Scratch Lawsuit: $6 Million Dev Costs, Legal Battle Over Source Code Revealed

Analyzing court transcripts from the Scratch trial, Gamasutra has uncovered a $6 million development cost to date for the game, plus intriguing discussions on legal definitions of tools vs. source code. From more than 30 pages of court reporter-transcribed details today, the Los Angeles Superior Court ended up ruling that 7 Studios needed to return DJ game Scratch's source code to original publisher Genius Products. Genius and Numark are embroiled in a complex legal battle over Activision and its newly acquired 7 Studios subsidiary. 7 Studios has been developing Scratch for Genius, but allegedly ran out of money and was acquired by Activision, which is planning rival game DJ Hero. In this early legal stages, the judge, Hon James. C Chalfant, was ruling on whether 7 Studios was required to return the full source code of Scratch to Genius, so that the publisher could (presumably) finish it using another game developer, in time to compete with -- or debut ahead of -- Activision's DJ Hero. Chalfant explained up front: "I don't think it matters who's at fault: if the contract has been terminated and there's a duty to return [the source code], then there's a duty to return. The damage for breach is up to the underlying lawsuit." He added: "So it seems to be that then we're talking about a mandatory injunction to return things that are not particularly well defined." Activision's lawyer then weighed in on comments made by Genius' Michael Rubinelli in a recent filing, where he apparently commented: "If we do not get the game assets requested today, our intended ship date in September will be virtually impossible to achieve." Early on in the day's proceedings, Activision agreed to a 'wall-off' -- preventing 7 Studios from disclosing or discussing the game code or Scratch trade secrets with Activision or any other third party, commenting: "I don't mind a wall-off because the truth is - and we will get declarations - there has not been any information divulged." As the judge pointed out, this actually would be a good idea for Activision too, since DJ Hero is in development - he noted: "If you [Activision] get tainted, then your game gets tainted, and then they [Genius] wind up owning both games." From there, it was into a complex discussion of what needed to be returned and the circumstances under which the 'return' clause was invoked. Interestingly, it seems that Genius first asked for their code back under the following clause: "Recent events have confirmed that [7 Studios] is insolvent and is unable to deliver the gold masters." However, they withdrew this after Activision bought 7 Studios, and have simply terminated the agreement under another more straightforward clause, simply invoking their option (albeit disputed by Activision) to stop the game's development. As Judge Chalfant explained: "It is actually very straightforward. They hired you; they have terminated the deal; their agreement requires return of materials." In the course of this, Genius' lawyer revealed that the company has paid $6 million for 7 Studios to work on the game for 18 months, the first time that a development budget (to date) was revealed. The budget would have been extended past that through completion. Also tantalizingly mentioned in the filing was a possible indication that Activision and Harmonix have settled their lawsuits quietly over Rock Band and Guitar Hero and pooled patents. The patents were mentioned as part of a discussion Genius and Activision had over whether Genius could release Scratch independently. Notably at this point, Judge Chalfant interjected: "I didn't know video games could be patented" -- but they certainly can be. But the reference that Activision and Harmonix patents might have been pooled was oblique -- and the previous filing only mentioned Konami's patents. [UPDATE: For clarity, the exact reference, including possible misspelling, reads as follows: "What [Activision exec] Mr. Deutsche said was that there are patents that we have -- Activision has -- and there are patents that we have gotten from Harmonica [sic] and other companies, and these patents are -- we believe -- violated by your game."] [UPDATE 2: Having followed up with MTV/Harmonix, a Rock Band spokesperson, when asked whether Activision and Harmonix had settled or pooled patents on the music game genre, simply replied: "No comment."] From there, with the judge having decided that the 'source code' did indeed need to be given back to Genius and Numark, a key issue was discussed - what constitutes source code? Does 7 Studios have to give out developer's tools as well? According to one of the lawyers, the engine used for the project is: '7 Core - including pre-existing and future iterations in a multi-platform 3D Game engine.' It includes the potential use of third-party tools such as Havok Physics, FMod, Lua, and ShaderFX. Likely even more vital to complete the game are a number of proprietary tools used the generate or convert the game's assets. The judge concluded on this: "If your source code includes your pre-existing tools and technology, then you have to give it to them. If the source code does not include that, then you don't have to give it to them in the next five days..." Further argument about whether developer tools need to be included continued, given an obvious grey area. Judge Chalfant re-iterated: "If the source code incorporates something from the pre-existing tools and technology, you have to turn it over." He continued: "That doesn't mean that you don't still own your pre-existing tools... but if they are incorporated in the source code, it belongs to the plaintiff." Of course, the confusing question here -- and one that will presumably come up again -- is one that the judge asked to the lawyers present: "It is mandatory that they license their pre-existing technology to you when they give you the final product?" Both lawyers agreed they couldn't answer that question. Activision's lawyer then concluded by pleading: "It's unclear whether we're being asked to turn it over in a sort of escrow sense, or are they allowed to now use it for any purpose?" Judge Chalfant's firm answer, when making a final ruling that 7 Studios must give the 'source code' back to Genius and Numark: "The answer is they can use it for any purpose. It is theirs. It belongs to them. They paid six million dollars for it. I'm done."