Video Game Law Blog

September 28, 2005

Earlier this year Adrian Carmack, one of the founders of id Software (but no relation to co-founder John Carmack), left the company, and it was presumed that he had retired voluntarily.  That seems not to be the case. Carmack has sued his former co-owners, claiming that they forced him out in order to gain his 41 percent of id's shares for a relatively small amount ($11 million). That doesn't seem small, you say? Well, it is small compared to what the shares will be worth if id is ever purchased by a third party. Apparently this manoeuvre was prompted by various recent offers by Activision (reportedly of $105 million to buy id outright, and $90 million to purchase the rights to Doom, Quake and Castle Wolfenstein). Carmack claims that his co-owners deliberately rejected these offers so that they could force him out and acquire his shares on the cheap, and then presumably reap a windfall in the event of a third-party purchase.

Carmack is also seekingto have the contract that requires him to sell his shares back to id for $11 million if he leaves declared void (i.e., so he can retain his 41 percent shareholding).

It is a good idea to have a strong shareholders agreement place when establishing a small company, for two important reasons to specify permitted exit strategies in case things fall apart, and to restrict the shareholders' abilities to sell their shares to outside interests. However, the Carmack lawsuit shows that even a shareholder's agreement won't always save the day.

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