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Arguments on why Interplay should (or should not) get the Fallout IP back - Beth v Interplay

Agent c December 13, 2011 User blog:Agent c

Hello again,

The Bethesda v Interplay trial is underway. We don't yet have any documents to tell us what's going on except to confirm that the trial is actually happening. Hopefully this will all become clear in the next few days.

However we do have a nice document here from Interplay outlining their argument as to why the Fallout IP should revert to them; and thanks to the previous document we covered we can cover both sides' main argument on this point.

The arguments here are fairly technical in that they point out what has happened in other cases (this is called precedent). This possibly highlights one of the reasons why both sides have gone for a trial-by-judge rather than trial-by-jury - it can be a little tricky to understand without some sort of legal background, but I'll try to keep it as simple as I can.

Usual disclaimer: IANAL

Interplay Says the whole contract is void

When the Fallout rights were purchased and the MMO rights licensed back this was covered in 2 documents - the Asset Purchase Agreement (APA), and the Trademark License Agreement (TLA); however Interplay argue that the TLA is in effect a part of the APA and that both documents cannot be read seperately. Contracts are binding in Delaware law (says the document) "when (1) the parties intended that the contract would bind them, (2) the terms of the contract are sufficiently definite, and (3) the parties exchange legal consideration. Osborn v. Kemp, 991 A.2d 1153, 1158 (Del. 2010). All three elements are required.". The main issue seems to be on the second point - whether the terms are sufficiently definite. Interplay also argues that even if the TLA isn't effectively a part of the APA if its invalidated it would effectively become an unfulfilled part of the APA and this, they get Fallout back.

Here, both parties signed the Asset Purchase Agreement (APA) and Trademark License Agreement (TLA) indicating an intent to be bound and both parties purported to exchange promises of performance. The inquiry does not end with the intent to be bound, however, even if the contract is writing. To be binding and enforceable, the contract must clearly express the terms of the parties' agreement. A fatal flaw in the TLA arises because the terms of the TLA are not sufficiently definite to establish there was a meeting of the minds as to certain very material terms.

As consideration for the APA and as a condition of Interplay's sale of the Fallout intellectual property to BSW, Interplay licensed back the rights to create a "Fallout-branded MMOG," which Interplay always understood to be a massively multiplayer game (MMOG) that includes essential characters, back story and other references sufficient to be recognizable as a Fallout game. Specific language intrinsic to the TLA objectively supports Interplay's reasonable interpretation. Yet BSW contends the same language shows that it intended something entirely different: that Interplay's Fallout MMOG should be just a word on a box.

Interestingly Interplay does sort of have to argue against itself to make this argument:

In this case, although Interplay believes that an objective reading of the TLA comports with its interpretation, Delaware law provides that the TLA is void and unenforceable if the Court cannot objectively determine what rights were conveyed under the TLA. If the TLA is void, the APA also is void and should be rescinded because the TLA is a material term of the APA. If the TLA itself is too indefinite to bind the parties, the APA suffers from the same infirmities because it incorporates the TLA as a material term, as if it were set forth in full within the APA. The TLA, because it is invalid, also constitutes an unfulfilled condition precedent to Interplay's sale of the intellectual property.

And they cite all sorts of example cases where contracts have been voided because of a lack of definite terms. From what I can make of it the Court is limited in what interpretation it can bring to the contract, and if it cannot through the objective theory of reading contracts determine what is in there.

Moving on now to Interplays response to Betehsda's "Fallout name not Fallout game" arguments...

Section 3.4 is a material term of the TLA because it governs ownership of the intellectual property in the MMOG and its content following a termination. The contract addresses the possibility that the license may terminate prior to the commercial release of Interplay's Fallout- branded MMOG. Section 3.4 of the TLA details the elements of Fallout Intellectual Property - in addition to the trademark - Interplay must cease to use in its MMOG should the TLA terminate. It details the Fallout MMOG elements that Interplay may continue to use in a "non- Fallout MMOG." (Emphasis added in court document.)
inter alia, any or all locations, graphic representations, creatures, monsters, names, likenesses, behaviors, religions, deities, environments, legends, fairy tales, stories, universes, character classes or character professions that are in the public domain, are owned by any entity other than Bethesda and/or its affiliates and/or licensors or otherwise are not subject to [Bethesda's] copyright or trademark protection.
Section 3.4 of the TLA further explains that the Interplay-Derived MMOG Elements are those which: do not use, incorporate, trade on or otherwise exploit any Fallout-related intellectual property created by Interplay or by Bethesda or by their respective parents, subsidiaries, affiliates, successors or assigns, including without limitation any Fallout artwork, locations, graphic representations, story lines, creatures, monsters, names, likenesses, behaviors, environments (e.g., vaults), universes, settings, legends, characters, character classes, character professions, packaging, advertisements, text and translations, and any and all Fallout proprietary characters, trademarks, copyrights and artwork listed in Exhibit C-2 to the APA, it being understood and agreed by the parties that all such property is and shall remain exclusively owned by Bethesda. (Emphasis added in court document.)
Thus, when declaring what rights each party would continue to hold and exploit following a termination of the TLA, the parties explicitly agreed that Interplay would continue to exploit only those elements of the MMOG that do not use elements of Fallout-related intellectual property created by Interplay or BSW.
There is no logical reason to define "Interplay-derived MMOG Elements" if Interplay does not hold any rights to use any elements of the Fallout brand to create a Fallout-branded MMOG as BSW contends. All game elements would be Interplay-derived. If Interplay never had any right to use the Fallout elements, the parties would not have set forth in such detail which elements of the Fallout-branded MMOG (i.e. those elements specifically unrelated to the Fallout universe) Interplay may continue to use if the TLA terminates. To read Section 3.4 of the TLA otherwise would render this section nugatory.
If Section 2.1 of the TLA never authorized use of any Fallout-related intellectual property, the MMOG could never contain material that was not original to Interplay. It never would contain any material that was not "Interplay-derived." Because Section 3.4 recognizes Interplay's rights to continue using the Interplay-derived MMOG Elements of its Fallout-branded MMOG, but not those owned by BSW or otherwise subject to copyright or trademark protection by BSW, there never would be a need for Interplay to wind down its MMOG or cancel user agreements. Interplay could just rename the game.
The argument essentially saying "Why bother including all this stuff that would have to be removed and the game shut down if the license was revoked if Interplay never had the license to use it in the first place?"

Interplay also take issue with the quality requirements listed in the TLA:

The Quality Control provisions of the TLA also are material. Quality provisions are very important in a trademark license because the mark owner is obliged to police the quality of the licensed product or risk the destruction of the mark through the grant of a naked license. Here though, TLA Section 5.1.2 states that the Licensed Product (which is defined elsewhere in the agreement as the Fallout MMOG) shall be the "same quality as, or exceed in quality, the quality of the Licensed Products..." What standard applies when the Fallout MMOG only has to be at least as good as the Fallout MMOG? There is no way to tell.

Interplay go on to assert that if the TLA is void, then the APA must be void because the TLA represents a term in the APA - that Interplay get to work on Fallout Online - it would essentially be like agreeing to buying a car, driving it away, but not actually paying for it. Thus Interplay argue the agreement then falls to the existing agreement that gives Bethesda the right to make 3 games - an agreement Interplay notes that has not been breached by either side.

Bethesda Says this all lacks merit

For its part Bethesda also makes some technical arguments which have been discussed in the past. They cite a number of cases which and say Because the question of “mutual assent” is an objective rather than subjective one, a signed, written contract is conclusive evidence of mutual assent to the terms contained therein. and goes on to say;

The issue of “mutual assent” or “meeting of the minds” arises where there is no formal, written, or fully executed agreement. The reason why is clear: Signing a contract conclusively establishes the parties’ objective manifestation of assent to the written terms of the contract. In Osborn v. Kemp, the Delaware Supreme Court dismissed out of hand an argument that there was no mutual assent to a fully-executed contract: “The face of this contract manifests the parties’ intent to bind one another contractually. Both parties signed the contract and . . . also exchanged consideration . . . .” Osborn v. Kemp, 991 A.2d 1153, 1158-59 (Del. 2010). The APA is a written agreement executed by Interplay that transferred to Bethesda all of the ownership rights to any and all trademarks and copyrights related to the video game series Fallout. (See Exs. 1, 2, 3, 4.) In the Joint Pretrial Order, the parties stipulated to the existence of the written agreement. (Joint Pretrial Order at 23) (“The APA, including its exhibits, annexes and schedules, are an entire agreement”).4 Interplay’s claim that there is an absence of a “meeting of the minds” or “mutual assent” fails as a matter of law.


So what is going to happen from here?

Remember I'm not a lawyer, so I don't really know.

I suspect however it depends on how the judge decides things stack in addition to what the actual determined facts are; and there are 4 possibilities: a total Bethesda win (No MMO keep the rights); a minor Bethesda win (Fallout MMO in name only, Bethesda keeps ownership); a minor Interplay win (Fallout MMO but don't get the rights), or a major Interplay win (Bethesda gets to make 1 more Fallout game and Interplay own all the rights).

If its determined that Interplay didn't meet the terms of the TLA; Bethesda would argue that what rights are assigned are irrelevant, whatever those rights were Interplay no longer has them.

On the other hand, Interplay would argue that if the TLA isn't clear enough for the court to objectively determine what rights were transfered then it doesn't matter if they met the licensing agreements or not - the TLA and APA never happened and they own the whole thing anyway.

Its also possible that the court could reject Interplay argument and say that they think the TLA is sufficiently clear - in that case what happens would depend on what the court thinks it says - does it only confer the Trademarks or the copyrights too? If the court thinks its clear (whichever way) then Interplay can't get the IP back, but may be able to make their MMO if they met the licensing agreement.

More news as it breaks.

Agent c 16:41, December 13, 2011 (UTC)

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