for "substantial royalty payments" relating to Call of Duty: Modern Warfare 2.

The lawsuit follows a great deal of controversy and rumours over the last few days, which saw West and Zampella fired from their jobs at Infinity Ward, the games studio which developed the billion dollar grossing Modern Warfare 2.  West and Zampella co-founded in 2001 and sold it to Activision in 2003.  At the time they were fired, Activision made a SEC filing in which it indicated that an investigation was being conducted into their "breaches of contract and insubordination".  They say they were weeks away from being paid royalty payments over MW2.

In a nutshell, West's and Zampella's argument appears to be that these allegations of "breaches of contract and insubordination" were unsubstantiated and put forward to justify Activision firing them before their royalty payments became payable.  Their press release said:

"Activision has refused to honor the terms of its agreements and is intentionally flouting the fundamental public policy of this State (California) that employers must pay their employees what they have rightfully earned," said their attorney Robert Schwartz.  "Instead of thanking, lauding, or just plain paying Jason and Vince for giving Activision the most successful entertainment product ever offered to the public, last month Activision hired lawyers to conduct a pretextual 'investigation' into unstated and unsubstantiated charges of 'insubordination' and 'breach of fiduciary duty,' which then became the grounds for their termination on Monday, March 1st."

"We were shocked by Activision's decision to terminate our contract," said West.  "We poured our heart and soul into that company, building not only a world class development studio, but assembling a team we've been proud to work with for nearly a decade.  We think the work we've done speaks for itself."
Zampella added, "After all we have given to Activision, we shouldn't have to sue to get paid."

Modern Warfare 2 is arguably one of the most successful games in history and together with Call of Duty, has generated more than $3 billion in sales for Activision.  In addition, Activision seized control of the Infinity Ward studio, to which Activision had previously granted creative control over all Modern Warfare-branded games.  The suit was filed to vindicate the rights of West and Zampella to be paid the compensation they have earned, as well as the contractual rights Activision granted to West and Zampella to control Modern Warfare-branded games. 

The suit includes claims for breach of contract, breach of the implied covenant of good faith and fair dealing, wrong termination in violation of public policy, and declaratory relief."

 

Legal thoughts

The issues

From what we know so far, it seems the legal crux of this litigation will be whether West and Zampella were really in breach of contract to the extent that Activision was entitled to fire them in the manner it did.  West and Zampella, who are bringing the lawsuit, will need in effect to prove that Activision's claims regarding their "breaches of contract and insubordination" are wrong or, even if they are right, were not sufficiently serious to warrant them being fired (more on that below).  Several sensitive issues will have to be aired in court:
  • The West and Zampella employment arrangements with Activision, including their remuneration structure
  • Details regarding the commercial and personal relationships between West, Zampella, Infinity Ward and Activision
  • Infinity Ward's and Activision's business and management structures/practices
  • Details regarding the development of Modern Warfare 2 and its royalty arrangements
  • The alleged "breaches of contract and insubordination" - and Activision is going to need to explain exactly what it means by "insubordination" (which, as far as I am aware, has no specific legal meaning in either UK or US law)
In addition to the legal arguments, all of this will have to be backed up by disclosure of Infinity Ward/Activision documents and witness statements from West, Zampella, Infinity Ward and Activision personnel.  You can see that this is not going to be pretty.

A third way?

The wording of the last paragraph in the press release is interesting, because it refers to "breach of the implied covenant of good faith and fair daling, wrong termination in violation of public policy".

In my view, this suggests it is possible (but no more than that at this stage), that West and Zampella may have an alternative legal argument, i.e. that even if Activision is right regarding their "breaches of contract and insubordination" it was still legally unfair for Activision to fire them just before their royalty payments were due to be paid.  If that argument has legal force under Californian law, and is accepted by the Californian court, then in principle West and Zampella could seek to claim their royalty payments even though Activision may have been right to fire them.

What does this mean for Modern Warfare?

The press release also states the lawsuit was commenced to "vindicate...the contractual rights Activision granted to West and Zampella to control Modern Warfare-branded games."

This is potentially explosive: West and Zampella are arguing they have contractual creative control over the Modern Warfare brand.  The details will have to come out in the litigation, but it could see West and Zampella demanding a veto over Modern Warfare 2 DLC as well as any other Modern Warfare games.  It will be interesting to see how aggressively Ward and Zampella pursue this claim.

What does this mean for Activision?

The short-term prognosis at this very early stage does looks challenging.  Activision faces a high-profile, high-value lawsuit from hostile plaintiffs which is likely to stay in the spotlight for some time.  Worse, unless it can get rid of the lawsuit quickly, Activision faces lingering legal doubt as to whether West and Zampella retain creative control over Modern Warfare.  And, worst of all, this will mean the industry watching very carefully what it does next and how it relates with developers in the future.

On the other hand, it's quite possible that Activision could score a convincing and early legal victory.  We'll have to see.

What next?

In the meantime, this lawsuit isn't likely to go anywhere anytime soon.  We can expect to receive a rival press release from Activision in the near future, following which the next stage will be the parties preparing their detailed legal cases (which will also probably be made public).  As always, watch this space...

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Obligatory legal stuff:

© Jas Purewal 2010. Gamer/Law and this post are intended only as a means of bringing news of games and technology law and practice to its readers; it is not intended to provide legal advice and is no substitute for it. If you'd like to contact us concerning the contents of this blog or any other games or technology law-related topic, you can email here or tweet GamerLaw.  Thanks.

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