Scratch DJ sues Activision in fight over DJ music video games. DJ Hero. Scratch the Ultimate DJ. Court. Lawsuit. 7 Studios

Activision Sued Over DJ Hero (UPDATED)

Seth Gilbert, 04-14-2009

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DJ hero lawsuit Activision Blizzard walked out of court victorious in early March after quashing an ill founded patent lawsuit that challenged its flagship Guitar Hero franchise. Now, barely a month later, the Santa Monica based game publisher is walking back in again to face yet another suit regarding its lucrative series. This time it’s DJ Hero, a hotly anticipated, in-development Guitar Hero spin off, in the line of fire.

The suit, filed April 14th by Scratch DJ LLC (“S.DJ”), a joint venture owned by Genius Products and DJ equipment maker Numark, alleges Activision illegally interfered with the development of S.DJ’s competing game, and did it intentionally, violating several tort laws along the way, in order to make sure DJ Hero has the advantage of being the first to market.

S.DJ’s game, Scratch: The Ultimate DJ, has been in development since at least early 2008. Artists ranging from the Gorillaz to Run DMC to the Black Eyed Peas have been linked to it and the buzz factor is pretty high.

The game was tentatively expected to be released for the Xbox 360 and PS3 in September.

That date may now be in doubt, however, and according to S.DJ, that’s because of Activision’s actions.

The companies had at one point (see timeline below) been talking about a possible partnership but the complaint says Activision wasn’t serious. It claims Activision only feigned interest in buying (or publishing) S.DJ’s product in order to mask its real dual purpose of gaining access to a competitors trade secrets and stalling (or blocking) Scratch:The Ultimate DJ’s delivery.

Evidence of this, S.DJ says, is the fact that when discussions stalled, Activision simply went out and bought S.DJ’s contracted outside development studio, 7 Studios. That asset purchase gave Activision the means to monitor the development of Scratch: The Ultimate DJ or interfere with it (by reallocating developers to other projects, including its own).

S.DJ also says in the complaint that Activision is now refusing to allow 7 Studios to deliver work product S.DJ’s already paid for and is contractually owed. 7 Studios is even holding back prototype controllers privately owned by Numark, the suit claims.

In a statement, Trevor Drinkwater, president of Genius Products, said "After demonstrating our game, pursuant to the confidentiality agreement with Activision, we believe Activision concluded that Scratch: the Ultimate DJ is a superior offering to their prospective game, DJ Hero. We believe that Activision and 7 Studios have improperly used confidential information obtained from Genius and 7 Studios to interfere with our efforts to complete the game. In short, we believe that Activision is attempting to sabotage the release of our much anticipated game and prevent it from getting to market prior to the release of DJ Hero."

Activision hasn’t issued a reply yet. (We’ll update here on Metue.com when they do). It’s pretty likely, when word does come, however, it will be brief given the legal issues involved.

Speculating all the same: Activision Blizzard may say the issues are the result of contract disputes between 7 Studios and S.DJ from before Activision’s involvement and that the claims of intentional meddling are unfounded, that Activision’s purchase of 7 Studios was merely a sound investment: a studio of talented developers in financial trouble, available for a bargain – not some nefarious action to curtail a competitor.

Emails from 7 Studios CEO and cited in the court filing (see below) may undermine that somewhat but with only excerpts, its difficult to have enough context to guess fairly.

UPDATE 4/16/2009: Activision has now responded to the complaint. In a statement, the company said: "Activision Publishing strongly denies the allegations made by Genius Products and Numark Industries and believes that the claims are disingenuous and lack any merit. Yesterday, the L.A. Superior Court found that there was no evidence of any wrongdoing by Activision and refused to grant any restraining order against Activision.

These allegations are nothing more than an attempt by Genius to place blame for the game’s delay, as well as to divert attention from the cash flow, liquidity and revenue challenges Genius detailed in its March 30, 2009, SEC filing. By their own admission in October 2008, the game had fallen behind in production, which was well before Activision had any involvement with Genius, Numark or California 7 Studios regarding the game.

The lawsuit will have no impact on Activision’s upcoming DJ Hero(R) game, a turntable-based music game that the company has been independently developing.

Activision purchased 7 Studios on April 6, 2009 to bolster its development capabilities. 7 Studios had continued to develop Scratch: The Ultimate DJ and Activision did not interfere with or delay their efforts to complete the game. In fact, Activision provided the fledgling developer with much needed financing during these difficult economic times. "

Looks like it’s going to be for the courts to figure out unless a settlement is reached.

If it goes to trial, S.DJ didn’t set a number for the damages its seeking, preferring instead to defer that until trial, but the company did speculate the stakes are in the tens of millions. That number could jump even higher if DJ Hero gets to market first, opens the door to a new category of music fan, and proves the kind of hit many expect it will.

The thirty page complaint with its 9 “Causes for Action” is embedded below. Activision has not responded yet so the claims are one-sided, still, there’s substantial detail in the allegations. To summarize some of these alleged facts (and add other publicly known information on the games, as noted) in a timeline:

• February 8, 2008 -Activision trademarked “DJ Hero” for “game software” and “interactive video game programs; computer game discs; download able software for use in connection with computer games; video game controllers; interactive video game comprised of a CD or DVD sold as a unit with a video game controller.” (Ed. Note – this is outside info not included in the lawsuit claims)

• February 26, 2008- Genius Products signed a developer agreement with 7 Studios contracting the studio to build Scratch: The Ultimate DJ as a work for hire. The agreement set up different delivery milestones for the project.

• October 2008 – 7 Studios falls behind on the Scratch: The Ultimate DJ production schedule, S.DJ says.

• October 7, 2008 – Scratch: The Ultimate DJ announced. Screenshots start to appear around the internet.

• October 27, 2008 (approximately) – gaming blog Joystiq reports it’s gotten confirmation Activision is officially doing a DJ Hero game. (Ed. Note – this is outside info not included in the lawsuit claims)

• December 2008 – 7 Studios asks S.DJ (often referred to as Genius Products in the court filings) to make an early milestone payment because the studio is running out of money and won’t be able to meet year-end payroll otherwise.

• January 2009 – Following tests of the game, S.DJ wants to make changes outside the scope of the original development agreement. The two sides begin negotiating to reach amended terms. These talks will span months.

• January 2009 - With screenshots of the game in the wild, S.DJ begins to get inquiries about purchasing Scratch: The Ultimate DJ from “notable game publishers.”

• January 5, 2009 – 7 Studios fails to meet a contractual development milestone, delivery of the Alpha version of the game.

• January 26, 2009 – 7 Studios tells S.DJ it’s out of money and can’t make payroll.

• January 30, 2009 – Activision formally announces existence of DJ Hero.

• February 2009 – More Scratch screenshots circulating.

• February 2, 2009 – 7 Studios says it may furlough staff to stay afloat.

• February 3, 2009 – Activision and S.DJ (Genius) sign a mutual N.D.A. in order to discuss a possible deal.

•February 6, 2009, S.DJ (Genius Products) pays 7 Studios $303k, ahead of schedule.

•February 20, 2009, S.DJ (Genius Products) pays 7 Studios another $250k, also as an advance ahead of schedule.

• February 26th, 2009 - 7 Studios CEO emails S.DJ (Genius) telling them that i. Activision is largely interested in buying Scratch: The Ultimate DJ to keep it out of a competitors hands,snf ii. That Activision is considering buying 7 Studios because it “doesn’t want [the game] to ship this year”. 7 Studios CEO also tells S.DJ that Activision has “ways to get what they want that would leave Genius in a very difficult position, possibly with nothing.”

• February 26th, 2009 - S.DJ (Genius) Demonstrates the game for Activision and Activision asks them to provide an outline of the development costs to date.

• March 12, 2009 - Activision offers to buy the game from S.DJ (Genius) for a price “roughly equal” to the game’s costs. S.DJ (Genius) rejects the offer the next day and the companies make counter offers.

• March 19, 2009 - Activision tells S.DJ (Genius), it’s sticking to its original offer and announces its signed a letter of intent to buy 7 Studios.

• March 23, 2009 – DJ Hero website from Activision goes live. Offers sign up page for ‘more information’

• April 2 and 3rd, 2009, S.DJ and 7 Studios work to reach an amendment to their original agreement for the modified work S.DJ is requesting. 7 Studios asks for a new payment structure that S.DJ says I commercially unreasonable and in bad faith. S.DJ terminates the prior development agreement and requests all work product be made available to be picked up.

• April 9, 2009 – 7 Studios refuses to provide the game controllers and code to S.DJ.

• April 14, 2009 – Lawsuit filed in Los Angeles. Case number is BC411687. (Documents are available through the court website. The original claim is embedded below)

[Side note: While Guitar Hero and Rock Band are the most widely known rhythm games, and largely responsible for the genre’s success, the genre’s roots date back years before. Guitar Hero and Rock Band are largely considered to be evolutionary extensions of Konami’s 1998 arcade game Guitar Freaks. Guitar Freaks was part of Konami’s Bemani series of rhythm games. Similarly, long before DJ Hero or Scratch:The Ultimate DJ were even envisioned, Beat Mania, a DJ games from the same Konami series, paved the way].

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Activision Sued Over DJ Hero (UPDATED)

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