HOUSTON (CN) - A federal judge rejected the $7 million arbitration award issued in favor of the publishers of "Section 8" video game.
In December 2009, video-game developer TimeGate sued Gone Off Deep dba Gamecock Media Group and Southpeak Interactive.
TimeGate says Gamecock agreed to publish "Section 8" while providing the developer with milestone and royalty payments. Gamecock and Southpeak, which later took over the publisher, committed multiple violations of the publishing agreement and cheated TimeGate out of payments, according to the federal complaint.
The publishers fired back with claims that TimeGate stuck them with a game that was a flop and skimped on the development end.
The parties took their claims and counterclaims to arbitration, after which the arbitrator ordered TimeGate to pay the publishers $7 million in reliance damages.
TimeGate sought to vacate the ruling, alleging that the arbitrator disregarded three aspects of the agreement.
In a ruling last week, U.S. District Judge Keith Ellison held the arbitrator overstepped his authority by granting the publishers a royalty-free perpetual license.
"The court cannot conceive of a way in which a perpetual license, which violates at least two provisions of the parties' contract, and is inconsistent with the fundamental purpose of the contract, is rationally inferable from the contract itself," Ellison wrote. "The provision takes what was a temporary licensing agreement, which required collaboration and coordination between the parties, and expands it into a permanent contract under which the parties are able to develop competing products. The contract is turned on its head by expanding the rights of defendants to allow them to actually create sequels, ports, and add-ons related to the game, without any obligation to pay the game's developer, TGS [TimeGate Studios], royalties."
Ellison vacated the award in a 22-page order, stating "[t]he court concludes that it cannot modify the award while still preserving its intent, and acting consistently with the essence of the parties' contract." TimeGate settled out of court after alleging "Section 8" trademark infringement in two prior cases, one against ABC, and a second against Paramount Pictures.