U.S. Court Orders Reinstatement of Unknown Worlds Leadership Amidst AI-Assisted Earnout Dispute
A U.S. court has ordered South Korean gaming publisher Krafton to reinstate the leadership of its acquired studio, Unknown Worlds Entertainment, following their removal amidst a dispute over a potential $250 million earnout payment. The court found that Krafton's CEO utilized the artificial intelligence chatbot ChatGPT to devise a strategy aimed at avoiding this contractual payment.
The U.S. court mandated the reinstatement of Unknown Worlds Entertainment's leadership, determining that Krafton's CEO used ChatGPT to strategize avoiding a $250 million earnout payment.
Acquisition Background
In 2021, Krafton acquired Unknown Worlds Entertainment, the developer of the video game Subnautica, for $500 million. The acquisition agreement stipulated that Unknown Worlds would maintain operational independence, with its leadership—including co-founders Charlie Cleveland and Max McGuire, and CEO Ted Gill—retaining control, terminable only for cause. A key component of the agreement was an earnout clause, which promised an additional payment of up to $250 million to the studio if Subnautica 2 achieved specific sales performance targets.
Earnout Dispute and AI Involvement
In the period leading up to the anticipated release of Subnautica 2, internal sales projections indicated a high likelihood that Unknown Worlds would meet the performance targets required to trigger the $250 million earnout payment. According to the court ruling, Krafton CEO Changhan Kim expressed concerns about the earnout provision, reportedly viewing it as a "bad deal."
Despite counsel from Krafton's legal department regarding the necessity of the payment and potential legal and reputational risks, Mr. Kim consulted ChatGPT for assistance in formulating a corporate strategy. While ChatGPT initially indicated that the earnout would be "difficult to cancel," it subsequently suggested establishing an internal task force. Mr. Kim then created "Project X," with objectives that included negotiating a settlement for the earnout or executing a "Take Over" of Unknown Worlds.
"Mr. Kim then created 'Project X,' with objectives that included negotiating a settlement for the earnout or executing a 'Take Over' of Unknown Worlds."
Leadership Removal and Legal Action
Krafton subsequently implemented elements of the strategy devised with the AI chatbot's input. This included developing a communications plan, securing publishing rights for Subnautica 2, and preparing legal defense materials. Following unsuccessful attempts to renegotiate the earnout payment, Krafton removed the studio's leadership. The publisher alleged that the leadership had misrepresented their time commitment to the studio, a claim that the court later rejected.
Court Ruling and Reinstatement Order
Vice-Chancellor Lori Will of the Delaware Court of Chancery issued a ruling ordering Krafton to reverse the removal of Unknown Worlds' leadership. The court specifically mandated that operational control be returned to Ted Gill, the CEO of Unknown Worlds. The ruling also extended the period during which the earnout criteria could be met, allowing for further opportunity for the studio to achieve the contractual targets.
Krafton's Response
In response to the ruling, Krafton has stated its disagreement and affirmed that it is evaluating its legal options. The company also reiterated its commitment to enhancing the Subnautica sequel for its fanbase and preparing it for an early access release.