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Activison countersues Finest Hour developer

Hefty legal complaint charges Spark Unlimited with fraud, breach of contract, trade secret misappropriation; jury trial sought.


Toward the end of August, Spark Unlimited made headlines for entering into what looked like a David-and-Goliath legal battle with Activision. An independent studio made up largely of veterans of Electronic Arts' Medal of Honor series, Spark is a much smaller entity than Activision, currently the world's second-largest third-party publisher of games.

Still, that didn't stop the small shop from leveling some big-time charges against Activision in a strongly worded lawsuit. The suit contended that the publisher tried to "kill off" the developer after the two parties couldn't come to an agreement to work on a sequel to their one and only collaboration, Call of Duty: Finest Hour.

Well, Activision struck back--hard. Last Friday, the publisher filed its own countersuit against Spark in Los Angeles Superior Court. It levels two of the same charges in the initial suit--fraud and breach of contract--and throws in four new ones, including trade secret misappropriation, trademark infringement, false designation of origin, and false advertising.

A copy of the countersuit tells a very different story about Spark and Activision's falling out than Spark's suit. Instead of Spark being the subject of a bidding war by a series of publishers, Activision contends that it was approached at E3 2002 by Spark CEO Craig Allen, who said he had "a veritable dream team for Activision's needs" to get into the World War II shooter market, which was dominated by Electronic Arts Medal of Honor series at the time.

The countersuit quotes a presentation by Spark entitled "Spark: An Explosive New Business Opportunity." The presentation, which is included as evidence, does indeed seem like a pitch, touting the founding members of Spark as "the creators of the Medal of Honor franchise and those primarily responsible for Medal of Honor Frontline for the PlayStation 2." Activision contended that, "Allen knowingly made these representations to Activision to convey the false impression that Spark would be comprised of the group that could take credit for creating, developing, and producing Medal of Honor from beginning to end and which was responsible for its success."

The suit goes on to lay the groundwork for the fraud charge, saying Allen's "misrepresentations were intended to deceive Activision into believing that Spark possessed the talent, knowledge, skill, and experience necessary to create a similarly successful new WWII video game franchise that could rival Medal of Honor." It continued, "Activision only later discovered that Allen had falsely and greatly exaggerated the role played by the Spark team in the creation, development, and production of Medal of Honor and that he had misrepresented the capabilities of Spark, whose monumental incompetence at its executive levels and inability to avoid doom without Activision's intervention, Allen would himself later concede."

To prove Spark's "incompetence," the countersuit calls on a convincing witness--Allen. As part of his effort to have Spark develop the sequel to Finest Hour, Allen wrote a "confidential" project review and proposal called "Looking Back, Planning Ahead." Entered into evidence as Exhibit A--along with an e-mail from Allen, presumably for authentication purposes--the proposal is a pretty damning document. It admits that development of Finest Hour was troubled indeed and that much of the blame rested with Spark.

After a brief introduction that concedes Activision and Spark's relationship was "tested at every level and by every kind of force imaginable," the proposal outlines the history of Finest Hour's development. The first mention of trouble is a reference to a "distracting legal battle with Electronic Arts regarding Spark's formation and planned methodologies." In its complaint, Activison contends EA's suit accused Spark of stealing trade secrets and copying confidential materials.

In its countersuit, Activison claimed it "was nonetheless forced to reimburse Spark's litigation ensure that Spark would not be put out of existence by the suit." This was done through early payments of Activision's $8.5 million advance to Spark for Finest Hour, which normally would have been paid out as development milestones were hit. The countersuit says that because of the suit, Activison paid Spark "more than 10 percent" of the advance--more than $850,000--before the developer "began any significant work" on the game.

However, the real trouble begins on page 26 of Allen's project review. "Like many successful Greek tragedies, the seeds of ruin are often laid early and in seemingly small ways," it begins. "Spark's former CTO Adrian Jones would fit well into such a human drama. His early decisions, apparent leadership, and management would set our company on a course that would, over time, become very difficult from which to recover." Jones, who was also chairman of Spark's board, was dismissed in early 2004 and was eventually replaced by NovaLogic cofounder John Butrovich.

According to the next paragraph, there was plenty of blame to go around, as it admits, "not everything was Adrian's fault." (Emphasis in the original.) The mea culpa continued, saying, "The executive management team at Spark shoulders a great deal of responsibility for not insisting on more effective results from his group or more accountability and detail regarding his actions and plans. It has been an expensive and painful lesson."

Activision's countersuit contends, in sometimes scathing language, that Activision, not Spark, bore the brunt of the expense and pain. It claims that, "Spark repeatedly failed to deliver on its obligations under each of the 'production milestones' that Spark generated for the project. Ultimately, even with Activision's huge infusion of additional human and monetary resources into Spark, the release of Finest Hour was delayed from its scheduled release date of June 2004 to November 2004."

To back up its claims, Activision cites another passage from Allen's confidential review, which concedes that "with the production delays, marketing and PR plans had suffered. ... The result: a diminished public and retail profile for the project." Spark's report also admits it had to take on additional personnel from three Activision-owned studios: Luxoflux, Treyarch, and Shaba.

Activison claims that, because of the delays, "a successful marketing effort would require significant additional expenditures to maximize Finest Hour sales." It continued, "However, because of Spark's numerous breaches, and the millions of dollars of additional advances Activision had to invest in the game to keep the project from failing, the economics of Finest Hour had become out of whack, and it was difficult to justify additional risks by financing a 'go big' marketing campaign."

To justify the "risks," Activison asked Spark to sign an amendment to the contract that "would more fairly reflect the changed circumstances of Finest Hour." Spark described the proposal a bit differently in its suit: "In May 2004, Activision informed Spark that it would not continue funding the game [Finest Hour] unless Spark agreed to amend the development agreement and take a substantially reduced royalty rate." Spark would eventually sign the amendment.

Now is when the Activision countersuit gets interesting. Besides saying that Activision advanced Spark a total of $2.7 million on top of the original $8.5 million, it claims that Spark then relinquished development duties for the Xbox and GameCube versions of Finest Hour--something not mentioned in the Spark lawsuit. "Activision had to contract with outside contractors and front the development costs of those platforms as well as bear all of the additional risks and costs inherent in supervising additional developers." However, according to the countersuit, Spark still collected royalties on the Xbox version of the game.

However, it is when the subject of Spark's sequel proposal--one of the central tenets of the developer's original suit--is raised that the gloves come off. It's then that Activision claims:

"One might suppose Spark would have been overjoyed that, notwithstanding its repeated failures, it was getting a second chance to make a game with Activision. One might further suppose that Spark would have made an all out effort to produce a 'knock your socks off' proposal that would contain not just a compelling sequel idea, but also convincingly demonstrate that Spark had reformed and would not repeat its catastrophic performance on Finest Hour. One would suppose wrong: Activision had to practically beg Spark for a proposal, and when Spark finally delivered something weeks later, Spark provided a series of incomplete drafts that were so glaringly deficient in every material respect that it appears Spark provided them in bad faith with the goal of having its proposal rejected."

The next six pages of the countersuit break down why Activision didn't want to make a Finest Hour sequel with Spark. Besides its problems with the sequel proposal's delays, Activision said it "contained no compelling hook ... involved features that were formulaic ... [was] derivative of content in previous Call of Duty titles ... or could be deemed offensive in light of contemporary events (e.g. CEO Allen's 'personal favorite' idea of enabling 'play as a guy in a turban with a really big knife.')" Activison went on to accuse Spark of proposing to reuse "content that had been created by Spark for Finest Hour (and which Activision had therefore already paid for and owned) but which had not actually been used in Finest Hour--i.e. levels that had been cut from the game...because they were too buggy to include in the final product."

In its suit, Spark contended it submitted "formal sequel proposals" to Activision. Included in these proposals were "specific creative ideas" for a Finest Hour sequel centering on "'Operation Husky (Landing and Taking Sicily),' and included the '[l]anding on the beach with the Big Red One - [a] classic contested beach landing.'" Spark contends that after its ideas were "summarily rejected," Activision studios Gray Matter and Treyarch began work on the forthcoming console game Call of Duty: Big Red One, which features Operation Husky.

Activision's countersuit gave three other big reasons it rejected Spark's offer. First was the fact that the developer uses Renderware Studio software, which is developed by Criterion Games, which was bought by Activision's archnemesis EA after work began on Finest Hour. It also claimed that instead of submitting a contractually obligated $8.5 million budget game, which would be completed within 12 months, Spark first submitted a proposal for a $10.25 million game with no multiplayer functionality. The budget was $10.82 million with multiplayer functionality, which Activision had to outsource to Kuju Games for Finest Hour. (The original spec for Finest Hour was single-player only.) Activision says that when it told Spark the proposal was inadequate, the developer submitted a second proposal--for a $10.65 million sequel that would be done in 18 months.

In Spark's version of events, "Activision then breached the development agreement by failing to negotiate in good faith over a second and third product, and refused to provide any meaningful bridge funding." One thing both parties agree on is that on October 15, 2004--nine days after it received Spark's first sequel proposal--Activison said it was terminating its agreement with the developer. By November 2004, the companies had burned the last of their bridges and had gone their separate ways.

However, Activision's countersuit goes beyond Finest Hour's problems and failed sequel negotiations. It accuses Spark of "unlawful appropriation of Activision's trade secrets" in the form of development kits and six other computers that contained source code created by the publisher--kits Spark kept post-Finest Hour development. "Spark's refusal to return Activision's source code and other material is particularly disturbing because Spark contends it is currently developing products for Atari, and Spark's use of Activision's property to that end would not only be unlawful, but also it potentially could turn Atari into an unwitting violator of Activision's rights," reads the countersuit.

The last--and least--of the charges Activision leveled at Spark is that the developer breached a still-binding confidentiality agreement when it filed suit against Activision. For good measure, it also accuses the studio of violating the publisher's registered trademark by having the word "Activision" on the Spark Web site and saying the two companies are "partners."

In Spark's lawsuit, the developer demanded $10 million in damages and compensation, as well as an injunction preventing the release of Call of Duty: Big Red One. Activison raised the ante by demanding "actual and compensatory damages from Spark and Allen in an amount to be proven at trial." It also demanded "treble damages ... on account of Spark's acts of trademark infringement, false advertising, and unfair competition," "punitive and exemplary damages on account of Spark's fraudulent representations of fact," and (shocker) attorneys' fees.

Though the facts of Spark and Activision's past relationship are still the subject of (obviously) heated debate, one thing is certain. Activision's demands of a full jury trial means Spark faces a very long and costly battle against a multibillion-dollar corporation--a prospect not even the most grizzled Call of Duty GI would relish facing.

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