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Analyst: West, Zampella EA Deal 'The Ultimate Screw-You' To Activision

The only risk for EA in backing West and Zampella's Respawn Entertainment is the likelihood that Activision will try to sue claiming the pair took trade secrets with them, says Wedbush analyst Michael Pachter.
In backing former Infinity Ward heads Jason West and Vince Zampella's Respawn Entertainment this morning, Electronic Arts may be inviting yet another IP lawsuit from Activision, suggests Wedbush analyst Michael Pachter. EA won't face any risk on the current lawsuits between West, Zampella and Activision, Pachter says. "They can argue about money forever, but Activision cannot keep [West and Zampella] from working," the analyst says. Noncompetition agreements are typically voided when employees are fired, and even if a court finds wrongdoing, it's up to West and Zampella to pay: "It's not EA's problem," says the analyst. But Activision could try to build a case that shows West and Zampella developed their ideas for the current project while still employed at Infinity Ward, and that it's thus entitled to some share of the new property. "There is risk if there's some kind of trade secret, and Activision will say that," says Pachter. "If Activision has any kind of smoking gun to prove [West and Zampella] developed something while on the payroll at Activision and then it shows up in the new game, that's a problem." That was effectively the basis of Activision's lawsuit aiming to block Brutal Legend, the analyst says: "'Hey, you formed this on our watch', [even though] Activision terminated it." "Other than that, I see no risk to this at all," says the analyst. "This is the ultimate screw-you to Activision -- and the ultimate screw-you to EA," he adds, recalling how the pair left EA and the Medal of Honor franchise claiming they were worth more money. "By going to EA now and getting paid up, they say, 'you're finally paying us what we're due,'" says the analyst. "EA are being the bigger people here. They're not wounded at all by the fact that they lost these guys and the Medal of Honor brand deteriorated." Pachter believes it's worth noting that Respawn's official announcement has a quote of endorsement from EA Games boss Frank Gibeau, not EA Partners' David DeMartini. "It implies that this is a richer deal for EA, meaning a bigger profit share as opposed to a straight distribution deal." Pachter agrees with this morning's report in the LA Times and consensus from Gamasutra sources that EA is likely to be actually funding the development of the game. And West and Zampella don't stop being cash cows without the Modern Warfare brand -- "It is perfectly legal to advertise 'from the people who brought you Modern Warfare 2,'" Pachter points out. "These guys will absolutely use the Modern Warfare brand in advertising; EA will do that." "Whatever they make is pretty likely going to be looked upon favorably by the hardcore, because everybody wants to see Activision do badly and see these guys succeed." Lazard Capital Markets analyst Colin Sebastian also sees a net gain: "We view today’s development as positive for EA over the longer term, as it brings to the company new games created by two of the industry’s top developers, although the timetable for release could extend out 2-3 years from now," he says, noting that West and Zampella "appear to have the Midas touch." "More important for Activision, in our view, will be managing Call of Duty so as to avoid the fate of Medal of Honor – the EA franchise that languished following the departure of key developers," Sebastian concludes.

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