Archive for Current Affairs

West and Zampella v. Activision: Can the Current Court of Public Opinion Win?

March 16, 2010 Contracts, Current Affairs, Litigation 2 comments

A developer is entitled to due compensation for their contributions to any project; so why would two terminated employees have to sue to get paid?

A little over a month ago Jason West and Vince Zampella, two of the lead developers at Infinity Ward, were terminated by Activision. Several weeks later Jason West and Vince Zampella filed a complaint against Activision for breach of contract, alleging that Activision terminated West and Zampella to deprive them of royalties, bonuses other compensation based on MW2 sales.

According to reports, Activision fired West and Zampella on suspicion of insubordination and breach of contract. The complaint and Activision’s recent SEC filing supports the claim that this may have been the basis for the termination, although according to the complaint those charges were either totally fabricated or greatly exaggerated. West and Zampella are suing Activision under theories of breach of contract and breach of the implied covenant of good faith and fair dealing. According to West and Zampella, they are owed significant compensation in the form of bonuses and shares in addition to creative control over any Call of Duty project taking place after the Vietnam era.

No one but the parties have seen the Employment Contracts or the Memorandum of Understanding at issue; the complaint requests that the Court keep those documents sealed. However, the complaint does stipulate that the first royalty payments in question are due at the end of March and Activision terminated West and Zampella to avoid paying those royalties.

While Activision certainly has an interest in holding on to its money, it also owes a duty to its shareholders. This means retaining top talent and acting in the company’s best interest. So why fire two incredibly successful developers who created Activision’s strongest console franchise without good reason, and why fail to pay when doing so is a clear breach of contract?

This matter has many tongues wagging. On the one hand, many want to side with West and Zampella. As the heads of Infinity Ward they put Call of Duty on the map and redefined the FPS genre. There is little doubt that morally and ethically they have earned every penny owed under their respective employment agreements. The problem is whether the courts (and their contracts) will agree.

An analysis of the complaint could provide some insight. According to the complaint, Activision refused to confirm payment of bonuses and additional compensation under the contract, due March 31st of this year. This led to the complaint’s allegation that Activision was trying to “avoid payment of the significant compensation Activision owes West and Zampella and the other employees at Infinity Ward.”

This is an interesting allegation for several reasons. We can’t see the contract and no one knows all of the facts, so confirming this allegation will be impossible until March 31, when the payment is due; and for all we know West and Zampella really were engaged in talks with EA. We have no clear definition of insubordination or breach of contract under the agreement, so we have no idea if the termination was indeed wrongful. And unfortunately the complaint does little to adequately shield West and Zampella from Activision’s claims of insubordination or breach. If the typical legal definition applies, insubordination means refusing to follow directions. Those directions may be implied (e.g., company policy or otherwise acting in the company’s best interest) or express (oral or written direction from a senior executive).

Certain facts relevant and necessary in a wrongful termination suit are absent in the complaint, including an assertion that Zampella and West did not actually engage in conduct constituting grounds for termination. In fact the complaint admits that Activision may have relied on information obtained “a year before”.

This section of the complaint bears quoting and is worded in a manner that arguably suggests that West and Zampella may not be able to deny at least some wrong-doing:

“It contained charges that were disproved in the investigation; included events that West or Zampella were never even asked about during the investigation; identified conduct that other Activision executives engages in with impunity; and cited ‘insubordination’ and alleged conduct from over a year ago, while they were working on Modern Warfare 2, and that never led Activision to either investigate, or discipline them, or terminate them….”

Specifically, “conduct that other Activision executives engaged in with impunity” and “insubordination from a year ago” may be all too defensible from Activision’s standpoint; what is appropriate conduct for an executive of Activision may not be appropriate conduct for an executive of a wholly-owned but otherwise self-contained and self-controlled subsidiary. For instance, what might be seen as information-gathering by an executive of Activision might be perceived as an act of mutiny by a wholly-owned subsidiary (e.g., specific communications with a rival company).

As for conduct from over a year ago, refusing to act on that conduct immediately may be due to justifiable delay on the part of Activision; interfering with Infinity Ward in the middle of a development cycle would come at a huge expense to Activision, while waiting to act on wrongful conduct until the release-dust has settled would allow for a smoother transition for everyone involved.

It may be that Activision truly is acting in bad faith; while no one can speak for the rest of Infinity Ward, West and Zampella certainly fear that they won’t be compensated. If this is Activision’s method of handling even its top talent, every studio and studio executive under their control should take a look at their current contracts and review their termination clauses; specifically, employees and executives should negotiate hard to ensure that they’re paid for their past contributions irrespective of grounds for termination.

Much in the complaint suggests that payment of the bonuses and compensation may be contingent on continued employment and/or termination without cause. The heavy reliance on claims of bad faith and wrongful termination suggest that the compensation in question, including bonuses, stock options, and future royalties, rely on how termination is affected. This is a dangerous proposition and may encourage employers to fabricate grounds for termination as opposed to paying large severances. However, without seeing the contract there’s no way to confirm this assumption.

Unfortunately showing wrongful termination in a case like this will prove difficult. With hope West and Zampella will settle this matter quickly and be fairly compensated so they can move on with their lives and careers; unfortunately, it is just as likely that Activision will be forced to fight if only to defend itself in the court of public opinion.

Anti-Counterfeiting Trade Agreement Round 6

November 11, 2009 Current Affairs No comments

There is enough news on this to not require a long post, and after last night's 2,000 word monster a little brevity won't hurt.

Short version: we're in the 6th round of negotiations for ACTA (Anti-Counterfeiting Trade Agreement), a multilateral trade agreement intended to combat copyright and trademark infringement. A few hot buttons raised by this trade agreement concern a lack of transparency in the negotiations and what amounts to the U.S. trying to shoehorn its IP policy into the global market. The truly interesting (and topically relevant) aspect of the current round of negotiations is what came out in the most recent leaks; namely the "three-strikes" policy that requires ISPs and SPs under the DMCA safe harbors to shut down user accounts after receiving three copyright infringement notifications in connection with a particular user.

Now what's interesting about this is that according to the EFF at least two aspects of this policy differs from current U.S. policy. First, currently there is no three-strikes policy in the U.S., although content providers have been pressuring ISPs for this for quite some time. Second, under U.S. DMCA safe harbors Copyright Infringement Notifications (CINs) must be made in good faith. According to U.S. Courts, good faith requires that reasonable defenses, including fair use, should be considered. According to the EFF the current draft of ACTA doesn't contain these limitations to CINs. I'm not sure how much of that is fear-mongering, and because the good faith requirement has been broadened by the courts it's likely that it will still apply.

You can find more discussion on this issue here.

Understanding “Without Prejudice” in terms of confidentiality

August 12, 2009 Current Affairs No comments

    The dispute between Edge Games/Tim Langdell and Mobigames has devolved into a bit of a media disaster, but it has brought about several issues worth discussing. In light of Edge Games recent publication of settlement communications, perhaps the most glaring issue at the moment is confidentiality. In several of those communications, Edge Games (ironically) points out that because the communications were submitted under the heading “Without Prejudice”, they should not be disclosed to third parties.

    “We reserve all or rights in this matter, and note this communication is sent under banner of ‘without prejudice’ which means it cannot be used in any legal proceeding and should     not be revealed to any third party, the press, or etc”—July 28, 2009 communication from Edge Corp. to David Papazian

    In one communication Langdell suggests that sharing the communication with the media is in violation of U.S. Law.

    ”You quoted on a public forum from a communication that was sent to you under a “without prejudice” header which is not in accord with US law (and it was on a US website). Please     be aware you are not permitted to quote from such correspondence that is written as part of settlement resolution, as all this correspondence between us has been.”—June 3, 2009 communication from Tim Langdell to David Papazian.

    The irony in all this being that Dr. Langdell and his company subsequently disclosed ALL communication under the heading “Without Prejudice” to third parties through its “Edge Studio” website. However, this raises the question of whether the phrase “Without Prejudice” offers any kind of protection, what kind of protection it provides, and whether other statements or contractual provisions would better serve the problem of confidentiality in settlement disputes.

    The heading-phrase “Without Prejudice” in a communication between two opposing parties has a relatively specific application, which has its roots in English Common Law. This application is, under current federal and state evidence law, somewhat redundant. “Without Prejudice” implies that anything contained in the communication is intended for settlement purposes only and cannot be used against either party as evidence or precedence in the event of litigation. The purpose of this statement is to facilitate candor between the parties because it is in the interest of public policy to facilitate the settlement of disputes without court action. The words are intended to free parties from the concern that the admissions and statements made by them in the course of settlement will later be used against them in court. See Am. Eagle Outfitters, Inc. v. Lyle & Scott Ltd., 2008 U.S. Dist. LEXIS 96375 (W.D. Pa. Nov. 26, 2008)

    In today’s usage the phrase does little more than suggest that the communication is, in fact, intended for settlement. As a legal term of art it provides minimal protection under the predominant weight of US law due to Federal Rules of Evidence 408 and its mirror rule in almost every state’s evidence laws. These rules automatically render compromise and settlement communications inadmissible. Under Rule 408, “conduct or statements made in compromise negotiations regarding the claim, except when offered in a criminal case and the negotiations related to a claim by a public office or agency in the exercise of regulatory, investigative, or enforcement authority,” are not admissible evidence.

    Furthermore, using the phrase “Without Prejudice” when it is clear that the communications have gone beyond the point of possible settlement makes the use of the phrase ineffective. If a court could imply that the use is an empty one and the communication does not reflect conduct intended for settlement or compromise purposes, the court will ignore it and any admissions or statements contained therein may be used against either party.

    However, use of “Without Prejudice” in a communication doesn’t render the communication confidential or imply it as such. Generally speaking, settlement communications are only confidential by law if they relate to a court-ordered settlement conference or mediation conference and local rules render communications during and relating to those conferences confidential. In those cases, using “Without Prejudice for purposes of Settlement” may be useful to show that the communication is made in connection with a mediation conference or a court-ordered settlement conference. However, communications made prior to an official proceeding may not be subject to the same protections.

    In communications such as those between Mobigames and Langdell made prior to mediation or court-settlement, confidentiality hinges on an agreement between the parties to keep that information confidential. This may be accomplished via a confidentiality/non-disclosure statement at the end of each communication prohibiting the distribution, disclosure, and copying of communications relating to possible settlement. Better yet, leave such communications to your attorneys. An attorney isn’t allowed to disclose communications arising from representation, nor may they make disclosures to the media or public that may prejudice a case. Furthermore, it would probably reduce the chances of those communications getting as personal and antagonistic as the ones between Mobigames and Langdell.

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