When Inaccurate Simulations Lead to Litigation and Settlements

Factual Background

In the case, Perrine v. Sega of America, Inc., et al. (N.D. Cal 2013), the named plaintiffs John Locke and Damion Perrine, were displeased with their purchase of ACM.  Prior to the release of the game, Sega and Gearbox created buzz about ACM with well-received demonstrations at trade shows and various previews. The presentations were described as “actual gameplay” though some of the videos included a “Work in Progress” watermark in the top left corner. However, after the release, reviewers criticized the game, calling it “a pain to get through” and boring. More importantly, the final product looked disappointingly different from the previews. The suit was filed on these grounds, with the plaintiffs claiming that had they known the true quality of the game, they would not have purchased it in the first place.

Given this, the plaintiffs sued Sega and Gearbox and asserted a violation of the California Legal Remedies Act (CLRA), which prohibits “unfair methods of competition and unfair or deceptive acts or practices…in a transaction intended to result or which results in the sale or lease of goods or services to any consumer,” on the ground that defendants deceived consumers in order to sell the game by making false and misleading representations that features in the “actual gameplay” demonstrations would be in the final retail game.  The plaintiffs also claimed violations of the California Unfair Competition Law, which prohibits unlawful, unfair or fraudulent business acts or practices, similarly based upon the defendants’ alleged knowing and willfully false and misleading claims to the public regarding the actual qualities of the retail game; as well as violation of the California False Advertising Law, and claims for breach of express warranties, fraud in the inducement, and negligent misrepresentation on the basis of the disparity between the test demonstrations and the final product. Plaintiffs sought to certify a class of “all persons in the United States who paid for a copy of the Aliens: Colonial Marines video game either on or before February 12, 2013.”

Procedural Background

Following the initial filing, the defendants moved to dismiss the case based upon lack of standing and failure to state a claim upon which relief could be granted, also citing issues with the application of California law to plaintiff Perrine, a Pennsylvania citizen. Additionally, defendants argued that the pleadings lacked specificity and the misrepresentation that plaintiff did plead, which was a statement from Gearbox’s president Randy Pitchford, at a presentation that “you’re going to see what the game actually looks like. Not just screenshots but the actual gameplay,” was not actionable anyway because the statement was true since it pertained to a live demonstration of ACM and was not about a particular trait of the game. Following the filing of an amended complaint, the defendants once again attempted to have the case dismissed, arguing among other things that the CLRA only covers goods and services, but that the game was a software and also noted that their use of the “Work in Progress” watermark defeated any claims pertaining to an express warranty. The court denied the motion to dismiss.

Following the failed motions to dismiss and a mediation, Sega reached a tentative settlement agreement including a $1.25 million settlement fund that was to be distributed to claimants within the class up to a full refund of their purchase price; an incentive award of $2,500 to plaintiff Locke; attorneys’ fees; and a release of all claims related to ACM. As it was impossible for defendants to directly notify consumers since the sales actually took place through vendors and not through the defendants, plaintiffs and Sega agreed to release a publication to reach class members. Accordingly, the settlement was contingent on the court’s certification of the class identified in the original complaint.  Notably, Gearbox chose not to be a part of the settlement.

On May 12, 2015, the court denied plaintiffs’ motion for class certification on the ground that the class was too difficult to define and reliably validate. In the same order, the court also denied defendant Gearbox’s motion to dismiss the case against it. However, on May 27, 2015, Gearbox and plaintiffs agreed to dismiss Gearbox with prejudice as long as Gearbox waived any costs that might be due to them. This agreement with Gearbox is to become final within 60 days unless a party objects in the interim. Given these developments, Sega’s tentative settlement agreement is left unresolved as it was contingent on the certification and Gearbox will be released from liability (assuming no objections are filed).

Takeaway

Marketers should take care to ensure that demonstrations accurately reflect the final product.  Not only can a failure to meet consumer expectations lead to a damaged reputation and brand, but this case shows that such failure may also lead to litigation.