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>Take-Two and 3D Realms are All Out of Gum

>A soured game publishing deal has ended in litigation between the developer and publisher. Last Friday, Duke Nukem Forever publisher Take-Two Interactive sued developer 3D Realms’ parent company, Apogee Software Ltd. Take-Two is accusing 3D Realms of failing to deliver on a contract to produce Duke Nukem Forever after Take-Two paid $12 million in 2000. The success of Take-Two’s suit may depend on how well-defined the obligations are within its publishing agreement with 3D Realms.

Earlier this month, there had been rumors that 3D Realms had shut down, and 3D Realms did confirm that the Duke Nukem Forever development team was let go on May 6. However, today, 3D Realms issued a statement declaring that it is not going out of business. The statement said 3D Realms has not closed down entirely, and 3D Realms still retains ownership of the Duke Nukem-related intellectual property. 3D Realms says it will continue to operate as a company and to license games to support the Duke Nukem franchise.

3D Realms claims that Take-Two did not give 3D Realms the $12 million, but instead paid the $12 million to publisher GT Interactive, which was absorbed by Infogrames way back in 1999. 3D Realms contends that the only money it ever received for Duke Nukem Forever was $400,000 from GT Interactive. 3D Realms says it has been financing Duke Nukem Forever on its own, to the tune of about $20 million thus far. Late last year, 3D Realms said it began negotiations with Take-Two to get enough money from the publisher to finish the game.

3D Realms claims to be satisfying milestones set by Take-Two, despite not having a financing agreement finalized. 3D Realms says Take-Two made a last-minute proposal to acquire all rights in the Duke Nukem franchise and the development team. Those final negotiations fell through on May 4, and the development team lost their jobs two days later.

Several former development team members have posted art and clips of the unfinished game on the internet. In its suit, Take-Two seeks an temporary restraining order preventing the release of any Duke Nukem Forever assets by 3D Realms. However, Take-Two may have difficulty going after former employees of 3D Realms, since 3D Realms apparently owns the intellectual property being posted.

This scenario highlights many issues that need to be considered when entering into a development and publishing agreement. While contracts cannot avoid all problems, they can certainly assist in setting forth each side’s rights ad obligations. Publishers can consider reserving certain rights in the intellectual property related to the game, while developers may want to ensure steady funding before hiring a development team and commencing development. Well-defined funding obligations and milestones, contemplated all the way through game completion, can lessen the chance of vaporware and the need for last-ditch efforts to save an unfinished game. Escrow clauses and intellectual property ownership/licensing provision in the event of a “divorce” can also become highly valuable.

Gavin George is an associate in the Intellectual Property Practice Group of Haynes and Boone. His practice covers all areas of intellectual property law, with an emphasis on technology transactions and data privacy in the information age. His practice includes technology agreement drafting and negotiation, intellectual property analysis and due diligence, and consulting on evolving data protection and social media issues.

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May 2009