5 Most Influential Video Game Lawsuits of 2012: Pt.1

The video game industry isn’t a cult fad anymore. It’s a multi-billion worldwide enterprise, and along with its success comes legal risk to those who create and deliver the games that feed this ever-growing, ever-changing industry. As we enter a New Year, it’s important to learn whatever lessons we can from the noteworthy video game conflicts of 2012. 

So here's Number 5: West and Zampella v. Activision,which began in 2010 and finally settled this year.

Number 5
West and Zampella v. Activision

The Conflict:  This multi-party legal battle began in March 2010, when game publisher Activision fired two key employees, Vince Zampella and Jason West, the founders of Infinity Ward, the game development studio behind Activision’s $7 billion franchise Call of Duty. [1] West and Zampella sued, [2] complaining that they were unjustly fired in an effort by Activision to avoid paying out millions of dollars to them in royalties, in accordance with their employment contracts and a later amended Memorandum of Understanding. West and Zampella initially claimed damages of $36 million, but the amount was later amended to $1 billion [3] for Breach of Contract, Breach of Implied Covenant of Good Faith, Wrongful Termination, and Declaratory Relief. 

Activision quickly filed a cross-complaint against them for  Breach of Loyalty, Breach of Employment Agreements, Breach of Contract—Memorandum of Understanding, Breach of Implied Covenant of Good Faith, and Declaratory Relief, claiming West and Zampella were insubordinate, self-serving schemers. [4] 

In December 2010, Activision added Electronic Arts to its now $400 million cross-complaint, alleging that executives at the highest levels within EA had engaged in unlawful conduct when, with the help of Creative Artist Agency, they assisted West and Zampella in establishing Respawn Entertainment, which began developing games for EA. [5] 

The legal web tangled further when forty former Infinity Ward employees filed suit against Activision, demanding hundreds of millions of dollars in bonus payments and royalties for Activision’s failure to pay them royalties on Modern Warfare 2.
 
For two years the parties engaged in a legal battle of paperwork and motions that revealed  questionable practices on all sides. According to court documents, prior to firing West and Zampella, Activision had instructed IT Director Thomas Fenady to dig up dirt on the two in an effort to find grounds to terminate their employment [6] The plan, dubbed Project Icebreaker, included an attempt to hack into Infinity Ward's computers, and while it was unsuccessful it nonetheless put Fenady and others in compromising positions. [7] Equally interesting was Electronic Arts’ questionable efforts to recruit Zampella and West, going so far as sending a private jet to transport them to a meeting with EA's CEO, John Riccitiello. [8] 

The Settlement: On May 31, 2010, the day the trial was to begin, West and Zampella announced that they had finally resolved their dispute. While the settlement details were not disclosed, Activision confirmed that it paid out an unspecified amount to the duo, stating that the one-time charge would not materially affect its earnings. [9] EA and Activision had settled their dispute two weeks earlier, with little or no money changing hands.[10] Activision also settled the lawsuit with the former employees at that same time, paying out $42 million in unpaid bonuses. [11]

Why it’s important? West and Zampella v. Activision represents the extreme of an employee-employer relationship gone wrong in the entertainment industry. With billions of dollars at stake, greed sometimes clouds the vision of reasonable people. Taking a step back, behavior on both sides appears, at times, underhanded. Evidence shows that West and Zampella held back an Activision project in order to allow Electronic Arts to release Battlefield: Bad Company 2. [12] They also began negotiating an agreement with Electronic Arts two years prior to the expiration of the term of their employment agreement—which is a long time even given the circumstances. Yet, according to court documents, Activision was actively trying to find a way to fire them. Evidence also indicates that Activision was clearly motivated by money, believing that the employment agreements they made with the two were too rich.

Electronic Arts’ hands were equally unclean. They recruited a top talent agency to secure relationships with West and Zampella, and one can reasonably speculate that the exclusivity of the developers' employment with Activision had to have come up. So why did EA continue? Perhaps West, Zampella, and EA knew ahead of time that Activision was looking to fire the two developers? Was it West and Zampella’s way of protecting themselves, their families, and their creative content? Was Activision’s conduct as distasteful as it appears, or were they only trying to protect their biggest franchise and other Activision employees?

What it means to the industry? What is clear to us now is that parties within the video game industry have the ability to go to surprising lengths to protect lucrative franchises. West and Zampella v. Activision quickly spiraled into a multi-billion dollar lawsuit, sweeping into its path forty former employees and one of Activision’s biggest competitors, Electronic Arts. While it ultimately settled out of court, we know that EA’s Medal of Honor franchise has so far failed to oust Activision’s Call of Duty despite EA's efforts to re-establish this directly competitive franchise, an EA goal since at least 2010. [13] In fact, reviews of EA’s latest version of Medal of Honor earned a meager 50 out of 100 on Metacritic’s aggregate review score. [14] In the meantime, according to IGN, Respawn Entertainment (West and Zampella’s new studio) has been quietly working on a sci-fi based first person shooter, scheduled to release in 2015. [15] The question begging to be answered there is whether the five-year delay was intentional or whether EA and Respawn had to develop from the ground up a new engine they hadn't planned on building.

Up next: Gate Five LLC v. Beyonce Knowles-Carter

See other blog posts at http://dlr-law.com/writings--pubs.html.

[1] According to Forbes, the Call of Duty franchise has generated more life to date sales than both Star Wars and Harry Potter movie franchises: http://www.forbes.com/sites/davidthier/2012/11/16/money-machine-call-of-duty-black-ops-2-rakes-in-500-million-in-24-hours/; Call of Duty Black Ops 2 generated $1 billion in retail sales in 15 days, while Call of Duty: Modern Warfare 3 generated $1 billion dollars 16 days, according to EuroGamer.net: http://www.eurogamer.net/articles/2012-12-05-call-of-duty-black-ops-2-makes-USD1bn-a-day-quicker-than-modern-warfare-3

[2] Copy of original complaint at: http://kotaku.com/5485703/ousted-infinity-ward-founders-lawsuit-against-activision-the-court-documents/gallery/1

[3] http://latimesblogs.latimes.com/entertainmentnewsbuzz/2010/03/fired-call-of-duty-developers-sue-activision-for-more-than-36-million.html. Later, petitioners Zampella and West, in claimed damages  of $1 billion after initial discovery: http://www.bloomberg.com/news/2012-05-15/activision-seeks-delay-as-warfare-trial-claims-hit-1-billion.html

[4] http://kotaku.com/5513734/activision-infinity-ward-gallery/gallery/1

[5] http://www.gamasutra.com/view/news/32159/InDepth_Activision_Adds_EA_To_400M_CrossComplaint_Against_West_Zampella.php#.UN9GE3PjkR4[6] http://www.gameranx.com/updates/id/6804/article/activision-tried-to-dig-up-dirt-on-former-employees/; http://articles.latimes.com/2012/may/31/entertainment/la-et-ct-activision-call-of-duty-lawsuit-settled-20120530

[6] http://www.gameranx.com/updates/id/6804/article/activision-tried-to-dig-up-dirt-on-former-employees/

[7] http://www.thesixthaxis.com/2012/05/17/kotick-accused-of-ordering-westzampella-computer-hack/

[8] http://www.gamespot.com/news/ea-added-to-activisions-zampella-west-suit-6286660[9] http://console-news.dcemu.co.uk/activision-vs-zampella-amp-west-case-settled-out-of-court-458932.html

[10] http://articles.latimes.com/2012/may/17/entertainment/la-et-ct-settlement-with-activision-call-of-duty-20120517

[11] http://www.escapistmagazine.com/forums/read/7.375207-Activision-Pays-Out-to-Former-Infinity-Ward-Employees

[12] http://www.eurogamer.net/articles/2012-05-23-activision-vs-west-zampella-lawsuit-docs-exhibit-b

[13] http://news.cnet.com/8301-13506_3-20024621-17.html

[14] Please note that Respawn did not work on the latest Medal of Honor. http://venturebeat.com/2012/10/30/ea-acknowledges-medal-of-honor-warfighter-sales-will-be-below-expectations/

[15] http://www.ign.com/articles/2012/02/07/report-respawn-entertainments-first-game-in-2013