Timegate Studios, Inc. v. Southpeak Interactive, L.L.C.
2013 U.S. App. LEXIS 7184
| 5th Cir. | 2013Background
- Timegate and Gamecock entered a June 2007 video game publishing agreement for Section 8, detailing development, funding, and jointly exploited IP rights.
- Timegate remained exclusive owner of the game IP; Gamecock had limited exclusive licenses for publishing, with bounded terms and rights to translations and add-ons.
- After Section 8 released in 2009 and relations soured, Timegate sued for multiple breaches; arbitration followed per the contract.
- Arbitrator found fraud by Timegate and breach of contract by Timegate, awarding Gamecock about $7.35 million plus a perpetual license for Timegate’s IP in the Game and related rights.
- District court vacated the Award, concluding the perpetual license was not a rational remedy within the contract’s essence, and thus operated beyond the arbitrator’s authority.
- Timegate appealed; the Fifth Circuit held the perpetual license was a permissible remedy rooted in the contract’s essence, given fraud and irreparable breach, and remanded to confirm the Award.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the perpetual license remedy is within the contract’s essence | Timegate argues it conflicts with IP provisions and exceeds essence. | Gamecock argues the license restores the contract’s essence after fraud and breach. | Permissible; it rationally furthers the contract’s essence. |
| Whether the district court properly vacated the Award for exceeding powers | Timegate contends the award is grounded in the contract’s remedial power post-fraud. | Gamecock contends the grant was within arbitrator’s broad remedial authority. | Reversed; the Award should be confirmed. |
| What is the appropriate standard of review for arbitration awards | Timegate emphasizes deference to contract interpretation; strict review of the remedy. | Gamecock emphasizes deference to the arbitration award’s essence and remedial choices. | Review is deferential on essence; de novo for vacatur decisions. |
| Did fraud inducement affect the arbitration award’s scope | Timegate asserts fraud does not justify altering core contractual terms as remedy. | Gamecock contends fraud permits voiding or modifying provisions to restore balance. | Yes; fraud validly permitted an award altering contract terms to preserve essence. |
| Should the arbitration award be confirmed | Timegate seeks vacatur of the Award. | Gamecock seeks confirmation of the Award, including the perpetual license. | Yes; the district court’s vacatur is reversed and the Award is to be confirmed. |
Key Cases Cited
- Executone Info. Sys., Inc. v. Davis, 26 F.3d 1314 (5th Cir. 1994) (arbitrator’s remedy drawn from contract’s essence; deference to remedy choice)
- Anderman/Smith Operating Co. v. Tenn. Gas Pipeline Co., 918 F.2d 1215 (5th Cir. 1990) (deferential review; whether award draws essence from contract)
- United Steelworkers v. U.S. Gypsum Co., 492 F.2d 713 (5th Cir. 1974) (remedial power to restore balance; awards not precluded by contract)
- Apache Bohai Corp. LDC v. Texaco China BV, 480 F.3d 397 (5th Cir. 2007) (arbitrator not precluded from some remedial innovations within essence)
- Advanced Micro Devices, Inc. v. Intel Corp., 885 P.2d 994 (Cal. 1994) (permanent license remedy rationally drawn from contract’s subject matter)
- Beaird Indus., Inc. v. Local 2297, Int’l Union, 404 F.3d 942 (5th Cir. 2005) (arbitrator’s remedial choice upheld when not precluded by contract)
- Delta Queen Steamboat Co. v. Dist. 2 Marine Eng’rs Beneficial Ass’n, 889 F.2d 599 (5th Cir. 1989) (arb award remedies in labor context allowed to diverge from precise contract terms)
- Jefferson Partners Amalgamated Transit Union Local No. 1498 v. Jefferson Partners, 229 F.3d 1198 (8th Cir. 2000) (contract lacks explicit remedial provisions; arbitrator may craft remedial relief)