A U.S. court has ruled that Krafton's decision to fire the management of its U.S. subsidiary Unknown Worlds was improper.
On the 16th (local time), the Delaware Court of Chancery issued a first-instance ruling ordering Krafton to reinstate former Unknown Worlds Chief Executive Officer Ted Gill and return control of the studio.
Unknown Worlds is a U.S.-based game developer that Krafton acquired in 2021 for $500 million (about 580 billion won). It developed the popular ocean adventure game "Subnautica," which has sold more than 6 million copies worldwide. It is currently developing the sequel, "Subnautica 2."
However, when Krafton signed the deal to acquire Unknown Worlds four years ago, it reportedly agreed to pay management and employees an earn-out of about $250 million (about 340 billion won) if the sequel to "Subnautica," "Subnautica 2," was developed and released within this year and certain sales targets were met.
Last year, citing the game's lack of polish, Krafton pushed the release of "Subnautica 2" to this year and fired former CEO Gill and co-founders Charlie Cleveland and Max McGuire, among other executives.
In response, they said, "Krafton fired us to avoid paying the earn-out," and filed a damages lawsuit against Krafton seeking $250 million (about 344.705 billion won).
Krafton filed a countersuit, saying the release of "Subnautica 2" was delayed because of Unknown Worlds management's negligence.
But the court sided with the former management, finding that Krafton intentionally fired them to avoid paying the earn-out.
According to the judgment, Krafton initially claimed it fired the former management because they attempted to release "Subnautica 2" in an unfinished state, but later advanced new allegations of negligence by Cleveland and McGuire and that the three former executives tried to take company secrets. The court said these claims were "made up later" and had low credibility.
The court said, "Krafton already knew and accepted that Cleveland and McGuire had limited roles," and added, "The download of confidential data was to protect the studio's work product amid an attempted takeover of the company; the data remained confidential and was returned immediately."
The court also found that Krafton CEO Kim Chang-han asked ChatGPT for a strategy to seize control of the studio without paying the earn-out tied to the release of "Subnautica 2." The court cited Kim's remark that paying the earn-out would make him "look like a pushover."
Krafton said in a statement, "We respectfully disagree with this ruling and are reviewing various options for our next steps," adding, "This ruling does not address the damages claim brought by former Unknown Worlds management or the performance-based additional compensation related to Subnautica 2, and litigation on those matters will continue."