Activision ordered to hand over Scratch source code

Last week saw a nasty legal spat break out between the makers of two upcoming rhythm games: Activision's DJ Hero and Scratch the Ultimate DJ, the first game from DVD publisher Genius Productions. The latter game has been in development for 18 months, whereas DJ Hero was first revealed via a February 2008 trademark filing.

Genius fired the first shot on April 14, announcing that it had filed suit against Activision for "intentional interference with contract, breach of contract...and misappropriation of trade secrets" after it purchased Scratch developer 7 Studios. Two days later, Activision announced that "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."

Now, Genius and its partner, turntable manufacturer Numark, are claiming that it was they, not Activision, who prevailed in court last week. Through an external publicity agency, the companies made public the transcript of the April 15 hearing, which was presided over by Judge James C. Chalfant.

The hearing began with the judge saying that, "There isn't any evidence against Activision. ...There is no reason to restrain Activision from doing anything." However, the judge quickly added that "There is evidence that...7 Studios has a duty to return the work product, source code, and software of the plaintiff [Genius]."

As the hearing continued, an increasingly impatient Chalfant deflected Activision's lawyers' arguments that they did not have to return the Scratch software. "It is actually very straightforward. They hired you. They have terminated the deal. Their agreement requires return of materials," said the judge. "No matter how you slice this banana, they are entitled to the work product back. I don't know why your client would want to continue working on a project for which they have been terminated."

Chalfant then ordered Activision to make its 7 Studios subsidiary turn over the Scratch source code by today, April 20, in preparations for a subsequent hearing next month. "You [Activision] turn over the source code, and then if you want it back, you can argue on May 6th as to why you should get it back. I can't under any circumstance think why you would be entitled to keep the source code."

When Activision lawyers said doing so might give Genius access to some of 7 Studios' proprietary technology, Chalfant grew testy. "Show me anywhere where you can refuse to turn over source code because it incorporates your preexisting tools and technology. ... They can use it for any purpose. It is theirs. It belongs to them. They paid $6 million for it. I'm done." Court was then immediately adjourned.

In addition to the return of the Scratch source code, Chalfant ordered a "wall-off" between 7 Studios and Activision that prevents the two companies from discussing any trade secrets that the former learned from Genius. Activision's lawyers adamantly denied that any such sharing had already taken place.

"There is no indication that because you have a wholly owned subsidiary that's a developer that that developer is going to take that information and give it to the other party," said attorney Stanton Stein of the firm Line, Grode, Stein, and Yankelevitz. "Were we to do that, we would be subjecting ourselves to a substantial amount of liability and they would then have a case against us."

The case's next step will come on May 6, when Activision and Genius' lawyers again appear before Chalfant to discuss the "substantial damages" demanded by Genius--a hearing that could potentially lead to a ruling against the plaintiff. "Damages for breach are up to the underlying lawsuit," declared the judge. "If they [Genius] terminate for material breach and there is no breach, that termination for material breach is itself a breach of contract for which you [Activision] would be entitled for damages."