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Crytek Ordered to Pay $500k Bond – Star Citizen Lawsuit

Welcome to some more Star Citizen News, with an Update & Recap of the CIG vs Crytek Lawsuit. The Court has ordered that a bond of $500k be put up by Crytek to protect CIG in the event that CIG are the prevailing party.

This was actually a lot less than CIG wanted, the original bond requested was for $2.2 million. So why did the court award the bond BUT for much less than CIG requested.

The bond is to protect CIG from having to be fully liable for their lawyer’s fees if they are the prevailing party & was made available to CIG as Crytek are a foriegn entity and have a History of Financial Troubles… but these troubles and way CIG argued them may have been overly convincing to the court.

Well let’s take a look at the court document that did a bit of recap AND what the court had to say about the case so far and please remember I am not a lawyer and this is my understanding of the situation and my opinion. And the Court documents are all linked here if you’d like to follow along at home.

Crytek (Plaintiff) claims that Defendants (CIG)’ conduct violated their GLA (Game License Agreement) and asserts claims for breach of contract and copyright infringement against them. Previously, the Court dismissed two separate theories that the GLA prohibited CIG from using any game engine other than CryEngine.

Crytek’s Complaint now only asserts claims for breach and copyright infringement stemming from: (1) CIG’s use of CryEngine in its Squadron 42 game, (2) CIG’s failure to timely deliver “bug fixes and optimizations” to Plaintiff, (3) CIG’s decision to remove copyright and trademark notices crediting Crytek in association with CIG’s Star Citizen game, and (4) the alleged disclosure of CryEngine source code in online videos that CIG publicly released. 

In the court’s opinion CIG showed that there was a “reasonable possibility” that they would prevail. Which the court required to award the bond, though this hurdle is a relatively low one.

The court said While(Crytek), a company based in Germany, unquestionably qualifies as a foreign corporation, the parties dispute whether Defendants can show a reasonable possibility of prevailing on the merits of Plaintiff’s remaining claims and whether Defendants have requested too large a bond. The Court concludes that Defendants have a reasonable possibility of prevailing, but that Plaintiff need only post a fraction of the bond Defendants seek.  

The Prevailing party may seek relief for their expenses from the other, the prevailing party is the “the party who recovered a greater relief in the action on the contract.

The Court must therefore take into account the fact that the Court has already dismissed two of Plaintiff’s key breach of contract theories.4 Defendants have also demonstrated a reasonable possibility that they will prevail on Plaintiff’s remaining claims.  

Defendants first argue that they are likely to defeat Plaintiff’s claim that the GLA prohibited Defendants from using CryEngine to develop Squadron 42. Given that the GLA explicitly grants Defendants the right to “exclusively embed CryEngine in the Game and develop the Game,”, and defines “the Game” as Space Citizen and Squadron 42 “together,” Defendants’ success on this claim is at least reasonably possible. Defendants next contend that they took action that satisfied their contractual obligation to deliver certain “bug fixes” to Plaintiff “annually.” Plaintiff makes alternative arguments that CIG’s actions did not qualify as annual delivery and that CIG eventually delivered the bug fixes after this lawsuit began, a development which amounts to a win on this issue for Plaintiff. Answering whether, as a factual matter, CIG met its obligation to deliver bug fixes annually will require the Court to answer fact questions inappropriate for resolution at this time. It will also require the Court to decide whether the GLA’s language renders moot the parties’ jostling over whether and when CIG would deliver the fixes. The fact that either result appears reasonably possible at this stage counsels in favor of requiring a bond. 

Even if the Court eventually decides that CIG’s delivery of the bug fixes after this litigation began qualifies as a positive result for Plaintiff, the Court would likely look at that result in the context of the litigation as a whole

In light of the Court’s dismissal of previous claims and the reasonable possibility of success on the claims the Court discussed herein, Plaintiff’s potential victory on this issue is not enough to compel the conclusion that Defendants stand no reasonable chance of prevailing in the end. 

Plaintiff also claims that Defendants breached the GLA by removing from Star Citizen copyright and trademark notices that indicated that CIG used CryEngine to develop the game. Defendants respond that they no longer need to use such notices because they switched from Plaintiff’s game engine to Amazon’s Lumberyard game engine. Plaintiff does not dispute that the switch occurred, but contends that Defendants should have credited Plaintiff nonetheless because Amazon based Lumberyard largely on CryEngine source code after Plaintiff sold the code to Amazon. The effect of the similarities in the CryEngine and Lumberyard source code is a merits issue that the Court need not resolve now. It is enough for the Court to decide that the evidence before it indicates that CIG switched the copyright and trademark notices only after it began using Lumberyard instead of CryEngine. Defendants therefore stand a reasonable possibility of success on this claim.

Finally, in response to Plaintiff’s claims relating to the alleged unauthorized disclosure of Crytek’s code, Defendants aver that the disclosure in the “Bugsmashers” videos caused no damage to Crytek because Crytek had already made a substantial amount of its code publicly available.. Indeed, the record shows that Plaintiff made CryEngine publicly available on a “pay what you want” basis, allowing users to access the platform without necessarily paying anything. Plaintiff does not dispute this evidence. Since proving breach of contract requires Plaintiff to show that the purported breach actually caused damages, the fact that its source code was publicly available before CIG released its Bugsmashers videos is enough for the Court to conclude that Defendants have a reasonable possibility of success on this claim.

Since Defendants have already succeeded on two claims and have a reasonable possibility—if not a greater possibility—of succeeding on others, as discussed above, this factor weighs heavily in favor of requiring a security.  

So from that, we can see the court sees that there is the need for a bond for CIG’s financial security and they are believe there is a reasonable chance that CIG will prevail as they already partly done on some matters. However the court went on to say they wish to reduce the amount of the bond as to not bar Crytek’s access to potential legal remedies… 

Defendants argue that Crytek is in severe financial distress. They cite to media reports that Crytek has, for some years, been teetering on the brink of insolvency. They also point to reports of Crytek’s downsizing and failure to make payroll Further, Crytek experienced a 62.3% revenue drop in 2015. Revenue increased slightly in 2016, but Crytek had to take out and modify significant loans to remain solvent. More reports surfaced that Crytek was unable to make payroll and had to close several production studios that year. Defendants claim that Crytek has not filed financial reports for the years 2017 or 2018, and Plaintiff does not dispute that fact. Indeed, Plaintiff does not dispute any of Defendants’ evidence indicating that Crytek is in financial trouble. While this evidence may bolster the justification for a bond, it also shows that the $2,193,298.45 Defendants request may not be reasonable when viewed from Plaintiff’s perspective. Courts must be careful not to “deprive a plaintiff of access to the federal courts” by forcing them to post an excessive bond.. If Crytek is in as much distress as Defendants believe it is, requiring it to post a lump sum of over $2 million could push the company closer to financial ruin or effectively bar it from further participating in the suit. 

Basically CIG arguing that Crytek were in dire straits financially helped get a bond BUT the court won’t put it to $2.2m as they don’t want to stop Crytek from being able to continue litigation. An extremely fair judgement from the court if you ask me.

Defendants claim that they have already spent $387,528.45 in attorneys’ fees on this matter and provide an estimate that they may incur an additional $1,592,937.50 over the course of the litigation.. Plaintiff disputes the reasonableness of both amounts, but does not provide the Court with a figure that it could reasonably post as a security— it requests only that “the required bond be substantially decreased” if the Court “find[s] a bond warranted.”. Given the absence of such context, the Court shall require Crytek to post a bond in the amount of $500,000. Such an amount will protect the significant amount of fees that Defendants have already incurred, but will likely not jeopardize Plaintiff’s ability to continue its participation in the action. 

So this bond may be very useful to CIG for both financial protection BUT also leverage in any settlements. It also doesn’t affect the possibility that CIG may not be the prevailing party OR CIG being the prevailing party, having higher fees and then claiming them as well, the bond just gives a bit of extra security.

CIG & Crytek as I understand it have been having settlement talks & I suspect these will continue and potentially be resolved before the discovery phase goes into full swing, this is where the parties request emails, documents and lots of information from the other, which can be burdensome & costly… there is a risk settlement wise that CIG will be unwilling to settle once they have spent money on the discovery phase as they might as well fight it BUT that’s just my opinion.

Crytek’s case is looking pretty weak to me BUT something could come up in discovery.

I personally don’t like that Crytek are suing CIG but it’s possible they have genuinely been wronged & I certainly don’t begrudge Crytek’s employees for the decisions of higher ups and lawyers either. It’s just a bit of a shitty situation and I hope it gets resolved soon, though if a settlement is reached we are unlikely to know anything more about it other than it was settled.

Below you can find out more about the previous steps of the case & more Star Citizen “Drama”