Countdown: The 5 Most Influential Video Game Lawsuits of 2012, Part 212/31/20120 Comments
Continuing our discussion of influential video game lawsuits (see part one here), we consider Gate Five LLC v. Beyoncé Knowles-Carter, which pits a small video game developer against superstar power.
The Conflict: Before the spring of 2011, Gate Five LLC probably thought they had a hit game on their hands. After all, they had secured a licensing and performance agreement with iconic superstar Beyoncé, and were in the process of developing a game called Starpower: Beyoncé. But suddenly things fell apart.
According to Gate Five’s complaint, filed in The Supreme Court of New York in April 2011, Beyoncé demanded new terms.  Gate Five believed them extortionate, and when they refused, Beyoncé terminated the agreement, leaving Gate Five with unhappy investors (who had already paid out $6.7 million) and forcing them to layoff a staff of 70 employees just before the holiday. They sued, claiming $100 million in damages,  calling the acts of Beyoncé’s talent agents “morally reprehensible”. 
Beyoncé’s lawyers hold another view. According to press reports, they claim that Gate Five missed a critical financial deadline, and that Beyoncé was within her rights to terminate as a result. Gate Five acknowledges that the finance deadline was missed, but holds that Beyoncé was aware that they were finalizing $19.2 million in additional financing, and that the doctrine of estoppel prevents her from terminating the agreement. 
Hoping to end the case early, Beyoncé’s lawyers filed a motion for summary judgment, arguing that it was without merit. In the meantime, Gate Five sought court approval to force Ms. Carter to reveal conversations she allegedly had after terminating the contract, claiming such would prove that not only did she terminate the agreement unlawfully, but was, in fact, negotiating a deal with another video game publisher at the time. 
The lower court judge denied Beyoncé’s request for summary judgment, and, after her attorneys appealed, the New York Supreme Court’s Appellate Division, denied her request a second time.  Entering the New Year, the case is now clear to move forward.
Why it’s important? Gate Five v. Beyoncé Knowles-Carter considers a rather complex area of contractual law, called the doctrine of estoppel, and weighs it against the technical obligation of contractual performance. In other words, if Gate Five was in breach of their agreement by failing to secure the financing specified, is Beyoncé still obligated to perform? Further, is Gate Five’s failure significant enough to relieve her from that commitment?
Equitable Estoppel Explained: Equitable estoppel originates from the law of equity and within an existing contractual relationship seeks to find fairness. A very simplified example may provide clarity.
Let's say, for example, that you and I agree that you will mow my lawn for $25. We agree to other important terms, including that you will start first thing Saturday morning and will conclude by dusk the same day. We shake hands. The deal is made.
Unfortunately, your Saturday morning doesn’t start well. You arrive late, but I tell you it’s no problem. Your new mower doesn’t start. Again, I say, “Things happen. Don’t sweat it.” Then the mower blade is destroyed after hitting a small rock.
You apologize, and I respond that everything is fine and that I think you’re doing a great job despite the setbacks. For the rest of the day you try your hardest to complete the job as promised. I watch from my balcony, nodding my head, which you believe means, “Good job, keep going.”
Just after sun sinks below the horizon, you complete the final pass on the lawn, and when you come to the house to get paid, I tell you, “Boy, you sure had a rough day, didn’t you? Unfortunately, you didn’t finish on time, and we agreed that you had to complete the job by dusk. You failed, so I don’t have to pay you.”
From a contractual perspective, all other issues aside, I’m right—technically. If the contract specified completion by dusk, then you’re in breach and my obligation is relieved. But is it fair?
Under the law of equity (equitable estoppel) I would still owe you your fee because there’s an element of reliance. I knew you were having trouble, yet I encouraged you, and, when you failed at the very last minute, I suddenly enforced my contractual right. Fairness dictates that I pay you.
Applying Equitable Estoppel to Gate Five v. Beyoncé Knowles-Carter, the parties are poised to argue essentially the same issue. If Gate Five failed to secure financing, but Beyoncé nevertheless encouraged, acknowledged, or endorsed it; her performance obligation could remain. On the other hand, if she made no such endorsements, offered no such encouragement or acknowledgment, then she could be free to terminate the agreement.
Without submerging deeply into the complexities of law, minimally Gate Five will need to prove two things: 1) that it relied to its determent on promises made by Beyoncé or her management while Gate Five secured their financing; and 2) the enforcement of Beyoncé obligation is necessary to avoid injustice. 
That said, Beyoncé, in all likelihood, will not be required to complete the game with Gate Five regardless, since courts have long since acknowledged that personal performance is difficult to compel. On the other hand, she could be barred, as Gate Five has requested, from entering a similar agreement with another video game publisher.  Perhaps more important is that if the court agrees with Gate Five, Beyoncé will liable for the financial implications of her the termination, which Gate Five believes to be $100 million.
As this case moves forward, it may require disclosure of documents that Beyoncé may not want made public. It will also require significant financial investment on both sides, and the outcome could go either way, depending on what evidence is actually presented and whether it is persuasive enough. With all that in mix, a settlement between the parties wouldn't be surprising, since both seem to have motivation to find common ground.
What it means to the industry? When Gate Five secured its agreement with Beyoncé, it landed a very big fish. Did it hook something it couldn't realistically hold on to? Would things have been different had the deal been made directly with Activision, Electronic Arts, or Ubisoft?
I’ve been involved in several video game agreements with musicians over the years, including Christina Aguilera, Britney Spears, and Aerosmith. I’ve also worked on a number of film to video game contracts, and one thing has become clear to me: there’s sometimes a disconnect between the goals of the artistic community and those of the video game industry. Styles and legal approaches are somewhat different, and managing the agreements and relationships that bridge the two requires artful communication.
The video game industry will continue leveraging high-powered, influential entertainment figures, but in doing so we need to keep in mind that landing a big fish and keeping it in the boat are two different matters entirely.
Up next: Silicon Knights v Epic, illustrating the extreme of litigation gone wrong.
See http://dlr-law.com/3/post/2012/12/countdown-the-5-most-influential-video-game-lawsuits-of-2012-part-2.html for an illustrated version and other articles.
 Gate Five’s Original Complaint: http://images.nymag.com/images/2/daily/2011/04/26_beyoncesummons.pdf
Dan Rogers is a practicing attorney within the video game and digital media industries. He’s also the author of several articles on the video game industry, technology, and digital law.