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Scratch DJ Game Itching for Damages and Injunctive Relief

By Chris Bennett, Tudor Carsten, Michael R. Coburn, Sarah Dale-Harris, Pablo Guzman, Danielle (Dani) Lemon, Chris Metcalfe and David Spratley

It has been reported that Scratch DJ Game ("Scratch"), a joint venture between Genius Products ("Genius") and Numark Industries, has filed a lawsuit against publisher Activision, former partner and game developer California 7 Studios ("7 Studios") and its CEO Lewis Peterson, claiming that Activision has "engaged in intentional interference with contract, breach of contract, conversion and misappropriation of trade secrets obtained from Genius to purchase 7 Studios, which is under contract to develop the much anticipated new Hip Hop video game, Scratch: The Ultimate DJ." Scratch has also alleged that Activision and 7 Studios have deliberately hindered the release of Scratch: The Ultimate DJ in order to allow the future release of Activision's own prospective game, DJ Hero, to grab the spotlight.

Scratch has explained that while Activision had offered Genius to acquire Scratch: The Ultimate DJ, this offer was refused. It is at that point that Activision began to look to purchase Genius' product developer, 7 Studios, despite a non-disclosure and confidentiality agreement with Genius. Scratch has also alleged that Activision and California 7 studios conspired to impede the release Scratch: The Ultimate DJ.

It is reported that Trevor Drinkwater, President and CEO of Genius, has stated that "We believe that Activision and 7 Studios have improperly used confidential information obtained from Genius and 7 Studios to interfere with our efforts to complete the game. In short, we believe that Activision is attempting to sabotage the release of our much anticipated game and prevent it from getting to market prior to the release of DJ Hero."

Apparently, Scratch is not only seeking damages, but also an order to have the game returned to it immediately, as well as other injunctive relief.

Meanwhile, in response to these allegations, Activision has reportedly issued a statement, denying that there is any truth to these allegations and claiming that the Los Angeles Superior Court "found that there was no evidence of any wrongdoing by Activision and refused to grant any restraining order against Activision." Activision has also claimed that Scratch has made these allegations "to place blame for the game's delay, as well as to divert attention from the cash flow, liquidity and revenue challenges Genius detailed in its March 30, 2009, SEC filing." Finally, Activision also claimed that it acquired 7 Studios to increase its development capabilities, which did not interfere with 7 Studios efforts to complete the game, as it provided much needed financing to the developer.

However, it has been reported that Genius and Numark have claimed that they were the ones to prevail in Court, rather than Activision. The transcript from the Los Angeles Superior Court hearing has been made public by the companies and although the judge began by stating that there was no evidence against Activision and no reason to restrain it from doing anything, the judge went on to say that 7 Studios "has a duty to return the work product, source code, and software of the plaintiff [Genius]." The judge then stated that Activision had to turn over the source code and should it want it back, that it could argue its case during a hearing set for May 6. The judge also ordered a wall-off between 7 Studios and Activision, preventing the two companies from sharing any trade secrets that 7 Studios may have learned from Genius.

The next step in the case is a May 6 hearing, regarding the damages that Genius is seeking.

Coverage at GameDaily.com, Gamasutra.com, GameDaily.com and Gamespot.

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Full post as published by Video Game Law Blog on April 30, 2009 (boomark / email).