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IPE Update: Court Issues Ruling On Star Citizen Motion To Dismiss

Here at MMO Fallout we try to avoid saturating our coverage of lawsuits for two reasons: The first being that unless the court is making a judgement or one of the parties introduces some profound claim or evidence, the court filings in between are about as interesting and productive as this. Thankfully we’re finally getting somewhere in the case of Crytek v. Roberts Space Industries and Cloud Imperium Games.

For those of you who need it, a quick summary: In the far flung past of December 2017, Crytek officially launched a lawsuit against CIG and RSI containing accusations of breach of contract over Star Citizen and Squadron 42. The major points of contention in the lawsuit come down to RSI/CIG no longer using the engine, and whether that constituted a breach with regards to royalties, obligations to collaborate, use trademarks in advertising, paid royalties, etc. In my previous coverage, I noted that CIG’s successful dismissal of the case was highly unlikely due to the nature of the allegations.

1. Terms of Contract, or, The Prevailing Document

In its motion to dismiss, Roberts Space Industries motioned to dismiss its part in the lawsuit, claiming that it did not sign the GLA and thus is not a party to the GLA. In its decision, the court noted that the ToC and GLA contain conflicting information, as both attempt to define the term “licensee” with the GLA only involving Cloud Imperium Games and the ToC including both parties. Since the terms of the contract state that any case of conflicts between the documents would lead to the ToC being the prevailing document, the court ruled that Roberts Space Industries is a signatory to the contract.

Motion to dismiss has been denied with the court refusing to consider plaintiff’s other arguments.

On a side note: We actually discussed something similar to this just recently. In regards to prevailing documents, you may recall that this same ruling was handed down against Trion Worlds, as conflicting documents between their End User License Agreement and Terms of Service in regards to where legal disputes could be held led the company to losing its attempt to pull the lawsuit into arbitration, as well as its appeal on the same matter.

2. The Defendant’s Conduct, or, Breach of Contract

The second issue that the courts ruled on this week is the question of the definition of exclusive. I gave a lot of attention to this in my prior coverage because this is an important distinction with the potential to go very, very wrong depending on the understanding of the judge.

In its lawsuit, Crytek made the claim that when it gave CIG/RSI exclusive rights to use the CryEngine on Star Citizen, this meant that both parties were obligated to use the engine and nothing else for Star Citizen. In plain English, this isn’t how the term “exclusive” is used when it comes to contracts like this, and a license is a grant of permission, generally not something used to restrict the licensee. The court agreed with RSI/CIG that the terms of the contract did not legally bind the defendants into using the CryEngine in their product, and as such the motion to dismiss on this count was approved.

The court was less forgiving on the second part of this claim, however. The second part of this claim has to do with the defendants removing Crytek’s logos from their website in breach of contract. As part of their contractual obligations, CIG was required to display Crytek logos on their website and in game. Crytek’s complaint alleges that the defendants had begun removing their logos as of September 2016 when CIG claims that they had moved away from the CryEngine by December 2016.

Due to uncertainty and an obligation by the court to favor the plaintiff’s first amended complaint, this motion was denied.

The third part of this section has to do with whether or not Squadron 42 being spun off into its own property is considered a breach of contract. In the initial lawsuit coverage, we noted that the terms of contract explicitly allowed CIG to use the CryEngine in one game and one game only, that being Star Citizen. However, we also noted that there was some wiggle room for the defendants to fight this claim, as the contract also defines “the game” as including Star Citizen and Squadron 42. HOWEVER, in defining Squadron 42 as part of “the game,” it was merely a feature of Star Citizen and was not being sold as a standalone product.

RSI/CIG may have breached contract by announcing in late 2015 that Squadron 42 would be sold as a standalone title, as it wasn’t until December 2016 that the public was informed of Squadron 42 switching to the Lumberyard engine. As a result, the court has denied the motion to dismiss on this claim.

3. Claim for Damages, or, Torts for Two

This is an interesting one. In their motion to dismiss, CIG pointed to section 6.1.4 of the contract, noting that its language precludes both parties from recovering damages for intentional or grossly negligent conduct. The defendant attempted to cite the clause, claiming that it would only allow for exceptions in claims of tort (common law) over contract (terms between the parties). The court disagreed, threw out the cases that CIG used to support its claim, and summarily denied their motion to dismiss.

4. Copyright Infringement, or, Squadron 42

Squadron 42 has been a big source of contention between Crytek and CIG and could make or break certain parts of this lawsuit. Just to go over the facts again, Crytek’s contract for the CryEngine allowed CIG/RSI to create one game, Star Citizen, with Squadron 42 being just a feature of the main game. The contract expressly does not allow CIG to use the CryEngine to separately market or sell a second game, which they proceeded to do by marketing Squadron 42 as a standalone title.

In their defense, CIG noted that Squadron 42 is being developed with the Amazon Lumberyard engine and thus did not breach the terms of the license. In their lawsuit, Crytek states that the announcement that CIG would be using the Lumberyard engine came in December 2016, while the announcement that Squadron 42 would be its own standalone game came a year prior. Presumably this would imply that Squadron 42 was in development, with the plans to sell it as a standalone product, using CryEngine at some point, thus being a breach of contract.

This allegation will need to be settled in court with discovery to figure out when Squadron 42 was split off into a standalone game and when CIG stopped development on said title using the CryEngine, so the court has denied this motion to dismiss.

5. Prayer for Relief, or, Show Me the Money

This may be a short section.

We already discussed in this piece that CIG’s use of section 6.1.4 to preclude recovery has been denied. In addition, the court ruled that Crytek had sufficiently plead facts that support entitlement to injunctive relief, alleging that defendants released videos containing confidential CryEngine information as well as entering into a partnership with a third party studio and giving them access to confidential Crytek technology in violation of their license. As a result, the court has denied CIG’s motion to dismiss Crytek’s claim for injunctive relief.

In regards to statutory damages and attorney’s fees, defendants argued that the Copyright Act does not allow recover of damages and attorney’s fees because Crytek registered its copyrights after the infringements took place. The court agreed with this interpretation, however the game license states that the prevailing party will be entitled to recover attorney’s fees in the case of litigation. The court notes that Crytek is unlikely to recover any statutory damages, that they are not willing to make a decision at the pleading stage of the lawsuit and has thus denied this motion.

As to Crytek’s demands for punitive damages, the court ruled that California law does not permit punitive damages in cases of a breach of contract, nor does the Copyright Act. As such, the motion to dismiss Crytek’s claim for punitive damages has been granted.

And finally, the court ruled on Crytek’s claims regarding potential conflicts of interest regarding the parties involved in the contract negotiations. While the defendants argued that the claims were not necessary or important to Crytek’s lawsuit, the court disagreed, concluding that the relationship between the parties and their executives may prove relevant, and that the allegations were not derogatory in nature. As such, this motion to dismiss was denied.

6. Conclusion, or, Fire Up That Injunction

Of the six motions to dismiss, the court has granted one in full and one in part. Crytek has been granted a leave to file an amended complaint addressing some of the deficiencies within 21 days, to which the defendants will have 21 days to file a response. After that, we’re going to trial.

(Source: Court Docket)

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