Monday, March 08, 2010


There are some interesting bit of information in the lawsuit filed by Jason West and Vince Zampella after their termination last week by Activision. Let's take a look.

First, here's a useful lense going forward, provided by an attorney with experience in employment law who wishes to remain anonymous:
To help you wade through the inevitable PR storm, I can offer you the following rule of thumb that has served me well when considering these sorts of situations. When monetary or near-monetary compensation is being discussed, believe the employees. When anything else is being discussed, believe corporate.

So, if Activision says West and Zampella were arrogant jerks that everyone hated working with but West and Zampella say they were model employees who were screwed out of promotions for no reason, the smart money says that West and Zampella were, at the very least, not workplace favorites. But if West and Zampella say Activision screwed them out of millions of dollars in stock options and bonuses, and Activision says they adhered to the contracts to the letter, I'd predict an "undisclosed settlement" for "far less than the alleged damages" wink wink, nudge nudge. That's not true in every case obviously, but it's usually a good place to start.

Okay, let's move on to the lawsuit. First off, I'm amazed by the hyperbolic language used in lawsuits.

Oh, great--I just started with an aside. And now I've added a comment about the aside. Yes, my focus is razor sharp.

Allegedly returning to the lawsuit now (please not that all bolded sections my emphasis), the first section that made me take notice started on page seven (full scans of the lawsuit here. West and Zampella, according to the lawsuit, were "not as eager" as Activision to begin development of Modern Warfare 2. Several reasons were listed (creative burnout, the schedule, interference from Activision, etc., but this was the most interesting):
West and Zampella were not eager to extend their employment; especially as they watched their games receive countless awards and make Activision billions of dollars, while many Infinity Ward employees were not being provided a fair share.
Note the reference to other employees of Infinity Ward. In the very next paragraph, though, we get this:
Ultimately, Activision offered West and Zampella sufficient additional compensation to induce them to continue as co-heads of Infinity Ward and to work on Modern Warfare 2.
That additional compensation, as stated in a Memorandum of Understanding between the parties, was this:
In addition to the standard and bonus compensation in the Employment Agreement, Activision agreed to pay Plaintiffs and the Infinity Ward studio additional cmpensation, including a pool of Restricted Stock Units, stock options, a royalty for any Call of Duty game, a technology royalty for any Activision game taht makes significant use of Infinity Ward technology, and a royalty for Modern Warfare 2 and future titles.

That seems like quite a concession, but given the kind of money Activision was making from the COD series, it may have only been a drop in the bucket. There's more in the MOU, though:
First, the MOU gives West and Zampalla creative authority over the development of any games under the Modern Warfare brand (or any Call of Duty games set in the post-Vietnam era, the near future or the distant future) including complete control of the Infinity Ward studio. the MOU explicitly states that no such game can be commercially released without the written consent of West and Zampella.
Second, the MOU gives West and Zampella the right to operate Infinity Ward independently and to choose to develop new intellectual property after they completed Modern Warfare 2.
Those seem like huge concessions to me, and allowing them to develop new IP (which, anywhere besides Activision, would seem like a great idea) raised the possibility of FURTHER concessions if Activision wanted Infinity Ward to pump out Modern Warfare 3 instead.

This seemed like a "delay the future" strategy--do whatever you have to do at the corporate level to get another franchise game developed. And they did, and Modern Warfare 2 sold three copies to every man, woman, and child on Planet Earth, or close to it.

Now, cue the dark and stormy music:
In the wake of Modern Warfare's 2 success, Activision chose not to honor the MOU or the Employment Agreement with West and Zempella. Activision chose, instead, to launch a pre-textual investigation against West and Zampella to create a basis to fire the two co-heads of Infinity Ward before the first Modern Warfare 2 royalty payment would be paid in the ordinary course, on March 31, was clear that the purpose of the investigation was not to uncover any facts concerning any actual wrongdoing, but to manufacture a basis to fire West and Zampella. Activision refused to tell either West or Zampella what specific acts or omissions Activision believed 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.
...Activision investigators brought other Infinity Ward employees to tears in their questioning and accusations and threatened West and Zampella with "insubordination" if they attempted to console them; Activision's outside counsel demanded that West and Zampella surrender their personal computers, phones, and communications devices to Activision for review by Activision's outside counsel and, when West and Zampella asserted their legally protected privacy rights, Activision's counsel said that doing so constituted further acts of insubordination.
Activision, after the investigation, presented a Notice of Discharge to West and Zampella:
It contained charges that were disproved in the investigation; included events that West and Zampella were never even asked about during the investigation; identified conduct that other Activision executives engaged in with impunity; and cited "insubordination" and alleged conduct from other a year ago, while West and Zampella were working on Modern Warfare 2, and that never led Activision to either investigate, or discipline them, or terminate them, but that, after West and Zampella delivered Modern Warfare 2 to Activision, the company now attempts to use as a basis to refuse to pay them what they have earned.
Here's the actual legal claim:
Defendant has breached the provisions of the MOU and the Employment Agreement by, among other things: (a) terminating Plaintiff's pre-textually, in bad faith, and without proper cause; (b) refusing to pay the compensation owed to Plaintiffs; and (c) refusing to recognize Plaintiff's rights to exercise creative and other contractually-granted control over the Modern Warfare brand and any Call of Duty game set in the post-Vietnam era.
The exact damage claim is unspecified, but is stated to be "in excess of $36 million."

And here's another claim, and in its details, it's a doozy:
An actual controvery has arisen...between Plaintiffs and Defendant concerning their respective rights and duties under the MOU and the Employment Agreement. Plaintiffs contend:
a)...Plaintiffs continue to maintain creative and other contractually-granted control over all games under the Modern Warfare brand.
b) That Defendant may not commercially release another Modern Warfare game (or Call of Duty game set in the post-Vietnam era, near future or distant future) without the written consent of West and Zampella.

It goes on to say that even if the termination was legitimate, West and Zampella are still owed "all royalties earned and/or vested by March 1, 2010, including Plaintiffs' shares of all royalties for any game developed prior to March 1, 2010. Also, since the termination wasn't legitimate (I know--they're covering all the possible situations), Activision also "owes all royalties not yet earned or vested, if any."

So WTF is the real takeaway here? It's that West and Zampella are attempting to hold the Call of Duty/Modern Warfare brands hostage until they reach an acceptable settlement with Activision. That's their hammer, and it's huge. If Activision is legally unable to release a game with "Call Of Duty" or "Modern Warfare" in the title until this is resolved, then they have to settle, and the plaintiff's clearly know that.

So if those concessions actually are in the MOU, I think Activision has painted themselves into a corner, regardless of the merits of the claims in the lawsuit.

Activision is claiming both that the lawsuit is meritless and that West and Zampella were secretly negotiating with EA, so the only out I see for them is if the contract or the MOU specifically contain a clause voiding the contract if negotiations are entered into with other companies by the plaintiffs. It may, because if it didn't, there'd be no reason for Activision to even mention it in a response to the lawsuit.

Unless something very strange happens from here, I think it's fairly simple to see the outcome of the lawsuit:
--first, it never goes to trial. No chance.
--two, the settlement gives all rights to the COD/MW brands back to Activision.
--three, in exchange for that concession, Activision agrees that West and Zampella can create a new, competing brand with another publisher (which was probably prohibited by their contract, hence the need for the concession)
--four, West and Zampalla get a big fat cash settlement, and I think $36M is a decent starting point, since it's the only dollar figure specifically mentioned.

Any other outcome would seem to be suicidal for one side or the other.

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