Monday, April 12, 2010

Lawsuit (part two)

On March 8, I wrote about the lawsuit filed by Jason West and Vince Zampella after Activision terminated the co-heads of Infinity Ward.

Contractually, West and Zampella made these claims:
1. A Memorandum Of Understanding was agreed upon to induce IW to begin development of Modern Warfare 2. Inducements included:
--additional compensation
--a royalty for any Call of Duty Game
--a technology royalty for any Activision game using IW technology
--a royalty for Modern Warfare 2 and future titles.
--creative authority over the development of any games under the Modern Warfare Brand, or any COD games set in the post-Vietnam era, the near future, or the distant future
--no such game (as defined above) can be commercially released without the written consent of West and Zampella.
--complete control of the Infinity Ward studio.
--the right to choose to develop new IP after completing Modern Warfare 2.
2. West and Zampella were terminated without cause.
--because the termination was without cause, West and Zampella are owed an assload of additional royalties. Their estimate: 36 million.

That's not everything in the lawsuit, but I think it's everything that matters in a legal sense. West and Zampella claimed wrongful termination, and also claimed that they essentially have complete control of the Modern Warfare brand.

On Friday, Activision countersued. It's impossible to precisely map the claims versus the counterclaims, but here's a summary of what Activision claims:
1. West and Zampella engaged in a pattern of conduct that was designed to "steal" the Infinity Ward studio from Activision.
2. In 2003, in exchange for Activision purchasing the remaining 70% of IW's common stock, both West and Zampella entered in exclusivity agreements with Activision, including the following requirements:
--refrain from competing with Activision during the term of employment
--all rights to all IP "produced, created or suggested" by West or Zampella during the course of employment related in any way to their work with Activision would be the sole property of Activision.
--all confidential/proprietary information received would be kept confidential.
--no solicitation of Activision employees for two years following the termination of employment.
3. These contracts were extended in 2008 to 2011, with additional compensation given.
4. The Memorandum of Understanding included:
--that IW would develop Modern Warfare 2 in time to release the game by November 15, 2009.
--additional compensation and profit sharing was offered to West and Zempella for Modern Warfare 2 and other Call Of Duty games.
--the non-solicitation provision was extended to three years, whereas previously it had been two.
5. West and Zampella breached their contract, including:
--threatening to halt production of MW2 during a "critical final stage" to "gain further leverage" in their contractual relation with Activision in an attemp to "wrest control" of the COD franchise and IW studio from Activision.
--openly discussing their plans for an independent studio with IW employees, and "impeded Activision's efforts to provide IW employees with additional incentive compensation so as to further the (mis)perception that Activision was not "taking care" of IW employees."
6. West and Zampella attempted to negotiate a deal to leave Activision
--they retained an agent "to search for opportunities for them to leave Activision's employ and compete with it."
--they attempted to hide their actions in regard to "covertly copying certain materials."
--they secretly contacted the CEO and "other senior executives" of Activision's largest competitor.
--they told Activision they wanted a "level playing field" in regards to recruiting former IW employees.
7. West and Zampella attempted to "block IW employees from receiving significant equity grants, bonuses and financial compensation and incentives they deserved." They did so to make it appear that Activision was treating the umployees unfairly.
8. West and Zampella "are not entitled to any further compensation from Activision, and must return sums already given to them during the period of their disloyalty, including equity obtained pursuant to the Activision, Inc. 2002 Incentive Plan."

Here's what Activision wants:
--West and Zampella prohibited from soliciting Activision Employees for the period of time specified in their contracts and MOU
--no further compensation, and must return certain equity gained in the past.
--prohibited from using any Activision confidential information in any manner.

Basically, in addition to the relatively insubstantial hoo-ha of lawsuit language, Activision's primary claim is that West and Zampella were actively negotiating with a different studio, planning to leave, and planning to take the studio's most valuable employees with them. They pursued this agenda to the point that they were trying to delay financial compensation to other studio employees (and blaming Activision for the delay) in hopes that it would encourage them to leave.

Okay, let's get to brass tacks.
1. Clearly, Zampella and West were negotiating with EA in violation of their employment agreement with Activision.
2. Also clearly, they were planning to take some IW employees with them, also in violation of their employment agreement.
3. However, Zampella and West may have Activision by the balls when it comes to the Memorandum Of Understanding, because they claimed that it game them far-reaching control of the brand, essentially, and Activision doesn't seem to address that in a direct manner.
4. Zampella and West claim that they're owed a minimum of $36M, in addition to future royalties. Activision claims that not only are they not due additional royalties, they actually owe Activision money from the point at which they violated their employment contract.

Now, more news this morning. West and Zampella announced a new company called Respawn Entertainment, and EA is going to publish their games, but Respawn is retaining all intellectual property. Oh, and they're giving Respawn "several million dollars in seed capital."

Again, I would be stunned if these lawsuits ever actually make it to trial. Based on what's happened in the last few days, this seems to be the most logical outcome:
1. West and Zampella drop all claims to the Modern Warfare brand
2. West and Zampella drop all claims to additional compensation, including future royalties
3. Activision drops the non-compete claim, allowing W and Z to make competing games
4. Activision drops the claim that West and Zampella owe them money
5. As to the poaching of IW employees, I have no idea how that gets parsed into an agreement.

To me, that Activision countersuit was about ensuring control of the Modern Warfare brand by threatening West and Zampella by claiming they owed Activision significant amounts of money. So even if W and Z claim that they have a mountain of unpaid royalties etc., Activision just claims that they're not due from the moment they breached the employment contract.

It's possible that West and Zampella might be willing to press forward in court, if they calculate that the possible reward in future royalties is worth the cost of the lawsuit, but it no longer sounds like a slam dunk (I originally thought they had a strong claim for at least some portion of the $36M they claimed was due).

One thing I haven't seen: current or former Infinity Ward employees talking about what great guys West and Zampella are and how terrific it was to work for them. Not one.

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