A Touch of Class

Difficult Choices

The fundamental question for defendants is whether they want to let a legal action against them get to trial. Standard litigation practice in these circumstances would be for their lawyers to investigate the allegations and then to advise on the legal merits of the action, its prospects of success and the potential costs if it were to be fought to trial and won (or lost). It will then be for the board of directors to decide whether it is in the best interests of the company to fight the legal claim or to settle it (and that decision may have to be revisited several times as the litigation progresses).

In making that decision, the directors will have to look at the legal advice as well as important non-legal issues, including: the impact of the litigation on their customer base and business partners; potential negative PR and loss of goodwill; and (increasingly important in the present recession) the potential negative reaction that the litigation may have on banks and other funders such as venture capitalists.

In some circumstances, a defendant may decide therefore that the cost/benefit analysis is in favour of settling a class action. Sometimes this may be because the claim has real merits and has genuine prospects of success, in which case a settlement may be essentially a damage limitation exercise.

But sometimes the claim may be more speculative, and therefore capable of a stronger defence by the defendant, but the non-legal risks of the claim fighting to trial may justify a cash settlement that the claimants would perhaps be unlikely otherwise to have won in court had it fought all the way.

Each of the defendants in the class actions given as examples above will, of course, have to make their own decision, based upon both legal and commercial considerations, as to whether or not to fight the claims in court.

Looking Forward

As I said at the start, disputes are inevitable in any industry. It shouldn't be any surprise therefore that the games industry, which continues to increase in size and importance, should be the target for class actions. The real question though is what this means for the future - will we see an increasing trend for litigation (and class actions in particular) against the games industry in the future?

It may be that successes by claimants may embolden others to threaten or commence legal actions against games companies in the future, who potentially may become more risk-averse in the future as a result. On the other hand, defeat of some of the more speculative claims may encourage only claimants with real grievances to litigate against games companies. Unfortunately, as lawyers will tell you, there are no straightforward answers in litigation and, for the time being at least, we will just have to wait and see what new developments 2010 brings.

Mitigating Your Risk

In the meantime, while there is no sure-fire way for developers or publishers to protect themselves completely from the risk of legal actions against them, there are steps which they can take to try to reduce that risk.

The first is to take litigation risk seriously - it can have serious implications for your business, however small or large it may be. In particular, it may be worth considering what your insurance position is regarding potential disputes/litigation.

The second is to be forewarned - take time to consider what legal exposure your business may have in the countries in which it operates and how it is being dealt with.

The third is to manage risk - make sure potential issues are discussed and explored in advance, if need be with your lawyers (many future problems can be resolved with a little legal advice at the start rather than a lot at the end).

And the fourth is to be proactive - if issues do arise, then decide upon your preferred course of action and pursue it as quickly and consistently as practicable.