Source: https://www.scribd.com/doc/238563483/Sega-Gearbox-1
Timestamp: 2017-10-21 22:35:01
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Sega Gearbox 1 | Settlement (Litigation) | Class Action
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Description: Sega Gearbox lawsuit
Sega Gearbox lawsuit
Case No. 13-cv-01962-JD
SEGA OF AMERICA, INC.’S REPLY ISO MOTION FOR PRELIMINARY APPROVAL
QUINN EMANUEL URQUHART OLIVER & SULLIVAN, LLP
Claude N. Stern (Bar No. 96737)
555 Twin Dolphin Dr., 5
Karin A. Kramer (Bar No. 87346)
karinkramer@quinnemanuel.com
Jenny L. Grantz (Bar No. 287960)
jennygrantz@quinnemanuel.com
50 California St., 22
Attorneys for Sega of America, Inc.
JOHN LOCKE and DAMION PERRINE,
SEGA OF AMERICA, INC., a California
corporation, and GEARBOX SOFTWARE
CASE NO. 3:13-cv-01962-JD
SEGA OF AMERICA, INC.’S REPLY IN
SUPPORT OF PLAINTIFF LOCKE’S
UNREDACTED AND HIGHLIGHTED VERSION OF
HIGHLIGHTING INDICATES CONFIDENTIAL INFORMATION SEGA IS
REQUIRED NOT TO DISCLOSE BY AGREEMENT
Case3:13-cv-01962-JD Document93 Filed09/02/14 Page1 of 9
Defendant Sega of America, Inc. (“Sega”) hereby files this reply in support of Plaintiff
Locke’s Motion for Preliminary Approval of the Class Action Settlement Agreement. Although
Sega does not concede that the plaintiffs have a legal basis for claims against anyone, including
Gearbox, Sega submits that the settlement agreement between itself and the plaintiffs is fair,
reasonable, and was entered into in good faith. Gearbox’s opposition to the settlement agreement
is replete with false and misleading statements; as officers of the court, Sega’s counsel has a duty
not to acquiesce in those falsehoods. Gearbox’s statements or suggestions that it was not involved
in marketing Aliens: Colonial Marines (“ACM”), that it was not invited to participate in the
settlement between Sega and the plaintiffs, and that the settlement was not entered into in good
faith are untrue and without factual support.
I. GEARBOX PARTICIPATED EQUALLY IN MARKETING ACM
Gearbox’s opposition attempts to pin responsibility for ACM’s marketing solely on Sega,
when in fact Gearbox was jointly responsible for marketing ACM, often acted independently to
promote it, and frequently acted without Sega’s approval. Not only does Gearbox fail to
acknowledge the rights it had under the contract with Sega by ignoring various provisions of the
agreement between Sega and Gearbox, Gearbox also ignores statements it made without Sega’s
involvement—directly to the public, regardless of who was contractually responsible for formal
announcements about ACM. Sega is not and cannot be responsible for unauthorized statements
actually made by Gearbox about ACM’s capabilities—and Gearbox’s opposition nowhere denies
making such unauthorized statements.
A. Gearbox Was Jointly Responsible for the Marketing and Promotion of ACM,
Including Trade Demonstrations and Press Campaigns
First, Gearbox claims that “[b]y contract, Sega was solely responsible for the marketing
and promotion [of ACM], including every trade demonstration and industry press campaign on
which plaintiffs’ claims are based,” and that Gearbox’s involvement in the demonstrations “was
requested and controlled by Sega.” (Opp at 1-2.)
Case3:13-cv-01962-JD Document93 Filed09/02/14 Page2 of 9
Even putting aside for the moment the falsity of these contentions, Gearbox ignores
statements that it made to the public about ACM, and suggests—without any legal or factual
support whatsoever—that not only is Sega responsible for statements Sega made to the public
about ACM, somehow Sega was also a guarantor of Gearbox’s statement to the public about
ACM. In fact, the Sega-Gearbox agreement created no such guarantee for Gearbox. And the law
does not provide that a party in Sega’s position is either a guarantor or an indemnitor of Gearbox
for Gearbox’s statements—whether true, false or misleading—about ACM.
Per the Development Agreement between Sega and Gearbox, however, and contrary to
Gearbox’s arguments, Sega was not solely responsible for the marketing and promotion of ACM.
Gearbox had contractual rights with respect to marketing ACM, which it exercised heavily.
What’s more, Gearbox had approval rights over Sega’s marketing decisions, and exerted a great
deal of control over the marketing of ACM by exercising those rights.
Although the Development Agreement between Sega and Gearbox originally gave Sega
“absolute discretion” with regard to marketing decisions (see Declaration of John Cheng (“Cheng
Decl.”), Ex. C, § 6.1), Sega was contractually required to discuss and consult with Gearbox on “all
marketing activities along with sales pricing and forecasts” and “all other aspects of marketing,
distribution and/or other such exploitation of [ACM],” (see Cheng Decl., Ex. C, § 6.1), and the
parties had to mutually agree to “the precise particulars of marketing assets” delivered by
Gearbox, (see Cheng Decl., Ex. C, § 6.2). Furthermore, the Third Amendment to the
Development Agreement—conspicuously and entirely ignored by Gearbox—explicitly stated that
Sega and Gearbox would “jointly develop both a marketing strategy and a list of marketing
assets.” (Cheng Decl., Ex. D, § 2.14.) The Fourth Amendment to the Development Agreement—
also ignored by Gearbox’s opposition—went further, listing Gearbox as the sole creative directors
for the majority of the marketing assets to be developed for ACM. (Cheng Decl., Ex. E, at 3-4.)
Sega and Gearbox also jointly attended “Marketing Summits” to plan and make decisions about
marketing for ACM, at which Gearbox made numerous suggestions and demands for the ACM
marketing strategy. (See, e.g., Cheng Decl., Ex. U (Jan. 24, 2010 Marketing Summit minutes), at
1-2 (describing Gearbox’s suggestions for in-store placement, giveaways, pre-order content, and
Case3:13-cv-01962-JD Document93 Filed09/02/14 Page3 of 9
more, and noting that Gearbox and Sega would each develop their own proposals for packaging,
over which both would have approval); Ex. V (Dec. 7, 2010 Summit minutes), at 3 (noting that
“GB have internal capacity to generate all trailers, as well as packaging, an area that Randy enjoys
input” and that “All big beats to be discussed by marketing teams of both SEGA and GB in
January”)).
And Gearbox created or approved all gameplay trailers and television ads for ACM.
(See Cheng Decl., Ex. U (“TV ads generated 100% by SEGA, with GB involved in brief, script,
and signoff.”).) So, both as a factual and a legal matter, Gearbox’s efforts to shunt its
responsibility for its statements about ACM is both false and misleading.
Gearbox’s participation—Randy Pitchford’s, in particular—was a key element in the ACM
marketing strategy from the beginning. For example, a “Proposition Document” setting forth a
broad outline for the direction of development and marketing noted that Gearbox must be given a
certain amount of free reign to generate PR hits. Randy Pitchford is a respected development
celebrity and is guaranteed to be headline material in worldwide press coverage.” (Cheng Decl.,
Ex. S (March 5, 2011 email from Ben Payne of Sega to Steve Gibson and Adam Fletcher of
Gearbox, and others) (emphasis added); see also id. Ex. O (Sept. 24, 2012 email string between
Gearbox and Sega regarding the NYCC press event for ACM, noting that Sega would “plan the
stage presentation in more detail with Randy and the rest of the dev team.”(emphasis added)).)
Mr. Pitchford devoted a great deal of time to promoting ACM at important industry events like
E3. (See Cheng Decl., Ex. V, at 3 (“Randy will be 100% ACM at E3 2011 . . . . Randy assures us
that he can satisfy both retail and press in one presentation.”).)
In fact, in some instances it was Gearbox who developed the marketing message, which it
then provided to Sega, not the other way around. The 2011 E3 demo plaintiffs complain about,
(Compl. ¶¶ 21-27), was created entirely by Gearbox, who then represented to Sega that “the E3
demo is indeed the bar that we should use to determine where the entire game will be. That is
“Randy” is a reference to Randy Pitchford, President of Gearbox. Plaintiffs refer to
statements and conduct by Mr. Pitchford in their Complaint. (See SAC (Dkt. No. 62), ¶¶ 29, 32,
35, 42, 66.)
Case3:13-cv-01962-JD Document93 Filed09/02/14 Page4 of 9
Gearbox’s plan and what they believe in.” (Cheng Decl., Ex. M (July 27, 2011 email from
Matthew Powers to Richard Tawn and others at Sega) (emphasis added).) Gearbox cannot simply
disassociate itself from these statements and actions.
B. Gearbox Often Acted Independently to Advertise, Promote, and Market
ACM, Even Sometimes Against Sega’s Wishes
Next, Gearbox falsely claims that it “did not independently advertise, promote, or market
the game,” that “Sega, as publisher, orchestrated and approved those activities.” (Opp. at 1-2.)
These statements too, are verifiably false. Not only did the Sega-Gearbox Development
Agreement give Gearbox joint control and approval with regard to marketing assets, strategy, and
decisions, but Gearbox also had the power to independently promote—and did actively and
publicly promote—ACM both online, at marketing events, and at press events. And in many
cases, it did so without any approval from Sega.
Gearbox had broad discretion to promote ACM to the gaming “community” it had
developed, as well as the general ACM community. Section 6.7 of the Development Agreement
gave Gearbox the sole right to “develop, host and manage a community website for the Product
(which may contain message boards and other community features),” where Gearbox could
“promote the Product as it deems appropriate.” (Cheng Decl., Ex. C, § 6.7 (emphasis added); see
id. Ex. U (“Community – Gearbox to drive? Yes. ACM forum thread on GB website is now 600
pages strong and still growing.”).) Pursuant to this section of the Agreement, Gearbox created a
community marketing page where it posted screenshots and video assets it either created or for
which it provided the creative direction. (Cheng Decl., Ex. F (screenshot of posts Gearbox made
to its community page in 2012).) Gearbox also created and independently managed the official
forums for ACM, where it could and did post without Sega’s approval. (See Cheng Decl., Ex. W
(June 1, 2011 post to Gearbox’s forums by Adam Fletcher).) Additionally, Gearbox had
administrative access to the official ACM Facebook page, where it could and did post without
Sega’s approval. The Facebook page was run jointly by Sega and Gearbox community managers.
Gearbox also planned, managed, and hosted “Community Days” in Dallas, Texas in 2011
and 2012, where it marketed and promoted ACM. Gearbox did all of the planning for these events
Case3:13-cv-01962-JD Document93 Filed09/02/14 Page5 of 9
itself and controlled what information Sega received about them. (Cheng Decl., Ex. H (May 16,
2011 email string between Sega and Gearbox about Community Day 2011, wherein Sega asks if
“this is something where [Sega] can be of help”; Gearbox replies that they will “let Sega know”
once they have more information about the event).) Gearbox also controlled who attended. (Id.)
Gearbox also ran its own promotions for ACM, such as a giveaway at a gaming industry
convention, which it “handled and hosted entirely” on its own, without Sega’s assistance. (Cheng
Decl., Ex. T (August 1, 2012 email from Chris Faylor to Julian Mehlfeld of Sega).)
Gearbox took this power and ran with it, often making announcements to the press and
public without Sega’s approval—and sometimes in the face of Sega’s explicit disapproval. On
many occasions Gearbox leaked information to the press that Sega had not intended to be made
public at that time, with Sega finding out only after the fact. Sega had limited ability to stop these
leaks because Gearbox had contractual marketing rights.
• Although Sega would sometimes prepare materials to guide Randy Pitchford of
Gearbox at press appearances for ACM, Mr. Pitchford would often go off-script.
In June of 2011, for example, one member of the Sega PR team noted that the
Q&A Sega prepared for Randy was “useless” because “Randy talked a LOT
beyond what was in there.” (Cheng Decl., Ex. K (June 8, 2011 email string
between Kerstin Mueller and Wouter Van Vugt of Sega).)
• At Gearbox’s Community Day 2011, Gearbox made announcements about ACM
that weren’t discussed with Sega and that Sega had not planned to make public at
that time. (Cheng Decl., Ex. I (June 15, 2011 email string between Rowan Tafler,
Matthew Powers, and others stating that “Announcing [this item] at the community
day wasn’t discussed with us . . . .”).)
• In July 2012, Gearbox posted a developer profile for ACM to its website “without
prior approval” from Sega. (Cheng Decl., Ex. L (July 25, 2012 email from Chris
Faylor of Gearbox to Mehlfeld).)
• In September 2012, Gearbox allowed an unapproved screenshot of ACM to be
released to the press. The screenshot turned up on multiple press websites. (Cheng
Decl., Ex. N (September 10, 2012 email string between Adam Fletcher of Gearbox
and Craig Harris and others from Sega).)
• At Community Day 2012, Gearbox allowed a press participant to experience part of
the game that Sega did not want shown at that time. (Cheng Decl., Ex. J
(September 19, 2012 email string between persons at Sega).)
• Prior to a press event in October 2012, Sega discussed what Gearbox planned to
present: “[Sega will] probably never know as they haven’t shown us anything they
want to do so far.” (Cheng Decl., Ex. P (October 1, 2012 email string with Kerstin
Mueller, Daniel Gallardo, and others at Sega).)
Case3:13-cv-01962-JD Document93 Filed09/02/14 Page6 of 9
• When Sega confronted Gearbox in October 2012 about the persistent unapproved
leaks by Gearbox, Sega was told by Gearbox that “[e]ffectively – it’s Randy doing
whatever [] he likes . . . despite the fact that they asked him not to.” (Cheng Decl.,
Ex. R (October 16, 2012 email from Matt Eyre to Rowan Tafler and others at
Sega).)
• Also in October 2012, after yet another leak by Gearbox at NYCC, Sega’s
marketing and PR team noted that Gearbox presented unapproved information
about ACM “despite being told not to” and that this was “a consistent problem.”
(Cheng Decl., Ex. Q (October 26, 2012 email from Rowan Tafler to Kerstin
Mueller and others at Sega).)
These examples amply demonstrate that not only was Gearbox not relying on Sega for promotion
of ACM, but that Gearbox was actively making public statements about ACM with or without
Sega’s approval. Gearbox’s suggestion that it was a puppet, reliant on Sega’s decision about what
and what not to publish, is simply fiction.
C. Gearbox Received Payment for ACM’s Sale
Finally, Gearbox falsely contends that it did “not receive money” from the sale of ACM.
(Opp. at 2.) The Sega-Gearbox Development Agreement flatly disproves this contention. Sega
paid Gearbox millions of dollars in advance royalties in the form of Milestone Payments whenever
Gearbox delivered an asset to Sega under the Agreement. (Cheng Decl., Ex. C, at 4 (definition of
“Milestone Payment”), § 8 (Milestone Payments); see also Ex. A (Master Services Agreement), at
Exhibit A; Ex. B (First Amendment to the Master Services Agreement), at 1-6.) If and when Sega
recoups the royalties advanced to Gearbox in the form of Milestone Payments, Gearbox will
receive a percentage of the net receipts for each sale of ACM. (Id. Ex. C, § 9 (Business Proceeds),
& Exhibit C.)
Gearbox was responsible for marketing messages about ACM. The extent to which Sega
may have taken contractual responsibility to market ACM does not exonerate Gearbox from
liability for Gearbox’s independent or joint marketing activities in connection with ACM. Nor can
Sega be held responsible for statements made by Gearbox that Sega did not approve.
Case3:13-cv-01962-JD Document93 Filed09/02/14 Page7 of 9
II. GEARBOX WAS INVITED REPEATEDLY TO PARTICIPATE IN SETTLEMENT
NEGOTIATIONS, BUT REFUSED
Gearbox also claims that it was “excluded from the settlement negotiations” between Sega
and the plaintiffs, and that Sega and the plaintiffs agreed to the terms of the settlement “without
Gearbox’s participation.” (Opp. at 2.) To the contrary, however, Sega’s counsel invited
Gearbox’s counsel to participate in the negotiations, and Gearbox declined. (See Declaration of
Jerusha Herman, ¶¶ 2-5.) Sega’s counsel also offered to and did send Gearbox’s counsel a copy of
the settlement agreement after it was finalized, so that Gearbox could comment on or join in the
settlement. (Declaration of Claude Stern (“Stern Decl.”), ¶¶ 2-5).
Moreover, Gearbox has offered no evidence that the settlement agreement was made at
anything but arm’s length. There is no side-agreement between Sega and the plaintiffs, and Sega
has not promoted the plaintiffs’ interests, or vice versa. Sega’s counsel has informed Gearbox’s
counsel that Sega intends to seek a good faith determination under Cal. Civ. P. § 877.6, (see Stern
Decl., Ex. C), but this form of exoneration is made available by operation of California law (and
adopted by federal courts in class settlements, see Fed. Sav. & Loan Ins. Corp. v. Butler, 904 F.2d
505, 511 (9th Cir. 1990)), not by virtue of the settlement agreement between Sega and the
Gearbox contends that the settlement is unfair to it because it leaves intact the plaintiffs’
claims against Gearbox, but this result is neither unfair nor the result of the settlement agreement.
These claims continue to exist against Gearbox because they were filed against Gearbox at the
outset of this action, and Gearbox refused to contribute to the settlement between Sega and the
plaintiffs. (See Stern Decl., ¶¶ 2, 4-5.) This is not evidence that the settlement was made in bad
Nor does the relief offered by the settlement to class members prejudice Gearbox’s rights.
Whether the plaintiffs’ claims against Gearbox have any value is for a jury to decide. The
settlement will not and cannot increase what Gearbox owes the class, if anything.
Case3:13-cv-01962-JD Document93 Filed09/02/14 Page8 of 9
For the reasons stated above, the Court should reject the arguments made in Gearbox’s
opposition and should approve Plaintiff Locke’s motion for preliminary approval of the class
By: /s/ Claude M. Stern
Case3:13-cv-01962-JD Document93 Filed09/02/14 Page9 of 9
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