New Legal Woes for Electronic Arts and Activision
Electronic Arts (EA) joined the growing list of companies to be targeted by the SEC over stock option grant practices, the publisher said in an SEC filing. Meanwhile, rival Activision, which was already targeted by the SEC over the same issue, was mum Thurs. after being countersued by peripherals maker The Ant Commandos (TAC) in a U.S. Dist. Court in central Cal. over the hit game Guitar Hero.
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EA said it “received an informal inquiry” from the SEC Sept. 14 “requesting certain documents and information relating to EA’s stock option grant practices from January 1, 1997 to the present.” The company said it “intends to cooperate with all matters related to this request.”
But EA also said the shareholder derivative suit “Plumbers & Pipefitters Local No. 572 Pension Fund v. Probst, et al.,” filed against it Aug. 10, was voluntarily dismissed by the plaintiff. The suit had accused EA CEO Larry Probst and other current and former officers and directors at the company of improprieties in EA’s issuance of stock options. EA said San Mateo Superior Court signed an order dismissing the complaint Sept. 14. The company said “no compensation was paid” by it, the plaintiff or attorneys and “each side has agreed to bear its own attorneys’ fees.” EA shares fell nearly 2% late Wed. after the SEC filing was made. But shares were up 0.68% at $56.39 in late afternoon trading Thurs.
Activision Publishing and Activision’s RedOctane division sued TAC Aug. 17, claiming the latter was guilty of copyright and trademark infringement, unfair competition, and unfair and deceptive advertising, among other things, regarding TAC guitar controllers designed to be used with the game Guitar Hero, which Activision acquired after buying game maker RedOctane early this year.
TAC said Thurs. it countersued Activision Publishing and RedOctane, claiming the Activision divisions violated federal antitrust legislation pertaining to the Guitar Hero game and controller bundle. The counterclaim also alleged Activision and RedOctane “copied the identifiable trade dress of the controller from its developer and part owner of TAC,” Topway Electrical Appliance. TAC charged that the design was copied by RedOctane in developing the Guitar Hero SG controller and alleged RedOctane then developed the Guitar Hero game around Topway’s design. TAC accused RedOctane of copying the color, shape and placement of the 5 fret buttons located on the controller. The peripheral maker also filed for a preliminary injunction asking the court to enjoin Activision and RedOctane from “further infringing on the trade dress originally developed by Topway.” The injunction also asked the court to allow for fair competition in the market by enjoining the sale of the game/controller bundle so consumers “no longer have to purchase both the Guitar Hero game and the RedOctane controller but rather may purchase the game and have their choice on which controller to buy,” TAC said.
TAC said Topway designed and manufactured the “Magical Guitar” guitar controller for use with the PlayStation console in 1999. TAC claimed RedOctane bought “several hundred of the Magical Guitars from Topway prior to producing the controllers themselves [and] top management at RedOctane visited the Topway factory on numerous occasions and specifically inquired about Topway’s trade dress design.”
Hong Lip Yow, owner of TAC, said his company will continue to design, manufacture and distribute the Guitar Mania line despite the original claims filed by Activision. He added his company “will continue to make and improve on innovative peripherals to provide gamers with a choice; I strongly believe consumers should have their own choice, especially when it comes to choosing a better quality and better designed product.” Activision didn’t respond to a request for comment by our deadline about TAC’s countersuit.