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Timegate and SouthPeak's $7.3M arbitration for  Section 8  overturned

Timegate and SouthPeak's $7.3M arbitration for Section 8 overturned

March 29, 2012 | By Eric Caoili

A federal court has overturned the arbitration ruling that awarded SouthPeak Interactive $7.3 million from Timegate Studios, following a legal dispute over the release of first-person shooter Section 8.

Last November, an arbitrator brought in to resolve the dispute ruled in SouthPeak's favor, and said developer Timegate should pay the publisher $7.3 million damages, and hand over its license for the Section 8 intellectual property, including the right to release sequels, according to Gamer/Law.

The conflict began when SouthPeak purchased Gamecock (Section 8's original publisher), and allegedly manipulated revenue reports to withhold royalty payments to Timegate after Section 8's release for Xbox 360 and Windows in 2009. Timegate sued the company for breach of contract, and decided to terminate the publishing contract with SouthPeak.

SouthPeak filed a countersuit, claiming Timegate made Section 8 a flop by shipping a poor product around the same time as Halo 3: ODST. It accused Timegate of not contributing a required $2.5 million of its own money to Section 8's development, and of releasing a PS3 version and an eventual sequel without paying revenues to SouthPeak.

Peter Vogel, the arbitrator tasked with resolving the matter, found that it was Timegate that had breached its agreement with SouthPeak by terminating their contract. He ruled in favor of SouthPeak for all of its counterclaims, and amended the publishing agreement to give SouthPeak the permanent license to Section 8.

Timegate challenged the decision in court, which voided the arbitration's ruling due to the license awarded to SouthPeak. U.S. District Judge Keith Ellison said that the original contract clearly stated that Timegate would retain the Section 8 IP, and that Vogel's decision to rewrite the agreement was in conflict with the original contract's intent.

"The Court cannot conceive of a way in which a perpetual license, which violates at least two provisions of the parties' contract, and is inconsistent with the fundamental purpose of the contract, is rationally inferable from the contract itself," said Judge Ellison, according to documents posted online (PDF) by Courthouse News.

Judge Ellison said Vogel exceeded his contractual authority, and added, "The provision takes what was a temporary licensing agreement, which required collaboration and coordination between the parties, and expands it into a permanent contract under which the parties are able to develop competing products.

"The contract is turned on its head by expanding the rights of Defendants to allow them to actually create sequels, ports, and add-ons related to the Game, without any obligation to pay [Timegate] royalties. Ultimately, the award gives defendants rights far beyond what even they requested, and awards those rights in perpetuity."

With this ruling, Timegate will not have to pay damages, or hand over its Section 8 license to SouthPeak. The publisher, however, can appeal the decision. SouthPeak has been involved in a number of publishing legal disputes over the years, and was previously targeted by U.S. regulators for Securities and Exchange Commission violations.

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