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Paradox Sues Allegedly Insolvent SouthPeak As Distro Deal Sours

Paradox Sues Allegedly Insolvent SouthPeak As Distro Deal Sours Exclusive

March 19, 2010 | By Leigh Alexander

A distribution agreement between PC developer and publisher Paradox Interactive (Victoria II, Hearts of Iron) and publisher SouthPeak (My Baby) has gone sour, and Paradox has filed for an injunction.

According to legal filings obtained by Gamasutra, Paradox claims SouthPeak owes it some $585,382 it's collected from the sale of its games -- the money remains unpaid due to SouthPeak's "insolvency", claims the filing.

"SouthPeak has failed to comply with its payment obligations even for game units which it previously reported to Paradox, and SouthPeak's executives have informed Paradox's executives that SouthPeak is currently financially unable to satisfy its payment obligations to Paradox under the Agreement," reads the filing.

Paradox claims it then terminated the distribution agreement and sought arbitration in February of this year -- and that SouthPeak responded with a letter from company chairman Terry Phillips that "threatened" to seek the return of unsold inventory from retailers.

"There is no rational business reason for requesting such returns; it is contrary to the provisions in the Agreement for post-termination handling of product," the filing continues.

Paradox claims it would be "irreparably harmed" if SouthPeak should request a return of the unsold games regardless whether or not they can still be sold.

The company's asking the court to prevent SouthPeak from pursuing this step, in order to allow Paradox to deal with unsold games itself, possibly by working with retailers on markdowns if necessary. It also wants the appointment of a receiver to collect the money SouthPeak allegedly owes it for the distribution of its games.

SouthPeak reported a $2.6 million loss in its most recent fiscal quarter, but says it made a "strategic decision" to ship fewer titles. It also recently extended its credit line to $8 million borrowed from SunTrust banks.

This isn't SouthPeak's first instance of legal trouble with other game companies. A UK high court ruled that the company was responsible for copyright infringement against German publisher CDV after a distribution deal between the two went bad and SouthPeak was found to have breached contract.

Section 8 developer TimeGate studios is also in the midst of a suit against SouthPeak, accusing the publisher of withholding royalty payments and of violating their publishing deal by inking a PlayStation 3 porting deal for the game with Russian company 1C. Most recently, SouthPeak inked a distribution deal for North America with German Risen publisher Deep Silver, and gave Deep Silver a minority stake in SouthPeak as "partial compensation".

Both Paradox and SouthPeak declined to comment on this story, citing pending litigation.

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