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MAY
31
3 YEARS

Activision Settles Huge 'Call of Duty' Litigation on Eve of Trial

A closely watched case concerning blockbuster video games and the relationship between talent and studios comes to an end the day before a scheduled trial.

Call of Duty: Black Opps
Activision

On the eve of what was expected to be the biggest trial in the history of the video game industry, Activision has settled a dispute with superstar game designers Vince Zampella and Jason West, the former heads of Infinity Ward and creators of billion-dollar franchises Call of Duty and Modern Warfare.

Daniel Petrocelli and Bobby Schwartz, attorney for the plaintiffs, confirmed the settlement Thursday: “All parties to the litigation have reached a settlement of the dispute. The terms are confidential.”

When Infinity Ward was founded in 2002 by Zampella and Grant Collier, the event was supposed to signal a talent uprising in the gaming industry. Along with West and more than 20 members who had worked on Medal of Honor: Allied Assault for Electronic Arts, the founders had goals much like the founders behind Hollywood studios United Artists and DreamWorks: to build an artist-friendly company that would do things differently.

Ten years later, after Infinity was acquired by Activision and it produced such multibillion-dollar franchises as Call of Duty and Modern Warfare, a lawsuit erupted that began to examine what went wrong. The many legal complexities of the case belie a very simple question: Why, in 2010, shortly after the release of Modern Warfare 2, one of the biggest products in the history of entertainment, did Activision fire Zampella and West?

Activision helped Infinity Ward get off the ground, putting up $1.5 million in funding for a 30 percent stake in the company. Later, on the heels of big sales for the first-person shooter game Call of Duty, Activision exploited an option to purchase the rest of the company for an additional $3.5 million.

The investment represented a sweet deal for Activision, which has raked in billions of dollars on these games, but the services of Zampella and West were key to the deal. By 2008, when it came time to extend their employment agreement, the parties entered into a "Memorandum of Understanding" that would later become the source of much controversy.

The rise of video games and MMORPGs -- some believe games started outselling movies in 2008 -- has engendered the kinds of fussing over money and work product that the film industry has experienced for decades. Had Zampella and West become prima donnas? Hard to say, but in e-mail correspondence between Activision's then-president Mike Griffith and CEO Bobby Kotick from 2009, the two executives talk about the "difficult relationship" with Zampella and West. "They hung up on me," wrote Griffith in an e-mail revealed during the litigation. "If they really did I would change their locks and lock them out of their building," responds Kotick.

Of course, Zampella and West say they only signed the MOU with certain assurances over bonuses and creative control. They say that at the time, they were concerned that Activision was pushing quanity over quality and a quick turnaround on games. As a result, they allege they got assurances from Kotick that they would be protected and signed a contract that guaranteed they could operate independently and have sign-off authority on games.

On Nov. 10, 2009, Activision released Modern Warfare 2, in what was hailed by the press as the biggest entertainment launch of all time -- not just in games. The title has exceeded $1 billion in sales.

Three months later, Activision launched an internal investigation of Zampella and West by its chief legal officer George Rose, along with attorneys from outside law firms. On March 1, 2010, Zampella and West were discharged for "insubordination."

The two star game designers quickly filed a lawsuit, alleging that the investigation was merely a pretextual excuse to escape paying them bonuses. The complaint had harsh words about what had happened and the corporate culture that Activision had allegedly fostered:  

"Activision has adopted the corporate strategy of forcing Messrs. West and Zampella to sue for their pay -- in the hopes of either getting away with not having to pay them anything, or maximizing its leverage to reduce that pay after attempting to grind them through the litigation process. Such actions are not surprising, given that Activision is run by a CEO who has been publicly quoted as believing that the best way to run a videogame studio is to engender a culture of 'skepticism, pessimism, and fear,' and who prefers to pay his lawyers instead of his employees."

Activision soon hit back with counterclaims that detailed the supposed results of what it had uncovered about West and Zampella. Allegedly, the two had been secretly contacted by rival EA and were working behind the scenes to disrupt the fortunes of the company. According to Activision, "West and Zampella's misdeeds formed an unlawful pattern and practice of conduct that was designed to steal the [Infinity Ward] studio -- which is one of Activision's most valuable assets -- at the expense of Activision and its shareholders and for their own personal financial gain."

Activision also alleged that West and Zampella hoarded bonuses, refused to reward other team members so as to make them easier to poach later on and attempted to undermine Call of Duty development company Treyarch in an effort to gain more money.

For the past two years, the parties have been fussing over the rightfulness of claims and engaging in a heated discovery process.

Among the supposed evidence turned up was that Activision in early 2009 -- well before the start of the official investigation -- had launched something called "Operation Icebreaker" to "dig up dirt" on the two so they could be terminated once they delivered Modern Warfare 2. The operation allegedly included Thomas Fenady, Activision's former senior director of information technology, who allegedly was directed to hack into the computers of the plaintiffs.

The plaintiffs intended to use this evidence in seeking more than $1 billion in damages and control over future games in the Modern Warfare franchise.

There was fervent interest in the case. "It simply does not get bigger than this," says Steve Smith, head of the video game practice at L.A.'s Greenberg Glusker firm. "This promises to reveal all kinds of dirty laundry about the seedy underbelly of the developer-publisher relationship, the classic fight in entertainment between the creative and the corporate worlds."

But now the parties have come to a resolution that puts an end to the high stakes.

Since leaving Activision, West and Zampella have gone on to form the Respawn Entertainment studio.

E-mail: eriq.gardner@thr.com

Twitter: @eriqgardner