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Bethesda vs. Interplay: court transcripts, part 2

Ausir January 14, 2010 User blog:Ausir

Thanks to Interplay shareholder orionquest, we have acquired the second part of the partial transcript of the preliminary injunction hearing in the Bethesda v. Interplay case. Hopefully, he'll eventually share the full thing with us. The first part can be read here.

Mr. Gersh is Interplay's lawyer, Mr. Marbury is Bethesda's, and the Court is judge Deborah K. Chasanow. TLA refers to the Trademark Licensing Agreement, while APA refers to the Asset Purchase Agreement.

You can notice that the text includes some typos, but we kep the text as it is presented in the court documents.

MR. GERSH: Trilogy, as far as I'm concerned, I think the evidence would be clear, doesn't refer to a third version of a game like Fallout Three. You'll see from the documents we've submitted, the packaging is completely different. The packaging completely identifies the product within it, but most importantly, there is no confusion in the marketplace. Zero. Yesterday during the deposition there was testimony by Mr. Leder, the COO of the company, that they had possibly two complaints to their customer service office, talking about they needed a patch or a fix for a game. They have not one complaint in the millions of copies they should of Fallout Three, that one consumer was confused by Fallout Three and Fallout Trilogy thinking they were the same. Not one. They have no survey. They have no evidence of any confusion. I don't even belief when Your Honor looks at the two packaging that you could even say there is a likelihood of confusion. It doesn't exist. They're clearly identified. This is not the same as somebody actually taking Fallout Three and using it. It's clearly marked. The font is the same. The lightening bolt and the O is the same, exactly what we've been using in the past, exactly what is continued to be used today by the Plaintiff. So I submit there is not any confusion. There is not likelihood of confusion when it relates to that.

The other issue that you have to deal with is whether or not they're likely to prevail. We have the balancing test that we deal with, et cetera, and I submit that once all the evidence has been brought out to Your Honor, you've looked at what's going on, you'll see, one, no confusion, two, no likelihood of success, three, the balance of the hardships would tip strongly in the favor of Interplay. They've been using this in the past, and if the only thing that is the problem is the use of the word "Trilogy," then we should know that that's the problem and that can be addressed by the Court and us, but there should not be an injunction issued to stop Interplay from doing that which it had previously done. Also, there will be testimony from Mr. Caen that when he licensed, when he sold the product and licensed it back there was an expected revenue stream for the company for years to come, and as a matter of fact, not only that, Mr. Marbury indicated that we're trading on the good will of the Fallout brand. Well, that's exactly what we're going to do. That's exactly what was intended by the agreement.

They licensed Interplay back the right to be able to sell the pre-existing games in perpetuity, no termination provision in the document whatsoever, and there is a termination in the TLA, but there isn't a termination right or provision in the APA or the asset purchase agreement. And there's no question that the consequence of Interplay continuing to sell product, every time a Fallout game is released by Bethesda the consequence will be that the earlier game increase in sales and there is demand for them. Their own witness indicated that is a consequence and that's going to happen. So when Mr. Marbury talks about trading on the good will, yeah. That correct. We're going to. We bargained for that, and they knew it and they know it. That's exactly what we're doing. It's going to help the sales of Interplay's earlier game and Interplay is going to continue and should be allowed to continue to market its games world wide as it has in the past.

With respect to the MMO, we have some very threshold issues to get through before I believe an injunction could even be considered to be granted in this case.

First of all, this game is not going to be released for at least two years, possibly three years, not even going to be completed. Why we're here trying to enjoin something that's under development is beyond me.

Secondly, Interplay has the absolute and unfettered right under that agreement to continue to develop this game, and if it is ultimately not approved because of the quality or other reasons under the terms of the agreement or, for that matter, if ultimately at the time of trial Your Honor decides that there was some violation that should have stopped Interplay, they have the right to change characters and scenes and do what is necessary to release that MMO.

So, how do we fashion even an injunction when we're thinking about it, you can't say "Interplay, you cannot make a MMO. You can't make an MMO with Fallout characters." Then we're going to have an argument, does this character look like a Fallout character? Is it similar? Is it close? The language of the agreement defines what can be done, and it's a little bit vague and a little bit left for everybody to kind of decide as we go. But I don't think we can decide that until 1 the game is done. Did we meet the standard or not.

There is a provision in there that says if this agreement, I'm sorry, if the game is not approved we can take out the Fallout characters to the extent any are in there. We can take out the scenes, and we can continue to make the MMO. They can't stop us from making an MMO, which is exactly what they're trying to do, so we have that problem.

We have a bigger problem. The two conditions that Mr. Marbury has indicated, they're incapable of being enforced, absolutely incapable. They're vague. They're ambiguous. They're illusory at best.

Let's start with the first one. We had to secure $30 million in financing. What does that mean? I don't know. Why isn't it defined in the agreement? The witness, Mr. Leder, the COO, didn't know. Why wasn't it made clear what it had to be? Didn't know. Did it have to be, did the money have to be in the bank? Absolutely not, he said. Did they have to have a line of credit? Maybe. What does it mean? How do we interpreter that?

By the way, Mr. Leder testified yesterday that Interplay was fully permitted to use a third party to help develop the game for them. Masthead. If Masthead is going to spend $20, $million in its development, why isn't that adequate? I'm not sure. I think it is, but I don't know. I don't know what secured, secure financing means.

Everybody know it, Mr. Leder said. Everybody will know what it means. Well, but it didn't mean in the bank. It didn't mean they had to have a specific line of credit. It also doesn't mean, and there is nothing in the agreement that says they have to be able to use $30 million on day one. This is a project that's going to take four to five years to develop. So secured financing over some period of time that they're going to be able to have that amount of money. That might be reasonable. Is that what Interplay is doing? I believe so.

Now we get to the next step. And remember, they have to have both, as Mr. Marbury said. You got to be, commerce full scale development. Your Honor, what does full scale development mean? I don't know. Doesn't say it in the agreement. No definition.

Mr. Leder said "Boy, it's a very complex situation. Hard to describe," and he listed a whole bunch of things yesterday for full scale development. I said why is it in the agreement? I don't know. How does Interplay, how is Interplay supposed to know when full scale development starts? I don't know.

This is an agreement drafted primarily by DLA, who represented the Plaintiff in this case. They had five in-house business people review this agreement. They had their in-house, at least one in-house lawyer and at last one lawyer at DLA review it. That's seven people looking at this document. And we're left here today before you with this preliminary injunction with the two most important provisions of that TLA undefined and unknown and we have to guess. Interplay has no way of determining when it's in compliance. You have no way of determining when it's in compliance for purposes of this preliminary injunction. Maybe at trial it's different. Maybe if there is expert testimony that comes along at the time of trial on what standard in the industry means, we get there. Maybe. But I don't think so because I don't think anybody can define full scale development in the context of what they're doing or what they understood. It could only possible be what theses two parties meet in their minds.

And Mr. Leder couldn't even tell us, the COO, yesterday, what it meant and when it started. It's a complex situation. If you can't decide when that starts, the provision's illusory. You can't enforce this agreement. If you can't determine what it means and, you know, clearly, unequivocally what it means to have secured $30 million in financing and we've got to go speculate for something, that may be a trial issue. We're here on a preliminary injunction. It's got to be clear. It's going to go unambiguous. And I submit, Your Honor, you don't even need testimony if Your Honor looks at those two provisions and says "Wait a second. Is there any definition of these? Is there any way I can determine as the Court what these mean and when this was suppose to happen for Interplay?" And when your answer comes up "Nope. There's nothing in the agreement," we should all go home. Thank you, Your Honor.

THE COURT: Mr. Marbury.

MR. MARBURY: Very briefly, Your Honor. I'd like to continue along the part here of discussing the MMO separately from the TLA.

I'm at a little bit of a loss of words on this issue, because to have a company that's been active, a publicly traded company that's been active in the marketplace, raising money, putting out games, operating for year, decades, to say they don't know what secured financing means is just hard to understand.

It's not unclear. What they're trying now to do it's clear, is try to negotiate that two year obligation into a five year obligation, or a six year obligation.

What Mr. Gersh failed to point out was that Interplay was also represented by counsel. They negotiated the agreement too. They understood what it meant when they went into it. There is no question what secured financing means. Everybody knows what that means.

The same can be said about full scale development. The parties understood that, and Mr. Gersh's characterization of the testimony I don't think is completely accurate from yesterday, but you'll hear it later and you can determine that. But the parties understood exactly what they were getting into when they got into this agreement back in 2007.

The suggestion that we don't have to deal with this until launch is just wrong. The contract says we're suppose to be dealing with it in two years. More to the point, the contract, in §3.4 very clearly explains what, in the event of a termination, Interplay can do, and it says very clearly in §3.4 that they are not allowed to use our characters, our environment, our story lines, our setting, our characters, our character classes.

The parties have already negotiated this. You can't just take out some of the characters. It's the world. Their project right now, it's been titled Project V13, and that's a reference, we understand, to Vault 13, expressly something that's excluded from their rights going forward to use Vault. So you understand the context, the idea here is that in the post-apocalyptic world people went underground into the vaults. The Fallout story starts in Vault 13. Those are things that they bargained away. So the idea that five years down the road, or years down the road when these guys have finished the game, they can simply flick a switch and suddenly have a non-violative game, it just doesn't make any sense. In terms of customer confusion, we'll have testimony from Mr. Leder that not only were there some calls in to customer service, but there were also, he had discussions with marketing people, I'll show you a picture from WalMart where the two things are on the shelf. A number of people complained that way.

More to the point, customer, actual customer confusion is one of, I believe, eight criteria that we need to show. It's not even actual, it's likelihood of confusion. Of the eight criteria, Your Honor, we nailed seven out of the eight. It's not a requirement for a finding of trademark infringement.

The other criteria, Defendant's intention. Well, we understand their intention. They're intentionally doing this, so we have proven that.

Is it the same mark? It's the identical. It's not E Fallout, or some variation in a foreign language. It's the exact same mark. It's the exact same goods. It's the exact same sales channels. It's the exact same advertising, sometimes on the same shelves.

So, to the extent that we haven't done a survey in the last month and brought in an expert witness who would not have been allowed because we were limited to the affidavits that we had submitted along with our motion. It doesn't matter for the purposes of reaching a conclusion here. And, finally, you know, to point out on the asset purchase agreement side and to claim that the merchandising rights were perpetual is illogical. They argue that there is no termination provision in the asset purchase agreement. Well, Judge, it's an asset purchase agreement. It's a transfer. There's a closing.

Having a termination provision, express termination provision, makes sense in the trademark license agreement. It doesn't make as much sense in an asset purchase agreement. But if you put that aside, the logic fails. The logic has to be, the word "perpetual" shows up no nowhere in that agreement, Judge. There is no perpetual language in there. This is just an interpretation. But the logic, if you continue it to its extreme, is that they can breach that contract ten ways to Sunday, but they get to continue to sell, and that just can't be right. That can't be the law.

So, we think that our case is a clear one. We agree that, you know, we need to look at the contract documents and focus on what has been done and what has not been done by the parties. I think we can clearly establish what has not been done. They have not submitted these boxes for approval. They have not gotten the $30 million and they haven't started full scale development. Thank you.

THE COURT: Um hum.

MR. GERSH: One point if I may, Your Honor.

THE COURT: Um hum.

MR. GERSH: I just want something to be very clear. Mr. Marbury said that Interplay was represented by counsel in the negotiates. Not true. Didn't come out in his deposition. Mr. Caen represented the company, handled the transaction himself. Did not have counsel go over the document for him. This is seven people on one side, one person on another. This is how the document came out.

On the issue of the termination, which is the last thing I wanted to say under the agreement, all they had to do was make their language clear as to what was going to happen, and they didn't. Instead they created confusion. They created it in the TLA and they created it in the APA, and I don't think there is enough for the preliminary injunction to issue. Thank you.

THE COURT: All right. We're ready to hear witnesses.

MR. MARBURY: That would be great.

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