McDsnwors Witt & EMaRy LLP a COPY McDERMOTT WILL & EMERY LLP ALLAN L. SCHARE (State Bar No. 126305) GREGORY R. JONES (State Bar No. 229858) 2049 Century Park East, Suite 3800 Los Angeles, CA 90067-3218 Telephone: | 310.277.4110 Facsimile: 310.277.4730 aschare@mwe.com gjones@mwe.com DUFFY & SWEENEY, LTD. STACEY P. NAKASIAN (pro hac vice appl. to be filed) BYRON L. McMASTERS (pro hac vice appl. to be filed) 1800 Financial Plaza Providence, RI 02903 Telephone: 401.455.0700 Facsimile: 401.455.0701 snakasian@duffysweeney.com bmemasters@duffysweeney.com. Attorneys for Plaintiff SCRATCH DJ GAME, LLC SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF LOS ANGELES CENTRAL DISTRICH | | ¢ 9 » SCRATCH DJ GAME, LLC, a Delaware | CASE NO. limited liability company, COMPLAINT FOR: Plaintiff, (1) INTENTIONAL INTERFERENCE ‘WITH CONTRACTUAL . RELATIONSHIP; ACTIVISION PUBLISHING, INC, a (2) UNFAIR COMPETITION (Bus. & Prof. : Code §§ 17200 et seq.) Delaware corporation; CALIFORNIA 7 . STUDIOS, INC., a California corporation; | G) BREACH OF CONTRACT ONANT LEWIS PETERSON, an individual; and | | @) BRIA 7 wel DOES 1-10, inclusive, : GOOD FAITH AND FAIR DEALING; 7 : (5) CONVERSION; (6) BREACH OF CONTRACT; are (7) BREACH OF IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING; (8) MISAPPROPRIATION OF TRADE SECRETS (Civil Code §§ 426 ef eq: and common law); (0) MISAPPROPRIATION OF TRADE SECRETS (Civil Code §§ 3426 ef seq. and common law) DEMAND FOR JURY TRIAL Lasoo 17270577.009900.0010 ‘COMPLAINTIcDsnworr Witt & Eat LLP Plaintiff SCRATCH DJ GAME, LLC (“SCRATCH DJ” or “PLAINTIFF”) hereby complains against defendants ACTIVISION PUBLISHING, INC. (“ACTIVISION”), CALIFORNIA 7 STUDIOS, INC. (“7 STUDIOS”) and LEWIS PETERSON (“PETERSON”) (collectively “DEFENDANTS”) as follows: NATURE OF ACTION 1. Plaintiff SCRATCH DJ is the owner, by assignment from GENIUS PRODUCTS, LLC (“GENIUS”), of the highly-anticipated video game Scratch: The Ultimate DJ (the “Game”), which is an interactive, music video game incorporating all aspects of “disc jockey-style” game play. The Game uses a proprietary custom-manufactured turntable and beat-button controller created and designed specifically for the Game by NUMARK INDUSTRIES, LLC (NUMARK”), which is one of the leading manufacturers of disc jockey equipment, SCRATCH DJ is a joint venture between GENIUS and NUMARK: 2. ‘The Game was being developed for GENTUS on a work-for-hire basis by defendant 7 STUDIOS pursuant to a development agreement with GENIUS, which has since been assigned to SCRATCH DJ, The Game, which is in the late development stage, was scheduled for release in September 2009, which would have made it the first DJ-based video game released in the market ~a significant and valuable competitive advantage. However, that release date and the Game’s “first to market” status have been severely jeopardized by the intentional misconduct of ACTIVISION and 7 STUDIOS. 3. Defendant ACTIVISION, which is one of the world’s largest and most successful video game publishers, is concurrently developing its own competing DJ-based video game to be marketed as part of its Guitar Hero game franchise under the name DJ Hero. SCRATCH DJ, however, is believed to be ahead of ACTIVISION in terms of the development of, and scheduled telease date for, the Game. in addition, early consumer reviews dicate that \TCH Dis Game is far superior to ACTIVISION’s DJ Hero. Knowing this, ACTIVISION approached GENIUS and expressed interest in acquiring the Game. In the course of the parties’ negotiations, they entered into a non-disclosure agreement, which GENIUS relied upon when it shared confidential information with ACTIVISION about the Game and demonstrated the Game for -2- Lasoo 1727057-7.099500 010 ‘COMPLAINTMDeniorr Witt EMERY LLP Ceo ne ACTIVISION. Negotiations ceased after ACTIVISION leamed from GENIUS that its game developer, 7 STUDIOS, was behind in the contractual development schedule for the Game and that GENIUS and 7 STUDIOS were close to signing a revised development schedule. When ACTIVISION attempted to renegotiate its offer price, suggesting a substantial reduction in price, GENIUS terminated negotiations and entered into a joint venture with NUMARK to finish the development of the Game. 4, Armed with this information, and frustrated that it was unable to purchase the Game for itself, ACTIVISION then embarked on a sinister strategy of intentional interference and ‘unfair competition: rather than acquire the Game at the fair-market price-levels being negotiated ‘with GENIUS, ACTIVISION decided to purchase the financially-troubled 7 STUDIOS in order to delay and prevent the completion of the Game ~ in effect, holding its competitor's game hostage. ACTIVISION accomplished this goal by controlling GENIUS’s work product for the Game and commandeering the individual game programmers who were devoted full time to developing the Game. 5. Once ACTIVISION had locked up 7 STUDIOS, 7 STUDIOS abruptly refused to finalize the previously-negotiated contract amendment and revised development schedule for the Game. Instead, 7 STUDIOS demanded new terms that were commercially-unreasonable, in bad faith, and punitive, including, among other things, a provision potentially transferring ownership of the Game to 7 STUDIOS. 7 STUDIOS proposed these toxic terms on a “take it or leave it” basis knowing full well that GENTUS would reject them. This tactic was a dramatic turnaround from 7 STUDIOS’s previous persistent pressuring of GENIUS for cash advances due to 7 STUDIOS’s quickly deteriorating financial condition. 7 STUDIOS’s constant threat of financial disaster caused great concern for GENIUS due to the significant investment it already made in the | Game and the tig! market” status. 6. Faced with ACTIVISION’s newly obtained control of GENTUS’s developer and 7 STUDIOS’s failure to perform its contractual obligations, GENIUS had no alternative but to terminate the agreement with 7 STUDIOS and invoke its contractual right to require 7 STUDIOS -3- 14s99 1727087-1.009900 0010 ‘COMPLAINT