Section 8 Studio Loses $7.35 Million Lawsuit

[Andy Chalk]

Section 8 Studio Loses $7.35 Million Lawsuit

A court has declared that TimeGate Studios of Section 8 and Colonial Marines fame owes a lot of money to SouthPeak Interactive.

Before it became famous as the studio that may or may not have been responsible for some or most of the gong show that was Aliens: Colonial Marines, TimeGate Studios was best known to gamers for the 2009 shooter Section 8 [http://www.amazon.com/Section-8-Xbox-360/dp/B001SBUBJU/ref=sr_1_1?ie=UTF8&qid=1366261570&sr=8-1&keywords=section+8] and its 2011 followup Section 8: Prejudice. Unfortunately, Section 8 led to a legal beef between TimeGate and publisher SouthPeak Interactive; TimeGate sued SouthPeak over withheld royalties, unauthorized licensing deals and other issues, leading SouthPeak to file a countersuit claiming that TimeGate hadn't invested enough of its own money into the game.

Both sides ultimately agreed to binding arbitration, which went badly for TimeGate: the arbitrator ruled that SouthPeak was owed $7.35 million in compensatory damages and, if that wasn't bad enough, also gave it all rights to the Section 8 property.

The ruling was overturned on appeal to the U.S. District Court for the Southern District of Texas, but on April 9 the U.S. Court of Appeals for the Fifth Circuit reversed that decision and reinstated the award. That's bad news for TimeGate, which hasn't had the sort of major commercial success that might allow it to absorb such a blow; a source told Polygon that staff at the studio met on Tuesday to discuss the future of the company.

It may be possible for TimeGate to appeal the ruling further but at this point it has to be looking like faint hope. Its new project, Minimum [http://playminimum.com/], was announced earlier this month, but its future - and, unfortunately, the future of the studio as a whole - may now be in serious doubt.

The ruling against TimeGate Studios can be read in full here [http://www.ca5.uscourts.gov/opinions/pub/12/12-20256-CV0.wpd.pdf].

Source: Polygon [http://www.polygon.com/2013/4/17/4234816/timegate-lawsuit-decision-section-8-southpeak]


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[Saulkar]

I re-read the article a couple of times and I just cannot understand where SouthPeak is coming from. It sounds a lot like: Oh! You are going to sue us over withheld royalties, unauthorized licensing deals and other issues? Well we are going to sue you for... for... for being a smelly head! Yeah! That's right! And not spending enough money. Honestly what did Timegate do to damage SouthPeak?

 

[Bertinan]

TimeGate had a publishing deal with SouthPeak. TimeGate claims that SouthPeak screwed them over on the publishing bit by withholding money from game sales, letting other companies use the IP, etc. SouthPeak counter-sued and claimed that TimeGate didn't spend enough of their, TimeGate's, own money on the project. I'm assuming that SouthPeak gave money to TimeGate to use for development, which is pretty common among developer-publisher relationships.

 

[dumbseizure]

It honest to god seems like Timegate had a legitimate reason to sue, and then SouthPeak just decided to fuck them over even further.

Which is sad, I enjoyed Section 8 quite a lot, Timegate were a good studio T.T

 

[gigastar]

It honest to god seems like Timegate had a legitimate reason to sue, and then SouthPeak just decided to fuck them over even further.

Which is sad, I enjoyed Section 8 quite a lot, Timegate were a good studio T.T

Well actually it was the binding arbitration that fucked them over more than SouthPeak's countersuit ever did.

 

[josemlopes]

Sad because Section 8 had a lot of very good design choices (dynamic missions, the way points are captured, good AI, etc...), it just all looked very bland. You can start a game with bots and while the start (when the dynamic missions arent active yet) will be your typical MP game by the end of it you will be completely sucked in.

DICE could learn one or two things with it because it would solve some of Battlefield's problems (for example, the way points are captured would solve those camping idiots that stay prone the entire match inside the capture zone of a flag near a corner).

And their new game Minimum seemed somewhat interesting

 

[KDR_11k]

Am I the only one who thinks arbitrators sound like they are easy to bribe?

 

[RA92]

Yeah, the whole thing seems a bit smelly.


I hope Timegate get themselves out of this rut - Minimum looks cool.

 

[TheSchaef]

Shame, that. Section 8: Prejudice is about as much fun as a 15-dollar game has any right to provide. A lot of full-priced shooters are not half as enjoyable.

 

[Boris Goodenough]

I kept reading SouthPeak as South Park and it made very little sense to me

 

[Smooth Operator]

Counter suit bulldozing... many companies went to hell this way when trying to clash horns with the wealthier bull.
Taking their only IP all together will just stop them dead, then they have no income and who the hell knows if they can pay off the fine at all.

 

[TsunamiWombat]

I re-read the article a couple of times and I just cannot understand where SouthPeak is coming from. It sounds a lot like: Oh! You are going to sue us over withheld royalties, unauthorized licensing deals and other issues? Well we are going to sue you for... for... for being a smelly head! Yeah! That's right! And not spending enough money. Honestly what did Timegate do to damage SouthPeak?

To quote Geir Gunnarsons facebook Comment:

if you read the judgement against Timegate you´d find out that Timegate basically stole 3 million dollars from the development of Section 8 and committed fraud in most of its dealings with the publisher. Timegates lawyer didnt even dispute the fraud, just that they felt they should keep exclusive rights to Section 8.

This is not a smaller studio getting stomped by a publisher. This is a studio that isn't huge like Gearbox embezzling publisher funds.

 

[Lightknight]

I re-read the article a couple of times and I just cannot understand where SouthPeak is coming from. It sounds a lot like: Oh! You are going to sue us over withheld royalties, unauthorized licensing deals and other issues? Well we are going to sue you for... for... for being a smelly head! Yeah! That's right! And not spending enough money. Honestly what did Timegate do to damage SouthPeak?

Reading the actual court document sheds some light on the complaints.

Gamecock's (the original company doing business with Timegate, later aquired by SouthPeak) argument was that Timegate had breached the agreement by unilaterally withdrawing from the contract by failing to put forth its best efforts in developing the game and by publishing both a sequel and alternate platform of the game (which Gamecock had explicitly defined rights to first refusal for publishing rights, this is direct damages). The claim was that Timegate never intended to fully develop Section 8 and had made material misrepresentations in order to induce Gamecock to enter the agreement.

After an 8-day evidentiary hearing the arbitrator issued in favor of Gamecock. Rightly so, from what I can see. Timegate faield to spend any of the $2.5 million of it's own money in development which it was contractually obligated to spend. They also failed to provide a full range of features and access codes to allow Gamecock to distribute the game they'd paid to make. So, essentially, Timegate took their money and ran.

So to all you wondering why Timegate would lose, it's because they decided to publish a sequel and alternate platform of the game when SouthPeak had the publishing rights. It's a pretty basic claim. Timegate tried to argue (pretty wrongly) that SouthPeak aquiring Gamecock meant that Gamecock's contract was breached by sublicensing the agreement. This is not, however, how law works unless there is a specific clause which prohibits third party aquisition. If you acquire a company, you acquire its current assets (as well as liabilities).

There are many other areas that Timegate breached contract in, it's pretty damning. SouthPeak was also awarded the IP in addition to the money.

Looking at the case, it looks like Timegate tried to pull a lot of fast ones and got caught. They appear to fully deserve this so it may not be such a bad thing that a company like this would go under. Completely unethical.

 

[Lightknight]

This is not a smaller studio getting stomped by a publisher. This is a studio that isn't huge like Gearbox embezzling publisher funds.

Exactly. They committed serious fraud and are lucky they aren't serving time too.

Interestingly enough, it looks like the reason why it was successfully appealed the first time was because the arbitration gave the Section 8 rights to SouthPeak in addition to the money. This changed the nature of the contract substantially enough to warrant an appeal on the basis that the IP was not within the arbitrator's rights to hand over to SouthPeak/Gamecock.

But this court decided that Timegate had so drastically realigned the original rights and had so extraordinarily breached the agreement that the IP license was indeed on the table to change hands. (Page 16 of the document) It gave clear precedence and then reaffirmed the arbitration's decision.

In fact, according to the document, there's even a provision stating:

In fact, one provision in the contract actually provides that in the event of certain(inapplicable) breaches of the Agreement by Timegate, Timegate ?shall deliver to [Gamecock] all Work Product and other materials requested or required by [Gamecock] . . . including,
but not limited to, the Intellectual Property.?

 

[Hagi]

I re-read the article a couple of times and I just cannot understand where SouthPeak is coming from. It sounds a lot like: Oh! You are going to sue us over withheld royalties, unauthorized licensing deals and other issues? Well we are going to sue you for... for... for being a smelly head! Yeah! That's right! And not spending enough money. Honestly what did Timegate do to damage SouthPeak?

Reading the actual court document sheds some light on the complaints.

Gamecock's (the original company doing business with Timegate, later aquired by SouthPeak) argument was that Timegate had breached the agreement by unilaterally withdrawing from the contract by failing to put forth its best efforts in developing the game and by publishing both a sequel and alternate platform of the game (which Gamecock had explicitly defined rights to first refusal for publishing rights, this is direct damages). The claim was that Timegate never intended to fully develop Section 8 and had made material misrepresentations in order to induce Gamecock to enter the agreement.

After an 8-day evidentiary hearing the arbitrator issued in favor of Gamecock. Rightly so, from what I can see. Timegate faield to spend any of the $2.5 million of it's own money in development which it was contractually obligated to spend. They also failed to provide a full range of features and access codes to allow Gamecock to distribute the game they'd paid to make. So, essentially, Timegate took their money and ran.

So to all you wondering why Timegate would lose, it's because they decided to publish a sequel and alternate platform of the game when SouthPeak had the publishing rights. It's a pretty basic claim. Timegate tried to argue (pretty wrongly) that SouthPeak aquiring Gamecock meant that Gamecock's contract was breached by sublicensing the agreement. This is not, however, how law works unless there is a specific clause which prohibits third party aquisition. If you acquire a company, you acquire its current assets (as well as liabilities).

There are many other areas that Timegate breached contract in, it's pretty damning. SouthPeak was also awarded the IP in addition to the money.

Looking at the case, it looks like Timegate tried to pull a lot of fast ones and got caught. They appear to fully deserve this so it may not be such a bad thing that a company like this would go under. Completely unethical.

Thanks for the summary, that explains a lot.

Might be worth adding a few lines of this explanation here to the original news story to shed some further light on the matter.

 

[Lightknight]

Thanks for the summary, that explains a lot.

Might be worth adding a few lines of this explanation here to the original news story to shed some further light on the matter.

Like several people above, I initially read the article like it was saying that TimeGate was a victim of some kind but I wanted to see why any court would do that so I followed the links. The facts about the countersuit from the publisher's perspective weren't even really addressed in the article above aside from the complaint about TimeGate not putting enough money in it. The article doesn't even address that TimeGate was contractually obligated.

Summary of breaches by TimeGate:
1. TimeGate failed to put the $2.5 million of their own money into the game that they were contractually obligated to contribute. Their promise to contribute this money induced GameCock into the agreement by leading them to believe that both sides had invested interests in the game's quality. This means that TimeGate committed fraud.
2. Gamecock had given TimeGate $7.5 million for game development of which only $6.76 million was spent on the game despite the fact that all of it should have been spent on it. This is direct theft, if their game was crap then they all pulled a paycheck for two years of development and pocketed around $750k bonus cash.
3. TimeGate produced a sequal and another platform without the consent of Gamecock (SouthPeak's acquired company) who had explicit right of first refusal rights for producing any sequels or other platforms. This is a huge breach of contract, far worse than failing to put money into it.
4. In breach of contract, Timegate self-published the PS3 platform translation/port of Sectoin 8.
5. Developed a game sequel in direct conflict of the licensing agreement.
6. Failed to provide Gamecock with fully functioning versions of Section 8 downloadable content.
7. Failed to provide a Russion translation of the game (was part of the agreement).
8 Failed to prove Gamecock with the necessary access codes corresponding wiht Gamecock's exclusive right to distribute the game electronically via third-party websites.

So Gamecock (SouthPeak) tried to make the best of a bad situation without pursuing TimeGate like they could have initially. They only struck back when TimeGate then tried to get something else out of them. If you ask me, this Publisher was showing a hell of a lot of class in the face of having been stolen from.

 

[Zombie_Moogle]

Lesson to be learned: Binding Arbitration. Don't enter it

Seriously, read up on it; it's legally just as bad as it sounds

 

[Lightknight]

Lesson to be learned: Binding Arbitration. Don't enter it

Seriously, read up on it; it's legally just as bad as it sounds

All it means is that the decision of the third party is legally binding. It isn't necessarily any worse than going to court.

Lesson to be learned: don't steal from someone and then sue them if they've been kind enough to overlook your blatant theft.