Video game developer and publisher, Activision Blizzard Inc (ATVI) emerged as the victor in the first bout of its legal battle against its former employees Jason West and Vince Zampella. According to Bloomberg, a California Superior Court Judge dismissed a fraudulent-inducement claim, but agreed to conduct a full hearing on the claim for promissory fraud.
Previously, Jason West and Vince Zampella headed the Infinity Ward division at Activision and were fired in March 2010. West and Zampella filed a $36 million lawsuit against Activision alleging that they were terminated to avoid making royalty payments on Call of Duty: Modern Warfare 2, the top-selling game in 2010.
West and Zampella also accused Activision of making false promises, including complete freedom in running the Infinity Ward, when they were reluctant to renew their contracts way back in 2008.
In response, Activision countersued and alleged that the two developers had hired agents and secretly met and negotiated with Electronic Arts (EA) executives while still working at Activision in 2009. Activision complained that EA, aided by Creative Artists Agency, allegedly flew West and Zampella on a private jet from Southern California to San Francisco to attend a barbecue at CEO John Riccietello’s house, in August 2009.
Activision also said that EA had planned to finance and co-own a new studio run by West and Zampella and other employees from the Infinity Ward studio, which Activision bought from West and Zampella in 2003. Eventually, West and Zampella formed Respawn Entertainment, which agreed to produce games for EA.
Activision made EA counterparty to the lawsuit involving West and Zampella and claimed $400 million as damages. In December last year, a California Superior Court Judge ruled out EA’s claim to dismiss Activision’s contract-interference claims. The judge admitted that Activision had provided sufficient evidence against EA in the aforesaid suit. Further hearing of the trial has been scheduled for May 7, 2012.
Our Take
Electronic Arts and Activision Blizzard are two of the biggest developers in the gaming industry. Both companies wield franchises that are worth millions and their rivalry is also well known in the video game industry.
Activision’s “Call of Duty” has been the company’s most successful franchise ever, raking in more than $6.0 billion in sales (life to date). Of course, EA’s competing franchise “Battlefield” has also done well in recent times.
However, we believe that the ongoing legal battle will not benefit any of the parties in the near term, as this kind of trials take a long time to yield any result. We also expect an out-of-the court settlement, particularly due to this reason going forward.
In the long run, we maintain our Neutral recommendation. Currently, Activision has a Zacks #3 Rank, which implies a Hold rating in the short term (1-3 months).
