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Lawsuits are increasingly a fact of life in the games industry and can be serious threat to a business unless handled properly. In this post, lawyer Jas Purewal talks about what developers/publishers can do when faced with a games lawsuit.
[This post is reproduced from http://www.gamerlaw.co.uk, a blog about the games industry and games law]
This is a post for games developers and publishers about lawsuits and what you can do when you face one.
Lawsuits are a fact of life in all businesses, the games business included. Lawsuits can come out of virtually anywhere: a disgruntled consumer, a rival looking to get ahead, a business partner who thinks you've breached your contract with them, the list goes on. If you are very lucky, you might avoid having to have anything to do with a lawsuit, but it's more likely than not that at some point you will have to get involved. If so, then you might find useful the following summary about what to do and what to think about. It's primarily aimed at what to do if you are faced with a lawsuit, but it applies just as well if you are thinking of bringing a lawsuit against someone else.
So, what do you do?
(1) Get legal advice early
There's no way around it: the only sure way to know if you are facing a strong or weak lawsuit is to talk to a lawyer about it (preferably a disputes specialist).
Yes, that involves some money, but experience shows that a little legal advice early on could save you a lot of money later on. Besides which, some lawsuits can be a serious threat to a business and so they should be treated as such.
Of course, maybe the lawsuit is obviously without merit or has a small monetary value, meaning that throwing a lot of money at the lawsuit may not be worth it financially. If so, then perhaps it can be handled by a lawyer on a reduced-rate or possibly even pro bono basis (if yours is a sufficiently worthy case) or, failing that, perhaps it could be dealt with by someone on the business side who has some legal experience (though that's not ideal, given how high-stakes and complicated litigation can be).
(2) Legal issues to discuss
Your lawyer will be able to advise you on:
(i) the legal strength of the lawsuit against you and what it could mean for your game/product/business.
(ii) the jurisdiciton for the lawsuit (i.e. in which country will the lawsuit take place and under what country's laws - this is pretty important, given today's globalised games industry and playerbase).
(ii) the prospects of success and your best/worst case scenario in terms of the possible outcomes.
(iv) how best to respond to the other side and what to say.
(3) Working out your strategy
Your lawyers will be able to work with you to figure out whether you should fight the lawsuit, stonewall it or settle it. Some key issues to discuss with them when formulating your strategy:
What is the cost/benefit analysis? In other words, what is going to cost the most - fighting, ignoring or settling the lawsuit?
Is there some commercial solution you can propose that will defuse the row? Would an early face to face meeting help?
If you're going to fight, have you got any counterclaim against the claimant? Could that give you any financial upside to the lawsuit?
Is there any 'floodgates' risk if you lose/settle the lawsuit (i.e. could more people come after you over the same issue?)
What is the commercial risk if you lose the lawsuit? (e.g. impact on trading partners or consumers)
What are the PR risks? Would it be a problem if/when the lawsuit became public and, if so, do you need to have a parallel PR strategy in place?
What resources would you need to devote to the lawsuit? In particular, would management need heavily to be involved?
If you are considering a quick settlement, when would be the best time to make the offer and what will you offer?
How are you going to keep control of your legal costs expenditure? (more on that below)
(4) The litigation process
Litigation goes through broadly three stages:
(i) initial phase/setting out the legal case;
(ii) second phase/evidence gathering, including document review, witness evidence and possibly the use of experts; and
(iii) third stage/preparing for and going to trial.
If and when it comes to the legal fight, your lawyers will be able to advise you what legal weapons are available to you. For example, if the lawsuit against you clearly has no merits at all, then you may try to have the case thrown out of court (known as 'strike out'). Or, if the lawsuit clearly has some muscle, then you might want to take steps to try to settle the claim early.
More generally, a lawsuit can go through many twists and turns during the litigation process (hence why litigation is often compared to a rollercoaster). Experienced litigators will tell you about unlikely cases that were ultimately won and of sure-fire lawsuits that somehow never made the grade. All of this means that litigation can be RISKY, so you can never take the result absolutely for granted (for this reason, many cases settle using ADR - more on that below). On the other hand, a judgment from a court is the best way of settling a dispute, particularly if it is a real threat to your business.
(5) Alternative dispute resolution ("ADR")
ADR is the title given to different methods of settling disputes without having to go court. The classic example is mediation, where both sides sit down in a room with an independent mediator to try to settle their differences. Another example is expert determination, where both sides put their cases to an independent expert who decides which one has the better case (this can work well in intellectual property disputes). ADR is popular for good reasons: it is cheaper than full litigation, can be kept confidential and has a good success rate at settling disputes.
So, if you do end with a lawsuit on your hands, it's worth thinking carefully about trying to settle the dispute using ADR, rather than going to court.
(6) Costs
Control of legal costs is key for any business involved in litigation, because litigation tends to be expensive. In fact, in drawn out litigation you can even see the legal costs exceed the money being argued over!
Points to think about:
Discuss costs early with your lawyers and establish who will be working on the case, what they will be doing and how much they propose to charge.
You may want to ask the lawyers to prepare a costs estimate (often this comes together with the lawyers' initial legal advice on your legal strengths and weaknesses)
If the dispute looks likely to fight, you may be able to enter into some form of costs arrangement with your lawyers. For example, some jurisdiction permit 'no win, no fee' deals in which you pay no costs if you lose the lawsuit (but the lawyers can claim an uplift on their fees if you win). In the US, contingent fee arrangements are widespread (where lawyers are paid through a share in the moneys recovered in the litigation).
Insurance: your insurance policies may cover your legal costs in a dispute, usually on the basis that you notify the insurer as soon as possible once you are notified of a dispute.
(7) Summary
Take threatened and actual lawsuits seriously: they can have a real impact on your business
Speak to your lawyers: a little legal advice early on could save you a lot of money later on
Work out your legal strategy with your lawyers and stick to it. You may want to fight the lawsuit, stonewall it or settle it.
Keep a close track on your legal costs.
Any questions? Need a hand?
Drop us a line here if you have a disputes problem, or would like to talk over any of the above.
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