Business, Software Programs, Technology Security

Could Bethesda Lose the Fallout Franchise?


The long standing war between Interplay and Bethesda got an interesting turn in U.S. Court of Appeals, who ruled against Bethesda in the appeal of the 2nd injunction against Interplay. This allows the trial by jury to commence on December 12, 2011. For those not in the know, when Interplay licensed the Fallout franchise to Bethesda, the agreement was valid for Fallout 3, 4 and 5, while Interplay would develop an MMORPG based on the franchise. A second contract was signed in which Interplay sold the Fallout franchise to Bethesda Softworks, carrying additional separation between the single player and multiplayer games.

The problem ensued when Fallout became an overnight success and turned into a multi-hundred million dollar franchise. The appetites grew and naturally, rumors ensued that Bethesda wants to create an MMORPG game of their own. Given that Warcraft turned into a multi-billion dollar franchise thanks to enormous success of World of Warcraft, Bethesda started a legal battle over the custody of the franchise.

We have wrote about the situation on several occasions, and the situation did not look good for Interplay as the company had very limited operational cash flow (according to SEC statements). However, Interplay did raise 35 million of the required $30 million in funding. The key problem here though is the wording of the 2nd contract which states they must have 30 million in SECURE funding. Secure funding was never defined, thus Bethesda argued that the 35 million dollar fund is not secure. Another key argument of Bethesda was that the project had to be in "full scale" development by the imposed cut off date. Once again, Bethesda never defined what "full scaling" actually was. Does that mean a working demo which Interplay had at the proposed time? It is now up for the courts to decide.

However, over the past couple of meetings in the U.S. District Court and Court of Appeals, the situation started changing in Interplay’s favor. Judges Agee, Duncan and Niemeyer denied the Appeal of the second injunction by Bethesda Softworks filed against Interplay Entertainment and decided that the case can continue to go to trial by jury.

Explaining the verdict, the district court judges ruled that:

"Bethesda appeals, arguing that the district court abused its discretion and misapplied the law in concluding that Bethesda failed to establish a likelihood of irreparable harm. A district court abuses its discretion when it denies a preliminary injunction motion only if it bases its decision on an erroneous legal standard or clearly erroneous factual findings."

"Here, the injunctive relief that Bethesda seeks would not preserve Interplay?s assets such that Interplay could satisfy a judgment in the event Bethesda prevails on the merits. "

The Court based its decision on multiple cases, including the Microsoft Antitrust Litigation, Elvis Presley Enters vs. Passport Video, eBay vs. MercExchange and many more.

The final quote of the verdict states that "Based on the foregoing, we affirm the order of the district court. We deny Bethesda?s motion to file a supplemental appendix. We dispense with oral argument because the facts and legal contentions are adequately presented in the materials before the court and argument would not aid the decisional process."

Should the outcome of this case null and void the second contract between Interplay and Bethesda (via Interplay’s counter suit), the contract will revert back to the original licensing contract for Fallout 3, 4 and the upcoming Fallout 5 plus the expansion packs via the terms of the licensing contract.

To try to put this in perspective; Fallout 3 sold over 300 million in revenue at launch as well as Fallout 4 a.k.a. New Vegas which also sold 300 million at launch. That?s 600 million+ which translates to $72 million in a payment plus interest if Interplay successfully defends the Dec 12 trial and wins the counter suit. The odds might be low but the main question is can Bethesda afford to take the risk given of losing its cash cow and paying out precious cash when they just bought out ID Software and rage is not a confirmed success yet or will they settle before the court date?

Case 8:09-cv-02357-DKC - Bethesda versus Interplay, Second Lawsuit

Case 8:09-cv-02357-DKC – Bethesda versus Interplay, Second Lawsuit – if Interplay wins, the contract is null and void and Bethesda will no longer be the owner of IP, just the licensee

We’re not talking about at least 72 million dollars. Add the damages which the jury state at their own will – which can be from the tune of couple to couple of dozen million dollars. After talking to our legal counsel, we guestimate that Interplay would stand to receive around 200-250 million dollars in total, which is money that Bethesda definitely would not like to lose. After all, the company got the franchise for a few million dollars while it was dead in the water and scored jackpot, pumping Stimpack into the community which responded with more than 10 million copies sold, plus all the additional DLC packs. Should Bethesda win, nothing will change and Bethesda will get to keep the Fallout franchise.

We expect to see this case settled out of court and that Bethesda will keep the Fallout franchise, but if Interplay remains stubborn and fights the case to the end, we might not see a Fallout title coming for a while.