Sega Response To Gearbox Claims Re Alien: Colonial Marines

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Case No. 13-cv-01962-JD
SEGA OF AMERICA, INC.S REPLY ISO MOTION FOR PRELIMINARY APPROVAL
OF CLASS ACTION SETTLEMENT
QUINN EMANUEL URQUHART OLIVER & SULLIVAN, LLP
Claude N. Stern (Bar No. 96737)
claudestern@quinnemanuel.com
555 Twin Dolphin Dr., 5
th
Fl.
Redwood Shores, California 94065
Telephone: (650) 801-5000
Facsimile: (650) 801-5100

Karin A. Kramer (Bar No. 87346)
karinkramer@quinnemanuel.com
Jenny L. Grantz (Bar No. 287960)
jennygrantz@quinnemanuel.com
50 California St., 22
nd
Fl.
San Francisco, California 94111
Telephone: (415) 875-6600
Facsimile: (415) 875-6700

Attorneys for Sega of America, Inc.

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA, SAN FRANCISCO DIVISION
JOHN LOCKE and DAMION PERRINE,
individually and on behalf of all others
similarly situated,

Plaintiff,

vs.

SEGA OF AMERICA, INC., a California
corporation, and GEARBOX SOFTWARE
L.L.C., a Texas limited liability company,

Defendant.

CASE NO. 3:13-cv-01962-JD

SEGA OF AMERICA, INC.S REPLY IN
SUPPORT OF PLAINTIFF LOCKES
MOTION FOR PRELIMINARY
APPROVAL OF CLASS ACTION
SETTLEMENT AGREEMENT
Judge: Hon. James Donato
Hearing Date: October 29, 2014
Time: 9:30 a.m.
Courtroom: 11

UNREDACTED AND HIGHLIGHTED VERSION OF
DOCUMENT SOUGHT TO BE SEALED
HIGHLIGHTING INDICATES CONFIDENTIAL INFORMATION SEGA IS
REQUIRED NOT TO DISCLOSE BY AGREEMENT
Case3:l3-cv-0l962-JD Document93 Filed09/02/l4 Pagel of 9
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Preliminary Statement
Defendant Sega of America, Inc. (Sega) hereby files this reply in support of Plaintiff
Lockes Motion for Preliminary Approval of the Class Action Settlement Agreement. Although
Sega does not concede that the plaintiffs have a legal basis for claims against anyone, including
Gearbox, Sega submits that the settlement agreement between itself and the plaintiffs is fair,
reasonable, and was entered into in good faith. Gearboxs opposition to the settlement agreement
is replete with false and misleading statements; as officers of the court, Segas counsel has a duty
not to acquiesce in those falsehoods. Gearboxs statements or suggestions that it was not involved
in marketing Aliens: Colonial Marines (ACM), that it was not invited to participate in the
settlement between Sega and the plaintiffs, and that the settlement was not entered into in good
faith are untrue and without factual support.
I. GEARBOX PARTICIPATED EQUALLY IN MARKETING ACM
Gearboxs opposition attempts to pin responsibility for ACMs marketing solely on Sega,
when in fact Gearbox was jointly responsible for marketing ACM, often acted independently to
promote it, and frequently acted without Segas approval. Not only does Gearbox fail to
acknowledge the rights it had under the contract with Sega by ignoring various provisions of the
agreement between Sega and Gearbox, Gearbox also ignores statements it made without Segas
involvementdirectly to the public, regardless of who was contractually responsible for formal
announcements about ACM. Sega is not and cannot be responsible for unauthorized statements
actually made by Gearbox about ACMs capabilitiesand Gearboxs opposition nowhere denies
making such unauthorized statements.
A. Gearbox Was Jointly Responsible for the Marketing and Promotion of ACM,
Including Trade Demonstrations and Press Campaigns
First, Gearbox claims that [b]y contract, Sega was solely responsible for the marketing
and promotion [of ACM], including every trade demonstration and industry press campaign on
which plaintiffs claims are based, and that Gearboxs involvement in the demonstrations was
requested and controlled by Sega. (Opp at 1-2.)
Case3:l3-cv-0l962-JD Document93 Filed09/02/l4 Page2 of 9
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Even putting aside for the moment the falsity of these contentions, Gearbox ignores
statements that it made to the public about ACM, and suggestswithout any legal or factual
support whatsoeverthat not only is Sega responsible for statements Sega made to the public
about ACM, somehow Sega was also a guarantor of Gearboxs statement to the public about
ACM. In fact, the Sega-Gearbox agreement created no such guarantee for Gearbox. And the law
does not provide that a party in Segas position is either a guarantor or an indemnitor of Gearbox
for Gearboxs statementswhether true, false or misleadingabout ACM.
Per the Development Agreement between Sega and Gearbox, however, and contrary to
Gearboxs arguments, Sega was not solely responsible for the marketing and promotion of ACM.
Gearbox had contractual rights with respect to marketing ACM, which it exercised heavily.
Whats more, Gearbox had approval rights over Segas marketing decisions, and exerted a great
deal of control over the marketing of ACM by exercising those rights.
Although the Development Agreement between Sega and Gearbox originally gave Sega
absolute discretion with regard to marketing decisions (see Declaration of John Cheng (Cheng
Decl.), Ex. C, 6.1), Sega was contractually required to discuss and consult with Gearbox on all
marketing activities along with sales pricing and forecasts and all other aspects of marketing,
distribution and/or other such exploitation of [ACM], (see Cheng Decl., Ex. C, 6.1), and the
parties had to mutually agree to the precise particulars of marketing assets delivered by
Gearbox, (see Cheng Decl., Ex. C, 6.2). Furthermore, the Third Amendment to the
Development Agreementconspicuously and entirely ignored by Gearboxexplicitly stated that
Sega and Gearbox would jointly develop both a marketing strategy and a list of marketing
assets. (Cheng Decl., Ex. D, 2.14.) The Fourth Amendment to the Development Agreement
also ignored by Gearboxs oppositionwent further, listing Gearbox as the sole creative directors
for the majority of the marketing assets to be developed for ACM. (Cheng Decl., Ex. E, at 3-4.)
Sega and Gearbox also jointly attended Marketing Summits to plan and make decisions about
marketing for ACM, at which Gearbox made numerous suggestions and demands for the ACM
marketing strategy. (See, e.g., Cheng Decl., Ex. U (Jan. 24, 2010 Marketing Summit minutes), at
1-2 (describing Gearboxs suggestions for in-store placement, giveaways, pre-order content, and
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-3-
more, and noting that Gearbox and Sega would each develop their own proposals for packaging,
over which both would have approval); Ex. V (Dec. 7, 2010 Summit minutes), at 3 (noting that
GB have internal capacity to generate all trailers, as well as packaging, an area that Randy enjoys
input and that All big beats to be discussed by marketing teams of both SEGA and GB in
January)).
1
And Gearbox created or approved all gameplay trailers and television ads for ACM.
(See Cheng Decl., Ex. U (TV ads generated 100% by SEGA, with GB involved in brief, script,
and signoff.).) So, both as a factual and a legal matter, Gearboxs efforts to shunt its
responsibility for its statements about ACM is both false and misleading.
Gearboxs participationRandy Pitchfords, in particularwas a key element in the ACM
marketing strategy from the beginning. For example, a Proposition Document setting forth a
broad outline for the direction of development and marketing noted that Gearbox must be given a
certain amount of free reign to generate PR hits. Randy Pitchford is a respected development
celebrity and is guaranteed to be headline material in worldwide press coverage. (Cheng Decl.,
Ex. S (March 5, 2011 email from Ben Payne of Sega to Steve Gibson and Adam Fletcher of
Gearbox, and others) (emphasis added); see also id. Ex. O (Sept. 24, 2012 email string between
Gearbox and Sega regarding the NYCC press event for ACM, noting that Sega would plan the
stage presentation in more detail with Randy and the rest of the dev team.(emphasis added)).)
Mr. Pitchford devoted a great deal of time to promoting ACM at important industry events like
E3. (See Cheng Decl., Ex. V, at 3 (Randy will be 100% ACM at E3 2011 . . . . Randy assures us
that he can satisfy both retail and press in one presentation.).)
In fact, in some instances it was Gearbox who developed the marketing message, which it
then provided to Sega, not the other way around. The 2011 E3 demo plaintiffs complain about,
(Compl. 21-27), was created entirely by Gearbox, who then represented to Sega that the E3
demo is indeed the bar that we should use to determine where the entire game will be. That is

1
Randy is a reference to Randy Pitchford, President of Gearbox. Plaintiffs refer to
statements and conduct by Mr. Pitchford in their Complaint. (See SAC (Dkt. No. 62), 29, 32,
35, 42, 66.)
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Gearboxs plan and what they believe in. (Cheng Decl., Ex. M (July 27, 2011 email from
Matthew Powers to Richard Tawn and others at Sega) (emphasis added).) Gearbox cannot simply
disassociate itself from these statements and actions.
B. Gearbox Often Acted Independently to Advertise, Promote, and Market
ACM, Even Sometimes Against Segas Wishes
Next, Gearbox falsely claims that it did not independently advertise, promote, or market
the game, that Sega, as publisher, orchestrated and approved those activities. (Opp. at 1-2.)
These statements too, are verifiably false. Not only did the Sega-Gearbox Development
Agreement give Gearbox joint control and approval with regard to marketing assets, strategy, and
decisions, but Gearbox also had the power to independently promoteand did actively and
publicly promoteACM both online, at marketing events, and at press events. And in many
cases, it did so without any approval from Sega.
Gearbox had broad discretion to promote ACM to the gaming community it had
developed, as well as the general ACM community. Section 6.7 of the Development Agreement
gave Gearbox the sole right to develop, host and manage a community website for the Product
(which may contain message boards and other community features), where Gearbox could
promote the Product as it deems appropriate. (Cheng Decl., Ex. C, 6.7 (emphasis added); see
id. Ex. U (Community Gearbox to drive? Yes. ACM forum thread on GB website is now 600
pages strong and still growing.).) Pursuant to this section of the Agreement, Gearbox created a
community marketing page where it posted screenshots and video assets it either created or for
which it provided the creative direction. (Cheng Decl., Ex. F (screenshot of posts Gearbox made
to its community page in 2012).) Gearbox also created and independently managed the official
forums for ACM, where it could and did post without Segas approval. (See Cheng Decl., Ex. W
(June 1, 2011 post to Gearboxs forums by Adam Fletcher).) Additionally, Gearbox had
administrative access to the official ACM Facebook page, where it could and did post without
Segas approval. The Facebook page was run jointly by Sega and Gearbox community managers.
Gearbox also planned, managed, and hosted Community Days in Dallas, Texas in 2011
and 2012, where it marketed and promoted ACM. Gearbox did all of the planning for these events
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-5-
itself and controlled what information Sega received about them. (Cheng Decl., Ex. H (May 16,
2011 email string between Sega and Gearbox about Community Day 2011, wherein Sega asks if
this is something where [Sega] can be of help; Gearbox replies that they will let Sega know
once they have more information about the event).) Gearbox also controlled who attended. (Id.)
Gearbox also ran its own promotions for ACM, such as a giveaway at a gaming industry
convention, which it handled and hosted entirely on its own, without Segas assistance. (Cheng
Decl., Ex. T (August 1, 2012 email from Chris Faylor to Julian Mehlfeld of Sega).)
Gearbox took this power and ran with it, often making announcements to the press and
public without Segas approvaland sometimes in the face of Segas explicit disapproval. On
many occasions Gearbox leaked information to the press that Sega had not intended to be made
public at that time, with Sega finding out only after the fact. Sega had limited ability to stop these
leaks because Gearbox had contractual marketing rights.
Although Sega would sometimes prepare materials to guide Randy Pitchford of
Gearbox at press appearances for ACM, Mr. Pitchford would often go off-script.
In June of 2011, for example, one member of the Sega PR team noted that the
Q&A Sega prepared for Randy was useless because Randy talked a LOT
beyond what was in there. (Cheng Decl., Ex. K (June 8, 2011 email string
between Kerstin Mueller and Wouter Van Vugt of Sega).)
At Gearboxs Community Day 2011, Gearbox made announcements about ACM
that werent discussed with Sega and that Sega had not planned to make public at
that time. (Cheng Decl., Ex. I (June 15, 2011 email string between Rowan Tafler,
Matthew Powers, and others stating that Announcing [this item] at the community
day wasnt discussed with us . . . .).)
In July 2012, Gearbox posted a developer profile for ACM to its website without
prior approval from Sega. (Cheng Decl., Ex. L (July 25, 2012 email from Chris
Faylor of Gearbox to Mehlfeld).)
In September 2012, Gearbox allowed an unapproved screenshot of ACM to be
released to the press. The screenshot turned up on multiple press websites. (Cheng
Decl., Ex. N (September 10, 2012 email string between Adam Fletcher of Gearbox
and Craig Harris and others from Sega).)
At Community Day 2012, Gearbox allowed a press participant to experience part of
the game that Sega did not want shown at that time. (Cheng Decl., Ex. J
(September 19, 2012 email string between persons at Sega).)
Prior to a press event in October 2012, Sega discussed what Gearbox planned to
present: [Sega will] probably never know as they havent shown us anything they
want to do so far. (Cheng Decl., Ex. P (October 1, 2012 email string with Kerstin
Mueller, Daniel Gallardo, and others at Sega).)
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When Sega confronted Gearbox in October 2012 about the persistent unapproved
leaks by Gearbox, Sega was told by Gearbox that [e]ffectively its Randy doing
whatever [] he likes . . . despite the fact that they asked him not to. (Cheng Decl.,
Ex. R (October 16, 2012 email from Matt Eyre to Rowan Tafler and others at
Sega).)
Also in October 2012, after yet another leak by Gearbox at NYCC, Segas
marketing and PR team noted that Gearbox presented unapproved information
about ACM despite being told not to and that this was a consistent problem.
(Cheng Decl., Ex. Q (October 26, 2012 email from Rowan Tafler to Kerstin
Mueller and others at Sega).)
These examples amply demonstrate that not only was Gearbox not relying on Sega for promotion
of ACM, but that Gearbox was actively making public statements about ACM with or without
Segas approval. Gearboxs suggestion that it was a puppet, reliant on Segas decision about what
and what not to publish, is simply fiction.
C. Gearbox Received Payment for ACMs Sale
Finally, Gearbox falsely contends that it did not receive money from the sale of ACM.
(Opp. at 2.) The Sega-Gearbox Development Agreement flatly disproves this contention. Sega
paid Gearbox millions of dollars in advance royalties in the form of Milestone Payments whenever
Gearbox delivered an asset to Sega under the Agreement. (Cheng Decl., Ex. C, at 4 (definition of
Milestone Payment), 8 (Milestone Payments); see also Ex. A (Master Services Agreement), at
Exhibit A; Ex. B (First Amendment to the Master Services Agreement), at 1-6.) If and when Sega
recoups the royalties advanced to Gearbox in the form of Milestone Payments, Gearbox will
receive a percentage of the net receipts for each sale of ACM. (Id. Ex. C, 9 (Business Proceeds),
& Exhibit C.)
* * *
Gearbox was responsible for marketing messages about ACM. The extent to which Sega
may have taken contractual responsibility to market ACM does not exonerate Gearbox from
liability for Gearboxs independent or joint marketing activities in connection with ACM. Nor can
Sega be held responsible for statements made by Gearbox that Sega did not approve.
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II. GEARBOX WAS INVITED REPEATEDLY TO PARTICIPATE IN SETTLEMENT
NEGOTIATIONS, BUT REFUSED
Gearbox also claims that it was excluded from the settlement negotiations between Sega
and the plaintiffs, and that Sega and the plaintiffs agreed to the terms of the settlement without
Gearboxs participation. (Opp. at 2.) To the contrary, however, Segas counsel invited
Gearboxs counsel to participate in the negotiations, and Gearbox declined. (See Declaration of
Jerusha Herman, 2-5.) Segas counsel also offered to and did send Gearboxs counsel a copy of
the settlement agreement after it was finalized, so that Gearbox could comment on or join in the
settlement. (Declaration of Claude Stern (Stern Decl.), 2-5).
Moreover, Gearbox has offered no evidence that the settlement agreement was made at
anything but arms length. There is no side-agreement between Sega and the plaintiffs, and Sega
has not promoted the plaintiffs interests, or vice versa. Segas counsel has informed Gearboxs
counsel that Sega intends to seek a good faith determination under Cal. Civ. P. 877.6, (see Stern
Decl., Ex. C), but this form of exoneration is made available by operation of California law (and
adopted by federal courts in class settlements, see Fed. Sav. & Loan Ins. Corp. v. Butler, 904 F.2d
505, 511 (9th Cir. 1990)), not by virtue of the settlement agreement between Sega and the
plaintiffs.
Gearbox contends that the settlement is unfair to it because it leaves intact the plaintiffs
claims against Gearbox, but this result is neither unfair nor the result of the settlement agreement.
These claims continue to exist against Gearbox because they were filed against Gearbox at the
outset of this action, and Gearbox refused to contribute to the settlement between Sega and the
plaintiffs. (See Stern Decl., 2, 4-5.) This is not evidence that the settlement was made in bad
faith.
Nor does the relief offered by the settlement to class members prejudice Gearboxs rights.
Whether the plaintiffs claims against Gearbox have any value is for a jury to decide. The
settlement will not and cannot increase what Gearbox owes the class, if anything.
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Conclusion
For the reasons stated above, the Court should reject the arguments made in Gearboxs
opposition and should approve Plaintiff Lockes motion for preliminary approval of the class
action settlement agreement.

DATED: September 2, 2014

QUINN EMANUEL URQUHART &
SULLIVAN, LLP

By: /s/ Claude M. Stern
Claude M. Stern
Attorneys for Sega of America, Inc.


Sega Response To Gearbox Claims Re Alien: Colonial Marines

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