Exclusive: Activision, Codemasters Tangle Over Fall Of Liberty

Author: by Jeff Fleming, Staff

Through in-depth analysis of legal documents, Gamasutra has unearthed a fascinating, now settled secret battle between Activision, Codemasters and Spark Unlimited over Turning Point: Fall Of Liberty, the alternative World War II action title which Activision claimed could infringe on the rights to Call Of Duty. This investigation follows up and concludes the previous article about Activision and Spark's acrimonious lawsuit over their multi-title contract for Call Of Duty: Finest Hour and further Spark-developer games. Some of the key points which are expanded on below: - In the controversy over royalties for Call Of Duty: Finest Hour, Spark’s lawyers quoted an internal Activision email in which an executive stated, “[Spark] will not be seeing a royalty check from me. I think this means that we’ve essentially replicated the ‘scorched earth’ scenario… royalty reductions [are] locked in, as [is Activision’s] ability to make them recoup against every expense known to man.” - After Codemasters and Spark's deal for Fall Of Liberty was announced, Activision added Codemasters to the expanding lawsuit, revealing that: "Spark and its counsel had stated under oath that neither of the two games it is presently developing are ‘World War II’ games.”" - Activision however claimed: “Spark is developing a World War II first person shooter game that is directly competitive with Finest Hour. Spark’s use of the ‘Background Materials’ to develop this game is expressly forbidden by the Development Agreement.” The firm's lawyers also contended that Spark was “infecting its current games with Activision’s intellectual property.” Spark Unlimited has denied these claims. - In his statement to the court filed on January 25, 2007 Codemasters’ Vice-President of Corporate Strategy William George West, Jr. said, “Codemasters to date has paid Spark in excess of $3 million to develop Fall of Liberty, and anticipates spending in excess of an additional $5 million to complete the game.” He continued, “Codemasters currently anticipates that Fall of Liberty will produce more than $50 million in sales.” - With Turning Point: Fall of Liberty’s release coming in less than a year and the possibility of a lengthy jury trial looming, Activision and Spark finally had the motivation to resolve the long running dispute. On March 29, 2007 a request for dismissal was entered into the court’s records and according to Activision’s law firm Irell and Manella LLP, “the parties achieved a confidential settlement.” The nature of the settlement, including who paid whom, has not been revealed, but Gamasutra presents our full research from multiple legal documents below. --- Originally Spark Unlimited, a newly formed, independent game development studio, was contracted to provide three games for Activision. The first would be Call of Duty: The Finest Hour; a console entry for the publisher’s expanding WWII based FPS franchise. The second and third game would be either sequels to Call of Duty or a new IP. Despite an enthusiastic start, work on Call of Duty: Finest Hour was troubled and slow. By the time the game was released late in 2004, the relationship between Spark and Activision had eroded, undermined by legal difficulties, cost overruns, and delays. All future projects between the two were cancelled, with Activision instead commissioning Grey Matter and Treyarch to create a sequel to Finest Hour titled Call of Duty 2: Big Red One. Spark subsequently began work on a new game for Codemasters called Turning Point: Fall of Liberty, a first person shooter set in an alternate past in which Germany invades America. However, there was a Development Agreement still binding Spark with Activision and the question of its termination remained unresolved. Although the Agreement was intended to carefully delineate each company’s rights and responsibilities, the document was a patchwork of ambiguous terms, errors and amendments that would instead fuel an extended legal dispute between the two. With both sides making allegations of fraud and breach of contract, the argument became so contentious that it would ultimately entangle Codemasters and threaten the release of Turning Point: Fall of Liberty. Breaking Up Is Hard To Do In the fall of 2004 the working relationship between Spark and Activision came to an end after Spark’s Call of Duty sequel proposal was rejected. In an email sent to Spark in October of that year, Activision stated, “[We are] releasing Spark from any obligations under our agreement to make future products for Activision.” Spark felt that their proposal had not been given fair consideration and in a lawsuit accused Activision of negotiating in bad faith as well as failing to provide the bridge funding that was needed to cover Spark’s overhead and salaries during the negotiation period. This became a critical issue for Spark when two former employees subsequently filed a lawsuit against the developer seeking unpaid wages from the months following the split from Activision. Activision responded with a lawsuit of their own, accusing Spark of fraudulently misrepresenting their ability to deliver an “AAA-quality” title. Activision further alleged that Spark deliberately submitted an unacceptable sequel proposal in hopes of being rejected so that they might secure a better offer from some other publisher. Scorched Earth The dispute widened in 2005 after Spark found that its royalty payments from Activision on Call of Duty: Finest Hour sales were substantially reduced by developer assistance charges. In Spark’s Fifth Amended Complaint filed with the Los Angeles Superior Court in 2006, they claimed Activision pressured them to sign the amendment to the Development Agreement that reduced the royalty rate. This amendment was allegedly presented to Spark as way of freeing up more money for a “huge, AAA marketing campaign during the holidays” that would result in higher sales figures. According to Spark’s lawyers, “[Activision] specifically stated that this would mean more royalties for Spark.” However, Spark claimed that despite Call of Duty: Finest Hour reaching over $120,000,000 in sales, the developer “has not seen a single penny in royalties.” Spark’s lawyers quoted an internal Activision email in which an executive stated, “[Spark] will not be seeing a royalty check from me. I think this means that we’ve essentially replicated the ‘scorched earth’ scenario… royalty reductions [are] locked in, as [is Activision’s] ability to make them recoup against every expense known to man.” Turning Point Attempts at mediation broke down in 2005 and the lawsuit wore on. Activision asserted its right to inspect Spark’s premises and remove any Activision property that might remain. Spark resisted, claiming that all of Activision’s hardware and software had been returned. Despite its difficulties, Spark announced a development agreement with Atari and continued work on two new games that would come to be known as Pandora and Turning Point: Fall of Liberty. Although little is known about Pandora other than it will utilize AGEIA Technologies’ PhysX hardware-based physics accelerator, [UPDATE: 'Pandora', which is not World War II-related, has now apparently morphed into Legendary: The Box, to be published by Austin-based Gamecock] Turning Point: Fall of Liberty was officially announced in August of 2006 by the U.K. based publisher Codemasters. This prompted Activision to file a Second Amended Cross-Complaint in December of 2006 in which the publisher sought an injunction against the release of Turning Point: Fall of Liberty. Activision claimed that Spark was using “Background Materials” in the production of Turning Point: Fall of Liberty that were jointly owned by Activision and that the Development Agreement precluded Spark from using them in another game. As the original Development Agreement stated, “[Spark] shall not have the right to use any such Background Materials in the development of any entertainment software product for third party if such entertainment software product is directly competitive with any of the Products [i.e. Call of Duty: Finest Hour].” In its demand for a jury trial Activision stated, “On November 15, 2005, Spark’s counsel represented in Court that Spark is ‘working for Atari now,’ and used this as an excuse to prevent Activision from inspecting Spark for Activision property improperly held by Spark. Later, Activision learned that this representation was untrue and that Atari had terminated its agreement with Spark in early October 2005. Although Spark admitted that one of its current games, Pandora, is in the first-person shooter genre like Finest Hour, Spark and its counsel had stated under oath that neither of the two games it is presently developing are ‘World War II’ games.” Activision further asserted, “Spark is developing a World War II first person shooter game that is directly competitive with Finest Hour. Spark’s use of the ‘Background Materials’ to develop this game is expressly forbidden by the Development Agreement. Spark’s other game, Pandora, is also directly competitive with Finest Hour as both are ‘first person shooter games’.” Defining and identifying these Background Materials was more problematic. According to Activision, “certain materials independently developed by Spark during the development of Finest Hour, such as generic art and sound assets, are considered Background Material.” These included “over a thousand digital images that are owned by Activision and which it provided to Spark for use in Finest Hour.” Spark’s lawyers replied, “As a practical matter it would be impossible to identify which of the tens of thousands of digital photos from Call of Duty: Finest Hour have been ‘used’ by Spark. Artists access numerous photos every day in the development and use the Maya application without leaving any record. Moreover, as noted above, when the artist pulls up the photo the photo is not labeled a Call of Duty: Finest Hour photo and there is no reason to believe they would be able to distinguish one photograph of a texture, like concrete, from Call of Duty from another photograph of concrete from one of the other projects.” Activision contended that Spark was “infecting its current games with Activision’s intellectual property.” Further, Activision believed that Spark had begun work on Pandora and Turning Point: Fall of Liberty prior to the end of the Development Agreement. Carrying the argument to its logical and extreme end, Activision claimed, “Because Spark developed its current games during a time when the Development Agreement was still in effect and Spark was obligated to work exclusively for Activision, Activision is the owner of the games currently being developed by Spark, including all Intellectual Property, Underlying Properties, and Product Technology.” Continuing, “Activision will seek a permanent injunction preventing the release of any games, including the games currently entitled Pandora and Fall of Liberty.” Dog Fight This was a surprise for Codemasters who were already making plans for Turning Point: Fall of Liberty’s release in the fall of 2007. Scrambling to fight the potential injunction, Codemasters’ lawyers said, “Codemasters had no dog in this fight until last month when defendant Activision was granted leave to file its Amended Cross-Complaint. However, it does now.” In his statement to the court filed on January 25, 2007 Codemasters’ Vice-President of Corporate Strategy William George West, Jr. said, “Codemasters to date has paid Spark in excess of $3 million to develop Fall of Liberty, and anticipates spending in excess of an additional $5 million to complete the game.” He continued, “Codemasters currently anticipates that Fall of Liberty will produce more than $50 million in sales.” He further stated, “Codemasters believes that if Spark loses the current litigation, Spark will be financially ruined thereby making any indemnity claims Codemasters might have against Spark worthless and causing all of Codemasters’ investment in Fall of Liberty to be lost.” As Spark’s lawyers emphasized, “the significance of the impact on Spark’s business by the mere presence of this claim in this lawsuit cannot be overstated. It literally has the potential to drive Spark out of business.” Armistice With Turning Point: Fall of Liberty’s release coming in less than a year and the possibility of a lengthy jury trial looming, Activision and Spark finally had the motivation to resolve the long running dispute. On March 29, 2007 a request for dismissal was entered into the court’s records and according to Activision’s law firm Irell and Manella LLP, “the parties achieved a confidential settlement.” Codemasters has scheduled Turning Point: Fall of Liberty for a 4th quarter 2007 release on the PlayStation 3, Xbox 360, and Games for Windows.