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Arbitral Award of Perpetual License Upheld by Fifth Circuit

Once in a while it seems the people who design live-action war-based video games get into real-world non-virtual disputes of their own. When “Timegate” promised to “Southpeak” that it would design a videogame named “Section 8,” the parties agreed to split profits.

Things went badly and Southpeak alleged that Timegate used Southpeak’s money to do a number of things that didn’t involve the development of Section 8, and that Timegate failed to live up to its promise to devote its own money and resources toward the game’s development.

The matter went to arbitration and the arbitrator awarded Southpeak more than $7 million and a perpetual license to use everything Timegate had developed for the Section 8 project.

A district court judge thought the arbitrator overstepped his authority when he granted a perpetual license and the award was vacated.

On further appeal, the U.S. Court of Appeal for the Fifth Circuit reversed the district court and reinstated the award. The Court wrote, “[t]he entire Agreement can accurately be summed up as the creation of a mutually beneficial business relationship between two parties with distinct expertise: a video game developer and a video game publisher. The parties were to work jointly to create, market and popularize a video game whose success would yield financial benefits to be distributed between the two parties in accordance with their respective contributions to the joint effort as required by the contract.....The perpetual license furthers these general aims of the Agreement.”

In conclusion, the Court noted that “the Section 8 perpetual license is rationally rooted in the Agreement’s essence. Timegate committed an extraordinary breach of the Agreement, and an equally extraordinary realignment of the parties’ original rights is necessary to preserve the essence of the Agreement.”

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