Activision vs. Infinity Ward: The Likely Outcomes

May was looking to be a pretty big month for litigation in the games industry. First Silicon Knights vs. Epic finally went to trial, followed quickly by the West and Zampella vs. Activision case, at least until it got delayed until June 1.

Despite moving to June, that still makes this a pretty busy 30 day window for game litigation. The Infinity Ward case hasn't lingered as long as the Silicon Knights case, but it's been one that has made many headlines in its roughly two year history.

"We are only seeing the case as the parties present it, not the underlying items at issue"

As a recap, this ultimately began when Activision acquired Infinity Ward back in 2003 after the release of the original Call of Duty for the PC. Long-term agreements were signed for key employees, which were renewed in 2005. A new Memorandum of Understanding was signed with Jason West and Vince Zampella in 2008, guaranteeing them creative freedom and control of the studio, freedom to develop a new franchise after the release of the next game, and better royalties and bonuses. Relations did not proceed smoothly, and Activision then proceeded to fire West and Zampella on March 1, 2010.

Based on internal emails recently made public, the tension between Activision and the leadership of Infinity Ward had been brewing for quite some time. In fact, the tension had sparked Activision to initiate something called "Project Icebreaker," a plan in which Activision tried to "dig up dirt" on West and Zampella in order to terminate them. It's unclear whether the allegations related to Project Icebreaker, specifically that Activision accessed emails and other communications that Jason and Vince participated in. Activision did counter with allegations of misdeeds by the plaintiffs, which was later expanded to include EA. That, however, has already been settled out of court.

Like many suits, we only have as much information as has been leaked to the public; other critical documents have not seen the light of day. This always leaves some degree of speculation on the actual facts and outcome, since we are only seeing the case as the parties present it, not the underlying items at issue, like the Memorandum of Understanding referenced in the pleadings.

The original suit makes a few major allegations: that Activision didn't live up to its end of the contract between the parties, that royalties were withheld, that they were wrongfully terminated, and that they did not maintain creative control over Infinity Ward and the Modern Warfare/Call of Duty games. The initial breach of contract claim really speaks to all of the other claims, since had the contract been upheld (as it is described in the pleading), then the other claims would not exist.

"The Judge's comments suggest that it will not be a complex trial"

So let's go over the basics of contract law first. Suits for breach of contract are primarily to make the party who suffered a loss as a result of the other party's breach "whole." What does "whole" mean? It means the party who was not at fault needs to be brought back to either the position they were prior to the agreement or the position they should be in but for the breach, depending in part on the time at which the breach occurs.

In the US, this is normally accomplished by compensatory damages, that is monetary compensation for the breach. The alternative, which is exercised more sparsely, is specific performance, which means the court forces the party in breach to do what they agreed to do. The US generally reserves specific performance for times when no amount of money could remedy the situation.

With that in mind, it's unlikely that the court would order specific performance here. Even with respect to the Call of Duty IP, it's unlikely the court would do anything other than order monetary compensation. What we're really talking about, in the event that the facts are as West and Zampella have presented them, is coming to a calculation of monetary damages.

Activision says it has already paid more than $493 million in bonuses, but Call of Duty titles have made more than $6.75 billion and will likely continue to be big sellers for the foreseeable future.

The court will have to weigh the contractual bonuses, monies already paid, and potential future monetary benefits in coming to a number to award the Infinity Ward ex-employees. That number could very well be $1 billion dollars or more. It's also possible, though more unlikely, that the order could tag a percentage royalty on future Call of Duty titles. A set amount is far more likely as a result.

"We're likely either to see a big number awarded to the plaintiffs, or a big victory speech from Activision"

Those future profits and lost royalties associated with future titles would likely be considered "consequential" damages, since they aren't direct damages from the breach but were contemplated by the parties at the time of the agreement. These can be limited by contract, but I would imagine that the court would be inclined to award these if the facts are as alleged by West and Zampella. In fact, if the facts are as alleged, including the "Project Icebreaker" facts, Activision may have gone far enough to see "punitive" damages awarded. Punitive damages are extra damages designed to deter a person or company from behaving "badly" in the future. Generally, for punitive damages to be awarded in a breach of contract context, it has to be shown that the breaching party also committed a tort. The wrongful termination claim would be a tort, but if there was an actual breach of private communications, there could be other torts.

More than likely, this case will be resolved quickly. Although I don't have access to inside information or all of the case documents, the Judge's comment that "it shouldn't take 20 days to try this case. It's not that complicated" certainly suggests that it will not be a complex trial.

At the end of the day, we're likely either to see a big number awarded to the plaintiffs, or a big victory speech from Activision. There's also a chance we could see Activision win in their countersuit, but the numbers there wouldn't be the kind of numbers that the plaintiffs would see if they won, especially with EA settling out of the dispute. It will definitely be interesting to see what all revelations come out of the trial, but the interest and intrigue of this story will likely remain in the facts and the story, not any radical legal changes.