pricing of its product at less than seventy-five percent of the average wholesale price, Humongous materially breached its obligation to LucasArts under the licensing agreement.
Second, LucasArts contends that Humongous breached its contractual obligation to make available to LucasArts documentation that would verify Humongous' compliance with the pricing regime to which it had agreed. According to LucasArts, Humongous consistently refused access to, and denied inspection of, its invoices and other documentation containing wholesale pricing information.
Third, LucasArts maintains that § A.1.1.1(b) of the license agreement only permitted Humongous to publish SCUMM-based games and that Humongous breached this obligation by serving as a contract games developer for other publishers, such as Electronic Arts.
Humongous does not really dispute the fact that it failed to make its documents available to LucasArts for inspection, nor does it dispute that it sold SCUMM-based software for 25% rather than 75% of the wholesale or retail price. Humongous does, however, dispute the meaning of the price restriction clause in § A.1.1.1(b) of the licensing agreement.
Humongous argues that § A.1.1.1(b) was never intended to define "publisher," nor to prohibit Humongous from selling any SCUMM-based products to third party publishers. LucasArts contends otherwise. According to LucasArts, through the pricing formula articulated in § A.1.1.1(b), the parties agreed to define Humongous' permitted position in the marketplace relative to that of an independent publisher. Since a publisher typically receives at least 75% of the average wholesale market price, the 75% wholesale price floor set forth in § A.1.1.1(b) would limit Humongous' market role to that of an independent developer and publisher of SCUMM-based games. In other words, it would ensure that Humongous would never serve as a developer for a third-party publisher, since the 75% floor is far out of the range of royalties publishers normally pay developers. Publishers typically pay royalties to developers in the range of 10% to 20% of the price at which they sell games to distributors. See Flock Declaration, P 4.
The court disagrees with LucasArts' interpretation. Section A.1.1.1(b) seems a convoluted way to define the term "publisher" in a license agreement if that truly is the objective of the provision. Moreover, even if § A.1.1.1(b) defines "publisher," Humongous did not breach its obligation by entering into the agreement with Electronic Arts because Humongous, not Electronic Arts, was the publisher of SCUMM-based games.
There is no consensus that any single criterion defines a publisher. Those indicia most often cited by individuals within the entertainment software publishing and distribution industry include artistic control of the content of the game, the brand name under which a game is sold, the control over the design of the printing on the box, the identity of ownership and the manner in which the public perceives the games. See Ruth Kennedy's Declaration in Opposition to Motion for Preliminary Injunction.
Between Humongous and Electronic Arts, Humongous clearly has greater artistic control. The product's box carries Humongous' brand name prominently displayed on the front and the spine of the box, as is traditional for publishers.
Electronic Art is only mentioned by a "Distributed by [Electronic Arts]" sticker applied to the plastic wrap for the packaging. Humongous controls the manner of marketing the games, and the public perceives the games as Humongous games. While it is true that an product produced by Humongous is subject to the approval of Electronic Arts, section 1.01 of the agreement between Humongous and Electronic Arts states that "such acceptance will not be unreasonably held."
In addition, Electronic Arts has only fifteen business days to examine and test the product and to determine whether it conforms to the product's specifications. The fact that Electronic Arts has only fifteen days to inspect the product and the fact that it can reject it only for lack of conformance with product specifications suggests that Electronic Arts' role in determining the artistic content of the games is extremely limited.
The intent of Humongous and Electronic Arts to establish Humongous as the publisher is clearly indicated in section 7.01 of their agreement. It states:
Humongous represents to [Electronic Arts] that it is capable of and intends to be the product publisher of the Initial Products and that Humongous is solely responsible for all obligations attendant upon such a role, including without limitation, Initial Product design and testing, package design, advertising and marketing Initial Products, dissemination of Initial Product information and prompt revision, updates and retrofits to all of the foregoing in the event of changes or developments in the market for the Initial products.
This would appear ample evidence of Humongous' artistic control for the court to determine Humongous' status as publisher and Electronic Arts' role distributor of the SCUMM-based games.
Next, LucasArts argues that the breaches amount to a material failure of consideration. According to LucasArts, Humongous' agreement to publish its own games and not to develop SCUMM-based games for a competitor, such as Electronic Arts, provided the essential consideration to LucasArts in the licensing agreement. As LucasArts stated in its brief,
LucasArts agreed to license the SCUMM technology to Humongous only because it wanted to help a departing employee, but even then only because Humongous was going to be an independent publisher.