CDV Software Entertainment AG v Gamecock Media Europe Ltd and Others
| Jurisdiction | England & Wales |
| Judge | MRS JUSTICE GLOSTER, DBE,Mrs Justice Gloster, DBE |
| Judgment Date | 20 November 2009 |
| Neutral Citation | [2009] EWHC 2965 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC09C00767 |
| Date | 20 November 2009 |
[2009] EWHC 2965
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
INTELLECTUAL PROPERTY
Royal Courts of Justice
Strand, London, WC2A 2LL
Mrs Justice Gloster, DBE
Case No: HC09C00767
Robert Howe Esq, QC and Mark Vinall Esq
(instructed by Harbottle & Lewis LLP) for the Claimant
Duncan McCall Esq, QC and Benjamin Pilling Esq
(instructed by Bird & Bird LLP) for the Defendants
Hearing dates: 30 th June 2009 – 3 rd July 2009; 22nd July 2009;
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mrs Justice Gloster, DBE
Introduction
This is an expedited trial, on issues of liability only, ordered by Mr. Justice Morgan on 19 March 2009 in relation to a dispute concerning various computer/video games ("the Games" or "the Products").
The Claimant ("CDV") is a company incorporated in Germany and listed on the Frankfurt Stock Exchange, carrying on business as a distributor of video games. The First Defendant ("Gamecock") is a company incorporated in England and Wales carrying on business as a publisher of video games. Gamecock is and was at all relevant times a wholly-owned subsidiary of the Fourth Defendant, Gone Off Deep LLC ("Deep"), a company incorporated in Delaware and based in Texas, doing business under the name "Gamecock Media Group".
The Second Defendant ("SouthPeak UK") is a company incorporated in England and Wales. It is a subsidiary of the Third Defendant ("SouthPeak US"), which is a company incorporated under the laws of Delaware. On or about 10 October 2008, SouthPeak US acquired the share capital of the ultimate holding company of Deep, and thus became the ultimate parent company of Gamecock.
The case arises out of a publishing and distribution agreement made in March 2008, with an effective date as of 27 January 2008 (the "Agreement") between CDV and Gamecock, under which Gamecock granted CDV exclusive distribution and other rights in respect of seven video games ("Products") in the UK and some 77 other countries, including Europe, Africa and the Middle East ("the Territory"). The term of the agreement was for an initial period of five years commencing on the release of the last Product ("the Initial Term"). After the expiry of the Initial Term, the Agreement could be terminated by either party on 180 days' notice. The parties also agreed that the Agreement would be subject to English law and exclusive English jurisdiction.
Between January and October 2008, CDV paid very substantial advances to Gamecock in respect of the Products, totalling over US $7 million, and had, in addition, incurred very substantial marketing and other costs in preparation for their launch and distribution. CDV contends that Gamecock was late in delivering a number of the Products and that, accordingly, it was entitled to exercise a contractual right under clause 3.1(b) of the Agreement to terminate in respect of four of the games. On 21 November 2008 CDV purported to exercise that right by terminating the Agreement in respect of four of the video games, " Dementium", " Insecticide", "Mushroom Men" and "Velvet Assassin" (collectively "the Terminated Games"), and leaving the Agreement in place in relation to the remaining three games, "Hail to the Chimp", "Pirates vs Ninjas" and "Stronghold Crusader Extreme".
The Agreement also expressly provided that, in the event that CDV exercised its partial termination right: (a) it would be entitled to be repaid the advances which it had already paid in respect of the terminated games, together with certain wasted costs; and (b) it would retain the rights to those Products unless and until these sums were repaid.
Gamecock contends that on the true construction of the relevant delivery obligations under the Agreement, Gamecock was not late in delivering the Products (apart from one, called " Insecticide"); but, if it was, that CDV waived its rights and/or affirmed the Agreement. Accordingly, Gamecock contends that CDV was not entitled to terminate the Agreement in respect of three of the games, and that, by doing so, CDV repudiated the Agreement, entitling Gamecock to bring the Agreement to an end by accepting CDV's repudiatory breach. Gamecock purported to do so on 4 December 2008. Gamecock contends that, in the result, the Defendants are free to exploit and distribute the Products at will and that it is entitled to keep the advances paid by CDV.
Since Gamecock's purported termination of the Agreement in December 2008, Gamecock and SouthPeak US, and SouthPeak UK (collectively the "SouthPeak Defendants") have set about exploiting the Products in the Territory themselves. CDV contends that, in the case of Gamecock, this is a breach of the Agreement; and that the SouthPeak Defendants are inducing such breaches by Gamecock and/or infringing intellectual property rights of which CDV is the exclusive licensee under the Agreement.
In the action CDV claims repayment of the sums which it has paid out under the Agreement in respect of the four terminated games (in total US$4,590,000) together with an injunction against the Defendants to restrain their exploitation of the Products. Gamecock seeks a declaration that it brought the Agreement to an end at common law, and seeks to recover certain sums which it contends were outstanding under the Agreement as at the date of its termination.
The issues
The main issues which arose for the court's determination may be stated as follows:
i) What were Gamecock's delivery obligations under the terms of the Agreement? (This was a question of construction, in particular of the definition of "Delivery Dates" in the Agreement.)
ii) In what circumstances was CDV entitled to exercise a right of partial termination of the Agreement? (This gave rise to several questions of construction, in particular of clause 3.1(b) of the Agreement.)
iii) Was CDV entitled to exercise a right of partial termination in respect of each of Dementium, Velvet Assassin and Mushroom Men?
iv) Did CDV lose its right of partial termination through affirmation or waiver, either in relation to individual Products or more generally?
v) Did CDV, by purporting partially to terminate the Agreement, renounce or repudiate it?
Factual background
During the course of 2006 and 2007 Gamecock's parent company, Deep, entered into a number of development agreements ("the Development Agreements") with various developers to develop video games. The dates of the Development Agreements andthe names of the developers were set out in Schedule 1 to the Agreement. Prior to 25 January 2008, Deep had already paid out US$8.7 million and €600,000 pursuant to the Development Agreements.
On 25 January 2008 Gamecock and CDV entered into a binding "Letter of Intent" ("the LOI") in relation to six of the games. In its construction arguments, Gamecock placed considerable reliance on its terms. The parties intended that the LOI would be replaced in due course by a longer form of agreement. The Letter of Intent anticipated that a long-form agreement would in due course be drawn up, stating in its second paragraph:
"We intend to conclude a long-form agreement confirming the terms of this LOI as soon as possible but this LOI shall be binding on the parties until replaced by such long form agreement ('Agreement') which will be in substantial conformity with the terms hereof."
By clause 1.1(a)(i) CDV agreed to pay Gamecock a total advance in respect of the relevant computer games of US$9,450,000 in instalments which were set out in clause 1.2.
Clause 1.1(a)(ii) was in part the precursor of clause 3.1(b) of the Agreement itself (i.e. the term pursuant to which CDV purported to exercise partial rights of termination). It provided a right of partial termination in respect of individual games in the event of a delay to the Delivery Date in excess of 45 days.
The LOI defined "Delivery Dates" as meaning "the dates for delivery of the Products set out in Schedule 1, time to be of the essence". Schedule 1 was a table which was for present purposes identical to the table in Schedule 1 to the Agreement itself, save that one of the games (Pirates vs. Ninjas) did not feature. There was no equivalent in the Letter of Intent of the table which appears at Schedule 7 to the Agreement itself.
Thus, the contractual regime under which parties were operating between 25 January 2008 and 27 March 2008 was one under which the final delivery dates for games with which the Court is currently concerned were the following, being the last day of the relevant quarter of the particular year specified:
i) Dementium– 30 June 2008.
ii) Velvet Assassin– 31 December 2008.
iii) Mushroom Men– 31 December 2008.
The parties subsequently executed the Agreement on 25 March 2008, which replaced the LOI, and took effect retrospectively as from 27 January 2008. The recital to the Agreement provided:
"This agreement is being entered into in order to supersede and replace the LOI entirely."
Clause 11.4 likewise provided that:
"any and all written or oral agreements previously existing between the parties and including for the avoidance of doubt, but not limited to, the LOI are expressly cancelled and superseded".
The Products had not been fully developed when the Agreement was made. The structure of the Agreement was that Gamecock would have direct relationships with the developers of the Products, and that CDV would provide funding towards the development by payments of large advances to Gamecock, totalling...
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