Archive for Litigation

What Happens When You Don’t Have a Written Agreement: [Part 2, Real Life Application]

January 9, 2012 Contracts, Game Development, Litigation, Negotiations No comments

This article is the second part of a two part series. Please refer to Part 1, Contract Basics, if some terms or examples seem unclear.

Now that the contract basics are explained, it’s time to examine real life application of those principles. Ideally you don’t want disputes to go to litigation. Hopefully you’ll be able to negotiate terms that, if not favorable to all, are at least enough to make sure that everyone lets go of the matter before dumping thousands into legal fees. However, much of that negotiation will depend on your leverage under the law and your ability to determine whether the law is on your side. Below we’ll employ some of the contract principles learned before in some fairly typical contract dispute situations and specifically when no formal agreement exists.

Types of Informal Agreements

In most cases when we’re looking at the independent developer space, the contracts you’ll see most often are work-for-hire agreements or collaboration agreements among individuals. These almost always count as service agreements and don’t necessarily require a signed writing to be enforceable. Note that while service contracts that take longer than a year to perform require a signed writing, service contracts for an indefinite term don’t necessarily require the same. So even if you don’t have anything definitive in writing, a contract may still be enforceable if the circumstances suggest a valid agreement.

The Gentleman’s Agreement (Oral or Handshake Agreement) and Enforceability

                Oral contracts and handshake agreements are fairly common in the entertainment industry. They are particularly common in independent game development. They rely on mutual trust and knowledge among the contributors and are frequently the result of prior relationships. It’s often said that an oral contract is “worth the paper it’s written on,” and in some cases that is definitely true. There are certainly a number of draw backs to having an oral agreement over a written one, not the least being enforceability and the likelihood of a shorter statute of limitations.

However, oral contracts are enforceable under many circumstances and shouldn’t be dismissed so easily. The problem with enforcing an oral contract is evidence—if it’s just an agreement between two people the dispute will inevitably break into to a “he said, she said” finger-pointing match unless you have a witness or some other evidence pointing to an actual agreement. Sometimes that evidence can be performance itself; however, unless there’s definitive proof or witness testimony concerning compensation for that performance, a court of law may only apply the market value of the performance instead of what was actually agreed to in order to make the person “whole”. Let’s look at an example:

Example #6: Among Friends: Anne, Bill, and Charlie worked together at a game studio that fell on financial difficulty. The three decide to go off on their own to create their own game and meet at Bill’s house to go over duties and logistics. They decide that Anne will handle art and music assets, Bill will handle design and act as production manager, and Charlie is in charge of programming/tools. They’re each entitled to a third of the income. However, no written agreement is formed. Bill acts as the unofficial leader of the group and also handles license procurement and applications to the requisite online distribution channels like as Steam and Impulse. Nine months later they complete a simple but engaging game and release it on Steam. The game is a hit and Bill starts receiving payments from Steam, which he fails to distribute to Anne and Charlie. Anne and Charlie sue Bill for breach of contract asserting their entitlement to two-thirds of the proceeds. Bill argues that he treated them as independent contractors and they are only entitled to 10% each. Everyone’s testimony is equally convincing, so the court relies on expert testimony and the market value of the contributions performed by Anne and Charlie. The experts disagree as to market value, but it’s clear that the contributions exceed 10% of the finished product. The court awards Anne and Charlie 20% each for their contributions, with the remaining 60% going to Bill.

The example above demonstrates the difficulty in proving the terms of an oral contract—however, this problem becomes less obvious if more people are involved or if disinterested third parties know about the agreement and can act as witnesses against the person breaching the agreement.

The “Living Contract” (E-mail Exchange)

Another often-seen disputed agreement comes in the form of e-mail exchange, which is probably more common than the handshake agreement these days. While e-mail or letter exchanges provide more evidence of an existing contract, they come with their own host of problems concerning enforceability. First, there’s the question of validity—is there a valid offer and acceptance, is there a counter-offer, and has a counter-offer been rejected or accepted? Then there’s the question of whether any particular e-mail constitutes a “written agreement” or “integrated agreement” for purposes of the parol evidence rule. Additionally, there’s the issue of whether later e-mail exchanges act as modifications or amendments to the earlier contract.

Offer, acceptance, revocation, and counter-offer

As mentioned above, mutual agreement requires offer and acceptance. A counter-offer is essentially a rejection of the original offer, so once a counter-offer is made, the original offer is typically treated as invalid unless offered again. An offer can be revoked at any time prior to acceptance. In the case of an e-mail exchange, many offers or counter-offers may be made before there is acceptance—and if the acceptance is based on an earlier offer that has already been revoked or rejected with another counter-offer, there’s an argument that the acceptance isn’t valid. Let’s look at an example.

Example #7: Whose line is it, anyway?: Nick and Alice are in the process of putting together a team for their newest project, “Delilah’s Curse”, a post-apocalyptic RPG where the player is the parent of the harbinger of the apocalypse. The parent is presented with a Hobson’s choice: He or she can either save his or her child or protect the world from complete annihilation. Ultimately the goal is to achieve a balance where both can be saved. Nick, without disclosing the project details, sends an e-mail to his friend Tom, a skilled level designer, and asks if he’d like to get involved with the project. Tom responds with a request for more information. Alice, who is CC’d on all correspondences, replies that the contents of the game concept can’t be disclosed without an NDA, but she strongly believes Tom is an excellent fit for the project. Nick then sends Tom an NDA for negotiation purposes. Tom doesn’t sign the agreement, but responds with the statement “I accept the terms of your NDA. Please tell me more about the project and the compensation you’re offering.” Alice sends Tom a brief synopsis of the game and the work they expect Tom to perform. She offers him $3,000 per milestone deliverable and contingent compensation of 10% of net profit. A few minutes later, Nick sends the same synopsis and offers him $2,500 per milestone deliverable and a contingent compensation of 15%. Confused, Tom accepts Alice’s earlier offer. Nick responds that Nick’s offer was meant to replace Alice’s offer and Alice’s offer is no longer valid. Tom refuses Nick’s offer and insists on Alice’s offer. Alice suggests in her reply that Nick’s offer is more favorable—however, Tom responds that he would still prefer Alice’s offer and rejects Nick’s offer. The next day he sends a follow up e-mail saying he’s thought about it, and he’s willing to consider taking Nick’s offer if the milestone deliverable payments are upped to $2,700. However, unbeknownst to Tom, Alice had sent an e-mail in the middle of the night stating that she’s sorry for his rejection, and they’ll look for someone else. The next day, Nick sees Tom’s counter-offer. He sends Tom a response stating “Let me talk to Alice and get back to you. I think she’ll accept. In the meantime, here is the work order for the first milestone deliverable.” Tom begins work on the first milestone deliverable. Two weeks later, he receives a response from Alice, which states “I’m sorry, but we’ve already found someone else for the position. Please ignore Nick’s prior e-mail.”

Tom, believing that he’s entitled to the contract for $3,000 at 10% contingent compensation, or at the very least $2,700 at 15%, sues Alice and Nick for breach of contract. The case eventually goes to Court, and the Court finds the following: 1) under that jurisdiction’s law, Tom’s acceptance of the NDA in addition to his electronic signature constitutes a valid agreement for purposes of the NDA; 2) Nick’s subsequent offer after Alice’s initial offer constitutes a revocation of Alice’s original offer; 3) Tom’s rejection of Nick’s offer and acceptance of Alice’s original offer was a counter-offer by Tom; 4) Alice’s late night e-mail constituted a valid rejection of the counter-offer by Tom; 5) Tom’s next day e-mail constituted a new offer by Tom; 6) Although Nick’s response to Tom’s offer may have created some expectancy of being hired, nothing in the response constituted an acceptance of Tom’s offer, so no contract was formed; 7) Because nothing in the e-mail sent by Nick actually requested performance on the work order, no request for work was actually made and Tom is not entitled to damages arising from promissory estoppel; and 8) Alice’s final e-mail constituted a rejection of Tom’s offer.

Note that the decisions reached by the Court are only hypothetical—depending on the jurisdiction and the language used in any given e-mail, Nick may have created a reasonable expectation in Tom that Tom’s offer would be accepted. In that case Tom’s performance may have entitled him to promissory estoppel. There is also the question of authority between Nick and Alice—if Alice is the person responsible for the project and Nick is only acting as her agent, a whole other slew of issues concerning agency law arise. The main point here is that the “living agreement” can get convoluted and it isn’t always clear whether a contract has actually been formed or not.

Parol Evidence Rule and the Hybrid Oral Contract/Living Agreement

A “Living Agreement” can be even more convoluted if you throw in oral correspondences in addition to e-mail exchanges. For example, if Tom had accepted Nick’s second offer of $2,500 and contingent compensation of 15%, and then later sent his e-mail accepting Alice’s first offer, the question of acceptance versus counter-offer would become even more complicated. For this situation most jurisdictions have imposed the “Parol Evidence Rule”, but even that rule may not be applicable in all circumstances. Simply stated, the Parol Evidence Rule prohibits things outside of an existing contract, such as oral or written communications (this extrinsic evidence is called “parol evidence”), from being admitted as evidence when a final or “integrated” contract exists if that evidence contradicts or adds to the written terms. This is limited to prior or contemporaneous evidence, like oral communications or e-mail exchanges made prior to or at the same time as the execution of the final written agreement.

The most obvious question for our purposes is whether an “integrated” agreement actually exists. A contract is integrated if it is a final written agreement between the parties. In other words, all of the necessary terms are set out in the agreement, and as an additional security the parties may include a merger clause that asserts that the agreement is the final agreement between the parties. The more common problem when no formal contract exists is that an agreement may only be partially integrated—in that case, only some terms are clearly agreed to between the parties while others are left in dispute or not discussed at all. In that case, some parol evidence may be admissible if it expounds on those undefined terms.

When we’re looking at an e-mail exchange, it’s possible that a partially or fully integrated agreement could come into existence through one or more of the correspondences. Let’s return to our earlier example concerning Delilah’s Curse:

Example #8: Let’s assume that Tom has decided to accept Nick’s offer of $2,500 per milestone deliverable with 15% contingent compensation. Prior to responding to Nick’s offer via e-mail, Tom calls Alice and Nick to further discuss his role in the project, when payments will be made, and when milestones are due. However, in his next correspondence he states nothing more than “As per our conversation, I’d like to accept the level design position for $2,500 p/MSD and 15% contingent compensation on release.” During the phone discussion, Nick and Alice agreed that milestone delivery payments would be paid within 10 days of delivery regardless of whether or not the milestone was approved. However, the work order forms (none of which are signed by the parties) states that payment will only be made if the deliverable is approved by Nick and Alice. A few months down the road, Tom submits a milestone deliverable. Nick and Alice fail to make payment within 10 days. Tom contacts Nick and Alice about the payment and they respond that they had some problems with the milestone that need to be fixed before they’re willing to make an agreement. Tom argues that they’d agreed to make the payment regardless of approval. However, Nick and Alice point to the provision in the work order requiring approval before payment. Angered, Tom refuses to do any more work on the project and sues Nick and Alice for breach. Nick and Alice file a counter-complaint asserting breach of contract against Tom.

The suit goes to trial and the Court decides the following: 1) A partially integrated agreement existed with regard to Tom’s position and compensation; 2) the work orders are integrated into the agreement based on Tom’s past performance of those work orders and failure to dispute the terms of the work orders; 3) the oral agreement made prior to Tom’s formal acceptance is barred by the parol evidence rule since it was made prior to the partially integrated agreement and directly conflicts with the term of the work order; 4) Tom is in breach for refusing to perform; 5) neither Nick or Alice are in breach, but are expected to exercise good faith when determining whether a milestone is “approved”.

The parol evidence rule could go many different ways depending on the circumstances; for instance, if the work order didn’t say anything about payment depending on approval, Tom’s testimony regarding their prior conversation may be admissible as clarifying a key point to the agreement. Also, the work order itself may be treated as parol evidence instead of being treated as an integrated part of the agreement if Tom disputed the payment terms prior to delivering the first milestone (in the contract world, “performance” is frequently treated as “acceptance”). All sorts of contingencies can change the game in a contract dispute—a formal written agreement that clearly defines the agreed upon terms is the easiest way to minimize those contingencies.

Conclusion

The most obvious lesson to take away from this is to always, always get something in writing; but more importantly you need to make sure you understand what’s written down. As stated in Part 1, you don’t need a massive legal document with a bunch of legalese and recitals to formalize your agreement. A document written in plain English with your agreement spelled out in plain and simple terms while taking into consideration as many contingencies as possible is vastly more valuable, legally speaking, than a form agreement that neither party understands. Knowing what to put in that agreement is equally important—for example, if the agreement doesn’t address intellectual property issues, confidentiality, or indemnification matters properly, you’re not covering your bases and you may end up in a conflict down the road. Although living contracts and handshake agreements are enforceable in many cases, they will rarely if ever provide you with the kind of protection you’ll want or need regardless of the outcome of your project.

 

What Happens When You Don’t Have a Written Agreement: [Part 1, Contract Basics]

January 9, 2012 Contracts, Litigation, Negotiations No comments

It’s a common event—people decide to collaborate on a project without putting anything in writing. Ideally, the fact that there’s no written agreement won’t cause a problem; after all, you’ve decided to work together and hopefully the hiccups you come across won’t be deal-breaking.

But people put things in writing for a reason. Negotiations break down, trust crumbles, or outside influences such as money or the threat of litigation destroy the cohesion that once existed. In other words, things go pear-shaped and all you can do is look at the agreement to determine how you’ll handle the situation when those circumstances arise. Hopefully those circumstances aren’t inevitable. Hopefully they can be avoided. But you can’t hang your hat on hope, so it’s important to prepare for the possible eventuality of things going horribly awry.

This isn’t about being defeatist if that’s what you’re thinking right now. Three times out of ten nothing seriously horrible will happen and you’ll either break even or go bust. Two times out of a hundred you might see something great. But the reality of this industry is that things won’t always work out the way you anticipate, and more importantly (and as I’ve said in previous articles) what people anticipate or want may not always be the same thing as what you’d expect. Having something in writing can clear up any possible delusions or misinterpretations among the people you’re working with. Unfortunately, the truth is that people tend to only realize this AFTER things go wrong. So how does the law handle these situations?

Legal Theory behind Contracts

Formation

Contract law is heavy stuff, but it breaks down into two factors: a) whether a contract exists; and b) what remedies are available to the non-breaching party. Even if contract law in and of itself is complicated, forming a contract is as easy making a promise. In most cases you don’t need a bunch of legalese or a massive document signed on a specific type of paper. The basics for a contract, in writing or not, are the following:

Mutual Agreement. Just as it sounds—the parties are agreeing to something. This can be broken into two parts; offer and acceptance.

Example #1 (mutual promise): Mary and James decide to make a game together. Mary promises to handle the programming, while James promises to handle the art assets. Even though no money has changed hands at this point, a mutual agreement has been made and the “consideration” required for the agreement are the promises themselves.

Example #2 (consideration [e.g., future profit] +performance): Mary wants to make a game. She approaches James, an artist, and asks him to create the graphic content for the game in exchange for a cut of the profits. James accepts. In this case, the future promise of a profit is Mary’s consideration, and James’ promise to create art assets constitutes his consideration.

Example #3 (consideration [e.g., money] + performance): Mary wants to make a game. She approaches James, an artist, and offers to pay him $500 for James’ production of art assets for her game. James counter-offers with $1,000 for both art assets and animations. Mary rejects the counter-offer. Even though counter-offers are valid, Mary’s rejection of James’ asking price terminates the “mutual agreement” requirement of the contract, so no contract is formed.

It should be noted that a promise counts as consideration as well, provided it’s made in good faith. In all of the cases noted above, adequate consideration has been provided to form a mutual agreement for contractual purposes.

Consideration. As you’d probably noticed from the examples above, consideration is one of the most important parts of a contract. A mutual agreement generally relies on the fact that both parties have an expectation for the other—that expectation is called consideration. This could be payment for an invoice, production of content for a game, or the payment of a royalty based on that content. In any contract, both parties need to give something to make an agreement valid. Otherwise an agreement may be treated as illusory (where one party is getting something while giving nothing of value in return) or as a gift (where one party is giving something voluntarily without the expectation of receiving anything in return). In either case, the contract is unenforceable. The keyword for consideration is “bargained-for”— even if an agreement seems unbalanced or unfair on its face, it will still be treated as valid provided there’s evidence that the parties bargained or negotiated those terms.

As for examples of consideration, you can look to the “mutual agreement” section above.

Consent/Capacity. The parties have to be willing to participate in the agreement and be sane enough to do so; in other words, if you’ve got a gun pressed to your temple while making the agreement (whether literal or figurative), the agreement won’t be valid.

Example #1: (Blackmail) John knows that Mary is having an affair with Michael. John promises not to tell Mary’s secret provided she pays him to keep the secret. Apart from this being illegal (another requirement, as you’ll see below), it’s also “duress”, which can be used to render an agreement void.

Example #2: (Delusion) Mary asks her great aunt Dalia, who suffers from dementia, to fund her project while asserting that her project will save the universe from the horrible aliens Dalia has feared for the past five years. Because Dalia is not of sound mind, there is a strong argument that she lacks capacity to enter into this agreement.

Example #3 (Children) Mary wants to hire Tim, a 13 year old genius programmer, to assist her in her game’s development. Tim’s all for the project—his parents, however, are against it. Because he’s not of legal age in his jurisdiction to enter into an agreement without parental consent (the standard age is 18), any contract will likely be voidable based on his lack of capacity due to his age. Note the difference between voided and voidable—for capacity issues, the incapacitated party has the right to void the agreement, but the contract is not automatically void unless that right is exercised.

Legal Purpose. This should speak for itself, but considering the rampant copyright infringement in the games space these days, it may not be as obvious; the scope of any contract must conform to a legal purpose. In other words, if any party’s obligation results in an illegal activity, that obligation (and perhaps the entire contract, unless a severance clause is enforceable) will be void.

Example #4 (The Fan Game) Mary wants to make an unlicensed fan game based on the Star Trek franchise. She asks James to create the character models based on the original actors in the series for her game, and agrees to pay him $5,000 for this project. James accepts. Three months later, and after some research on James’ part, James turns over character models that look nothing like those in the Star Trek series. He contends that absent a license he can’t create the models Mary desires. Legally speaking, the James’ obligation to create content based on unlicensed IP is void because it constitutes an illegal purpose, so James is in the right—however, depending on the terms of the contract the entire agreement may be void, so James’ remedies may be limited to quasi-contract remedies.

In Writing. In some cases a signed writing is mandatory. Signed writings are typically necessary due to state law and the Statute of Frauds (under the Uniform Commercial Code), which has been adopted by most states. Examples of agreements that require a signed writing include: 1) a promise to pay someone else’s debt; 2) a promise in consideration of marriage (prenuptial agreements); 3) a service contract (e.g, independent contractor agreement) that can’t be completed within a year; 4) contracts for the sale of land or interest in land; 5) contracts for the sale of goods with a purchase price of more than $500; and 6) when an executor of a will promises to pay off the debt of an estate with his or her own money (not really something you’ll see in games law, but you never know).

Once it’s determined that a valid contract exists, the parties are bound to the terms of that contract. If a party breaches, depending on the seriousness of the breach, the non-breaching party can seek out remedies based on the harm suffered.

Breach versus Material Breach

If a valid contract exists the next issue comes down to performance and non-performance. If a party fails to perform their duties under an agreement, they’re in breach—however, that may not excuse the other party from performing. A non-material breach exists if the duty breached isn’t material to the entire agreement; for example, if a partial payment is made late and late payments aren’t expressly identified as a material breach, the rest of the agreement is still enforceable even though the non-breaching party may be entitled to damages arising from late payment. Both parties are still bound by the terms of the agreement and are not excused from performing.

On the other hand, if the breach is substantial—for instance, if a contractor fails to deliver the assets they’re contracted to deliver without justification, but has already accepted partial payment—that constitutes a material breach and the non-breaching party has the right to invalidate the agreement and seek contractual damages against the breaching party. The difference in the type of breach is important, and there are several circumstances where non-performance is excusable. None the less, any breach is grounds for seeking remedies.

Remedies

The oversimplified explanation behind contract remedies is to put the non-breaching party in the same position she/he would have been in had the contract been performed. These remedies include specific performance, injunctive relief, and money damages. There are also “quasi-contract” damages, which include unjust enrichment and promissory estoppel; in simple terms, unjust enrichment exists when one party gets something for nothing, while promissory estoppel exists when one party acts in reliance of a promise that isn’t performed and suffers some inequity as a result. The goal of quasi-contract damages isn’t to put the non-breaching party in the same position he/she would’ve been in had the contract been performed, but to put them in the position they would’ve been in had no contract existed in the first place.

Remedies concerning agreements that aren’t in writing depend both on jurisdiction and circumstance. It almost always comes down to a case by case basis, but generally this kind of thing operates on a sliding scale. To simplify it in equation terms (and for the sake of simplification, let’s assume written agreements are necessary under the statute of frauds):

Promise + promise X no performance = no contract Promise + payment X no performance by either party = no contract
Promise + promise X substantial/complete performance by either party = contract exists, contractual remedies enforceable Promise + payment X partial payment made, no performance = unjust enrichment, restitution the likeliest remedy
Promise + promise X partial performance by both parties = contract may exists—court will examine relationship between parties, industry standards, and other factors to determine contractual terms Promise + payment X partial performance, no payment made= promissory estoppel/unjust enrichment damages depending on the nature of the performance

The chart doesn’t account for all available remedies or circumstances, but it should give you a bit of an idea as to how things will fall out on a case by case basis. Depending on your circumstances it may be better for you to pursue quasi-contractual remedies over contractual remedies or vice versa. To understand how these remedies break down in actual situations, let’s look at an example:

Example #5: The Illegal Contract (Fan Game): Mary wants to make an unlicensed fan game based on the Star Trek franchise. She asks James to create character models and art assets based on the series’ original IP, and agrees to pay him $5,000 for this project and his work is due a little over a year later. James accepts. Thirteen months later, and after some research on James’ part, James turns over character models and art assets that look nothing like those in the Star Trek series. He contends that absent a valid license he can’t create the models Mary desires. On the one hand, James has breached the agreement because he didn’t perform within the specified scope of his contract. On the other hand, the contract lacked a legal purpose, so the provisions requiring illegal conduct would probably be rendered void. Assuming Mary uses the new character models but doesn’t pay James, James could take two approaches—he could treat the contract as void due to illegality, or he could treat the remainder of the contract as valid and Mary’s acceptance of the new models as a waiver of the illegal provision. If he treats the contract as void, he would be entitled to restitution; this may amount to the market value of the work he performed, or injunctive relief to keep Mary from using the character models. If he treats the contract as valid with the illegal provision “severed”, he would be entitled to the $5,000 he’s owed under the contract.

Hopefully you now have a better understanding of basic contract law principles. With that said, the next part of this article will look at how this breaks down in independent game development.

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.

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