Cloud Imperium Games – MMO Fallout

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)

In Plain English: Crytek V Cloud Imperium Games (and RSI)

1. Dismissal Sounds Unlikely

Let’s start off at the same station and make a few things clear: Despite what is being tossed around on the internet, this case is not a slam dunk for either side (at least not evident from the statements being thrown back and forth). It is very likely that this case is going to go to trial, as there are a ton of allegations being made and accusations that are going to require the backing of email communications and witness testimony. We are not at the point in the case where either side is trying to convince a judge/jury, that won’t come for months down the road.

What Cloud Imperium Games is doing with its response is attempting to have the case dismissed by convincing the judge that the accusations have no merit and including comments that there are no damages to be recovered regardless of Crytek’s claims of breach. Since this is a gigantic lawsuit, I wanted to go down the list of points that I found interesting so far. This is not comprehensive and will certainly be followed up with when more details are presented.

2. The Definition of Exclusive

With this lawsuit between Crytek and Cloud Imperium Games, it looks like we’re diving back into the Clinton era legal argument about what the definition of ‘is’ is. A major point of contention that Crytek is bringing forward in this lawsuit is the definition of exclusive, how it was applied when forming the agreement, and what exactly it means for both parties.

Section 2.1.2 of the Game License Agreement states that this contract gives CIG the rights (and I’m quoting) “to exclusively embed CryEngine in the Game and develop the Game which right shall be sublicensable pursuant to section 2.6.” Here’s where we get to the definition of “is” as Crytek is claiming that this passage means that CIG agreed to use the CryEngine and only the CryEngine in Star Citizen, as seen in this section of the original complaint:

“Crytek and Defendants subsequently formalized their relationship by entering into a Game License Agreement. In that Agreement, Defendants promised, among other things, (i) to use the CryEngine game development platform exclusively and to promote that platform within the video game...”

CIG is naturally going to fight this claim, and understandably the wording in the license agreement is incredibly vague for the kind of contract where every line should be worded to remove any doubt or wiggle room for interpretation. To the layman, the wording of the agreement seems to indicate that the license does indeed require CIG to exclusively embed CryEngine and no other engine. As far as contracts like this go, however, such a definition of exclusive is not standard by a long shot. Exclusive in these sorts of agreements is generally understood to mean that Crytek would be granting the license to CIG alone and no other company in the agreement, rather than obligating CIG to use said engine.

CIG’s response:

The GLA further shows that CIG has an exclusive right, not a duty, to use the Engine in the Game. Through hiding the GLA, Crytek contorts the word “exclusively” to argue that the word means that CIG somehow is required to use the Engine in the Game. The plain language of the GLA where the grant of rights to CIG appears, plus the well-established concept of an exclusive license, instead establish that the word “exclusively” simply means that CIG’s right to use the Engine in the Game is exclusive to CIG and Crytek may not give that right to anyone else.

Right, except that this agreement seems to be anything but plain language, and the license agreement actually differentiates the two concepts. Where 2.1.2 allegedly requires CIG to exclusively use the Crytek engine, the question about sublicensing is taken care of in the previous step of the agreement.

2.6 of the agreement basically just says that CIG can sublicense the engine only to contractor developers, with prior written approval by Crytek, for the purpose of developing the Game. This is one of those lines that is likely going to require witness testimony on what exactly the companies negotiated, assuming the Judge/Jury doesn’t accept either definition of exclusive as a given fact.

3. Do You Understand Crytek’s GLA? Does Crytek?

Here’s an interesting note: You may notice in the passages from the lawsuit and license agreement that both parties say “the Game” (emphasis on the capital G in Game) regularly instead of Star Citizen when referring to terms that both parties agreed upon. There is a legal reason for this.

“The Game” is the legal definition given in the license agreement to, and I’m quoting the agreement here:

“the game currently entitled “Space Citizen” and its related space fighter game “Squadron 42, together hereafter the Game”

No that wasn’t a mistake on my end, yes the GLA actually gets the name of the game wrong and refers to Star Citizen as Space Citizen, but that’s not the key issue here.

This rolls into one of Crytek’s other claims, that the existence of Squadron 42 is a breach of the agreement because while it began as a mode for Star Citizen, it had since branched out into a separate purchase and, according to the license agreement, Cloud Imperium only has the rights to develop one game. Any time you see the word “Game” with the capital G, it is referring to “the game Star Citizen” and “the game Squadron 42,” combined together. Another section of the agreement goes further and states that the agreement does not include any game not accessed through the Star Citizen game client, or sold for a separate fee.

This is why clarity is necessary, and here is where we lead to another issue that the court is going to have to decide. Crytek’s contention with Squadron 42 is that CIG announced in December 2015 that Squadron 42 would be a standalone product. By December 2016, CIG announced that both Star Citizen and Squadron 42 would be moved over to the Amazon Lumberyard engine, and Crytek is going after the year that the game may or may not have been in development under their engine, claiming loss of royalties and upfront payments that would have been owed had CIG licensed a second copy of the engine.

The big question is whether or not the license agreement which appears to explicitly recognize Star Citizen and Squadron 42 as separate games, but licenses them both together, is at odds with Crytek’s claim that selling Squadron 42 as a standalone product is a breach of the terms against selling separate products, or whether any of this is even applicable since neither game is using the engine.

3. Crytek’s Negotiations: A Blank Check In A Used Car Dealership

Another thing you’ll see crop up more than once if you read Crytek’s complaint is how the company graciously negotiated a substantially lower sum than its usual licensing fee on the grounds that Cloud Imperium Games would exclusively use the license and also heavily promote the CryEngine to its base. Since CIG is no longer using the engine, thus depriving Crytek of further licensing fees, the company feels that it’s been substantially damaged by not receiving the full, usual license fee. Money that they willingly gave up in negotiation.

The licensing fee negotiated under the GLA reflected a substantial reduction from Crytek’s usual licensing fees in view of the promotional consideration and other consideration that Defendants promised to Crytek in Sections 2.8.1, 2.8.2,and 2.8.3 of that Agreement. In view of the fact that Crytek has been deprived of that promised consideration, Crytek has been substantially damaged, and has failed to receive the balance of its full, usual license fee.

Crytek is apparently so angry about the conclusion of this agreement that they’ve taken to potentially slandering some individuals involved in the negotiation process. They actually call out by name Crytek co-founder Ortwin Freyermuth, who was a former Crytek employee and negotiated the deal on behalf of CIG, for apparent conflicts of interest and never recused himself from the negotiations or resolved that conflict of interest, despite apparently knowing confidential information about Crytek.

“Notwithstanding that he had confidential information about Crytek’s licensing practices that would unfairly advantage Defendants, Freyermuth never recused himself from those negotiations and never resolved that conflict of interest with Crytek,”

Except that claim is allegedly a complete and outright lie. In the declaration presented to the court by CIG lawyer Jeremy Goldman in support of the motion to dismiss, who also kindly submitted a copy of the license agreement that Crytek for one reason or another had withheld, Freyermuth’s conflict of interest was never in question. In fact, Crytek not only didn’t have an issue with Freyermuth’s involvement at the time, they went as far as writing and signing a conflict waiver allowing him to take part. Goldman has this conflict waiver, apparently, and no doubt we will see it once this case goes to court.

It seems like a lot of this lawsuit is intended to force CIG to keep paying Crytek royalties, because the company made the arguably poor decision to substantially lower its licensing fees on what they may have seen as a huge long term earner, they negotiated a contract that may or may not say what they think it does, and now they’re angry that the money train has stopped so they’re also throwing the guys who did the negotiations under the bus.

4. Why Would Anyone Write No Damages Into a Contract?

One tactic that Cloud Imperium is using to quash this lawsuit before it ever goes to court is to point out that the license bars either party from seeking damages in the case of a breach of contract. If there are no damages that can be recovered, and in consideration of the fact that this lawsuit is popping up because CIG stopped using the engine and considers the contract scrapped, bringing this case to court would just be a massive waste of the court’s time, which when you’re trying to get a lawsuit dismissed this is a pretty logical avenue to go down.

Crytek’s claim for damages — an essential element of any breach of contract claim — is precluded by express language in the GLA barring either party from seeking any damages from the other. The FAC also seeks various forms of monetary damages and equitable relief that are unavailable under the GLA or as a matter of law, including statutory damages and attorney’s fees under the Copyright Act, punitive damages, and an injunction.

I read this response and honestly my first reaction was that CIG had grievously misread or is really reaching for something in the license. For the sake of clarity and the fact that it’s one of the few ALL CAPITAL LETTERS parts of the license, let’s look at that part of the agreement in its entirety.

So neither party can be held liable for damages incurred by either party or a third party, even if advised beforehand on the possibility of damages. In their response, it looks like CIG is going for a more in-your-face approach to their motion to dismiss.

House of cards pleading? Sham interpretation? Someone’s going for the jugular.

5. Comments, Disclosure, and Public Access

In wrapping up this first bit of coverage, I’d like to share some disclosures. First, I am not a lawyer and nothing in this coverage or anything else on MMO Fallout should be interpreted as legal advice. As such, I try to refrain from making any judgement calls or act as armchair lawyer on how these lawsuits will proceed or which side has the more solid case, rather In Plain English has always been about presenting the allegations as-is and lining them up with publicly known facts and prior cases.

Another note that I didn’t mention is that Roberts Space Industries is a defendant in the lawsuit even though the company claims it isn’t part of the contract as it didn’t sign. Indeed, RSI didn’t sign the GLA and isn’t even mentioned in the list of sublicensed companies, however they did license Autodesk from Crytek who are claiming that that is enough to keep them involved in the lawsuit. RSI is a subsidiary of CIG.

I will be maintaining a publicly accessible Google Drive folder with the pertinent documents at this link here. Feel free to leave any thoughts or allegations of collusion/bias in the comments section below.

Crytek Suing Star Citizen For Copyright Infringement/Breach of Contract

Always read your fine print, folks, it’ll help you out of a lot of problems.

Crytek has officially launched a lawsuit against Cloud Imperium Games and Roberts Space Industries, alleging copyright infringement and breach of contract. The lawsuit alleges that CIG violated its contract with Crytek back in 2016 when they announced that the first person shooter spinoff Squadron 42 would be sold as a separate product. According to the lawsuit, Crytek contacted CIG to inform them that their license only covered one game, and thus Squadron 42 was not licensed for use with their engine.

Crytek has not been compensated for Defendants’ unlicensed use of Crytek technology in the Squadron 42 game, and has been substantially harmed by being deprived of that compensation, which would ordinarily include a substantial up-front payment as well as a substantial royalty on game sales.

Star Citizen has not been on the CryEngine in some time, it moved over to the Amazon Lumberyard engine which, incidentally, is based on the CryEngine. Based on the lawsuit, Chris Roberts was able to successfully negotiate a substantially reduced licensing fee as long as they promised to prominently promote both Crytek and CryEngine. In return, CIG allegedly reduced and then removed the copyright notices and trademarks completely.

Outside of copyright infringement and breach of contract, it looks like CIG may have signed a clause into their license that made CryEngine the exclusive engine, thus making their move over to Lumberyard in violation of said agreement. Outside of the obvious now-missing revenue stream, Crytek’s lawsuit also notes that CIG’s license included requirements to send bug fix and optimization reports on at least an annual basis, an obligation that the company did not meet. Crytek also alleges that the Bugsmashers video series constitutes publicizing confidential information regarding CryEngine.

On May 6, 2015, Defendants began posting a series of videos online titled “Bugsmashers.” The videos contain excerpts of information from CryEngine that were confidential, in breach of the GLA, and should not have been shown to the public. The series continues today.

Crytek is asking for damages well in excess of $75,000 (the exact number will be seen). The charges seem pretty cut and dry, if Crytek has the supporting evidence than the next step would be for the court to determine damages.

CIG has commented to several websites on the matter:

“We are aware of the Crytek complaint having been filed in the US District Court. CIG hasn’t used the CryEngine for quite some time since we switched to Amazon’s Lumberyard. This is a meritless lawsuit that we will defend vigorously against, including recovering from Crytek any costs incurred in this matter.”

(Source: Scribd)

Column How Reddit Once Again Bamboozled the Media

I have a distinct advantage over traditional media with MMO Fallout; I don’t run ads, I don’t have sponsors, and I have given minimal thought to opening a Patreon. As an entity, I am completely unaccountable for boosting views to their maximum potential, and as a result I enjoy the unique trait of not being beholden to being the first to publish a breaking story. I do try to keep the news relevant, but at least I have the time to do some fact checking.

Which leads me to this week’s failure to communicate: A number of news websites are running retractions and corrections after it was revealed that stories on Reddit are not entirely trustworthy. A user in the Star Citizen community claimed that he had managed to obtain a refund in excess of $45,000, in the form of three $15,000 refunds for his clan, and that the process had been a "nightmare." This got picked up by a number of websites, I won’t be calling them out because that’s not the point of this article.

So let’s go through the piece and I’ll offer my thought process that came to ignoring this news piece:

"It was a nightmare getting the refund, we are a commercial org and pooled the money to buy the completionist packages, and used a corporate card to buy them, so we had major issues with getting refunded to the same card, paypal and then providing ID. Total it took about 5 weeks to get sorted. A lot of time was spent trying to explain the situation to some woman called "Schala" and just getting the same answers copied and pasted backwards and forwards, they definitely try to delay you as much as possible in the hope you’ll forget or give up."

First let’s get out of the way that this is a first party Reddit story and therefore automatically less credible than your average "Zombie Elvis Lives in Reno" story on the Enquirer (he still performs in Vegas as a member of the Blue Man Group, as anyone knows). On policy, I don’t trust anything that is posted as a story on Reddit, even if the person has "evidence" in the form of easily doctored screenshots and gifs, and doubly so if said poster claims it’s "impossible" to fake navigating a website in a video. It is possible, and it’s very easy.

I also had trouble believing the part of the story that they were trying to delay as much as possible in the hopes that the issue would be forgotten or that he would give up. I don’t think any company thinks that a customer is just going to give up on nearly fifty grand.

Now I don’t claim to be a licensed journalist with a fancy journalism degree, but I know enough from experience and from watching all three seasons of The Newsroom to know that stories must be verified before they are printed. In the thread, another moderator independently verified the refund claims, a factor that isn’t worth the paper it isn’t printed on. You’re verifying an anonymous source with another anonymous source.

So the proper thing to do would be to contact Cloud Imperium Games for confirmation which evidently nobody did before rushing this story to print. CIG has come out since then and stated that the refund was more along the lines of $330 and that the refund was handled smoothly and without issues, also noting that most of the story regarding delays was completely fabricated.

And in case you had any remaining doubts, the user subsequently deleted his account. Case closed. I’m hesitant to attribute the story to "haters" as some in the Star Citizen community have, if anything this is a case of an attention-grabbing headline driving the news on the backs of "well we did say it was just an allegation." And judging by the number of comments on individual articles, it was a success.

Otherwise I have no opinion on the matter.

Spread It:

Like this:

Spread It:

Like this:

Spread It:

Like this:

Spread It:

Like this:

Spread It:

Like this:

Spread It:

Like this:

Spread It:

Like this:

Spread It:

Like this: