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Earn-Out Payments In <i>Rock Band</i> Video Game at Issue in Delaware Case
Attorneys for Viacom International Inc. told the Delaware Supreme Court in oral arguments in July that their client did not breach the implied covenant of good faith and fair dealing when it failed to renegotiate an agreement with Electronic Arts Inc. (EA) to distribute the video game Rock Band , thereby reducing the earn-out payments to shareholders of the game's developer, Harmonix Music Systems Inc., which merged with the Viacom entertainment conglomerate in 2006. Viacom's attorneys presented their case to the high court after Harmonix's shareholders appealed a Delaware Court of Chancery decision that dismissed their claims that Viacom purposely sought to reduce Harmonix's earn-out payments.
As the state supreme court mulls the parties' arguments in Winshall v. Viacom, in a separate, but related development in July it affirmed the chancery court's decision to uphold an arbitrator's $298.8 million award to shareholders who claimed they were shortchanged out of the earn-out payments in 2008. Viacom International Inc. v. Winshall, 513. Viacom contended the award should only be $191 million because it should be permitted to write down the cost of unsold games.
In upholding the chancery court's decision, the Delaware Supreme Court decided that BDO USA LLP, which arbitrated the earn-out dispute, was correct when it refused to consider evidence presented by Viacom. “If the subject matter to be arbitrated is the calculation of an earn-out ' all issues as to what financial or other information should be considered in performing the calculation are decided by the arbitrator,” said Justice Carolyn Berger.
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