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December 7, 2005

To Sue or Not to Sue…That is the Question

Filed under: Game Law Articles — Tom B @ 3:58 pm

So, you got that game done and everything is going great. Except for the fact that based everything you can figure, by now you should have received several fat royalty checks. Instead, no one at your publisher is returning your phone calls. Your requests for sales info on the game are falling on deaf ears. In spite of your written request, you can not even schedule an audit. But the game reviews are great and, at least according to the NPD figures you got from a friend of yours, sales are beyond your best expectations. The question arises - to sue or not to sue?

The harsh reality is that litigation has become a normal part of business in the modern world. Disputes occur that can not be resolved no matter how hard people try and ultimately the good offices of the court system is required to resolve these matters. Of course, it would be naive to think that the only matter to be considered when deciding whether to institute a lawsuit is whether you’re going to win or not. Game developers are especially susceptible to the perception that they do not have the power or the ability to litigate, especially against publishers. Let’s take a look at the components of a cost-benefit analysis that a developer should be considering when a question of filing suit against a publishing partner occurs.

Many developers say that even though a publisher had cheated them out of royalties or residuals, they were not willing to institute a lawsuit to recover their losses. The reasoning? Quite simply, they believe that in a buyer’s market with only 30 or so viable publishing partners available, developing a reputation as a hard-nosed developer willing to sue to enforce his contractual rights would, ultimately, have a chilling effect on the developer’s ability to get business. This may be true. However there are other things to consider.

The Cost-Benefit Analysis

First, you have to ask yourself a few questions. Is it really a bad thing if by asserting your rights, you eliminate from the list of potential publishing partners those who intend to cheat you? Are there a number of viable alternative publishing partners available to you? And whether you have a single-title shop or have several projects in the pipeline with different publishing partners. What is the projected return on investment in the lawsuit? Can you afford the costs of the lawsuit or find an alternative way to make it happen?

Underlying this decision is also another consideration. In a real sense, a successful developer-publisher relationship should be a peer relationship, even though there is a disparity in the relative bargaining positions of the parties. So, you have to consider whether you can maintain a solid peered business relationship with a publisher if you continually view yourself in a submissive or subservient posture. The sad reality is that a lot of publishers view developers as spineless weaklings when it comes to their business dealings. This image has been perpetuated by the conduct of developers for years. While most developers seem too interested in making games to want to hassle with being hard-nosed business people. So, it’s easy to understand why a hard-nosed Ferengi publisher would look at most developers like a wild dog looks at raw meat.

I Don’t Get No Respect…

I can’t tell you how many times I have been involved in situations where in an effort to settle what ultimately turned out to be a litigation matter, a publisher has offered as a proposed settlement offer another deal just as bad as the one that got the developer and the publisher in the dispute in the first place. “Oh, I am sorry you got screwed in the last deal. Let’s resolve this whole thing by getting you into another deal where I can do it again.” Amazing! I do think that developers need to be careful when they decide whether they should litigate or not. However, this certainly does not mean that there are situations where litigation should be seriously considered.

Lawyers Cost Money

As I mentioned, one factor that should be factored in a cost-benefit analysis for developer is the cost. Frankly, lawyers are expensive. However, there are lawyers who take on a business dispute based on a contingency fee agreement where in the attorney advances the cost of litigation in exchange for a proportionate share of the recovery. It is not a small share but generally less than half. So, let’s say a developer is hit for $400,000 in back-end royalties based upon his understanding of the sell-through on his game and his royalty schedule. But money is tight so they can not afford the $60,000+ in attorney’s fees it is going to take to fund the lawsuit. Then, giving a contingency fee attorney 40% of the recovery gives the developer a choice of getting 60% of something, rather than a 100% of nothing. That, and the additional knowledge that you didn’t just lay down and take it again which can be very gratifying as well.

Never Say Never

Overall, it’s probably not a good idea to litigate every dispute. In fact, I generally counsel against it in most cases. However, it’s also not a good idea to assume that you should not litigate every dispute. So, take the time to talk to somebody who knows, get a realistic cost-benefit analysis, and then make the decision whether “to sue or not to sue.”

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