section 8The U.S. Court of Appeals for the Fifth Circuit in New Orleans has upheld an arbitrator’s award to Gamecock Media Group, a publisher, for fraud and breach of contract by TimeGate Studios Inc., a video game developer. The appellate decision reversed a lower federal court in Texas, which held that the arbitrator’s grant to publisher of a perpetual license in the video game, Section 8, was not in line with the parties’ underlying contract.

In 2007, Gamecock (since acquired by Southpeak Interactive LLC) entered into a video game publishing agreement with TimeGate, where the developer owned the game’s intellectual property. Gamecock was granted an eight-year worldwide license, prohibiting it from making derivative works or exploiting Section 8 in any way not in accord with the contract. Soon after the game was released in 2009, the parties’ relationship fell apart, leading to arbitration.

The arbitrator ruled that TimeGate committed fraud and breach of contract. It pocketed money that Gamecock had invested in the product and never put sums into the game as the developer was obliged to, nor did it ever intend to, said the arbitrator, who awarded the publisher $7.35 million in damages. Gamecock also was granted a perpetual license in the game’s intellectual property, without paying royalties to TimeGate. The district court vacated the arbitrator’s award, finding it inconsistent with the “essence” of the 2007 contract, which only granted Gamecock a temporary license.

The Fifth Circuit disagreed, finding the award within the aribtrator’s authority, pursuant to Section 10(a)(4) of the Federal Arbitration Act. The court determined that granting Gamecock a perpetual license would restore the contract’s central goal: allowing both parties to financially benefit from their collaborative creation. Notably, the court gave great deference to the arbitrator’s decision because the contract granted broad remedial power.

For gamers, here (in HD, no less!) is a sample of Section 8 gameplay: