Bethesda faces broad class-action lawsuit over Fallout 4 DLC as Microsoft takeover looms

Bethesda Softworks and its parent firm, ZeniMax Media, are about to face some uncomfortable questions in a class-action lawsuit about how they treated the loyal fans of the 2015 hit game Fallout 4. And that’s an annoying problem, as Microsoft is getting ready to buy Bethesda Softworks in a $7.5 billion acquisition.

While ZeniMax’s founder was a lawyer — the recently deceased Robert Altman — and was known for being litigious (ask former Oculus chief technology officer John Carmack), attorneys in the class-action say that they are shocked at some of the legal mistakes that Bethesda has made in the case involving the downloadable content (DLC) for Fallout 4. It isn’t yet clear how much financial exposure the company has, but the attorneys suing it say it’s a lot of money. It’s not unreasonable to think it could be a billion-dollar-plus liability, the lawyers claim.

Spokespeople for Bethesda and Microsoft declined to comment for this story.

Fallout 4’s smashing success

Fallout 4 was a huge hit when it shipped in 2015, selling an estimated 13.5 million copies, or an estimated $810 million at the retail price. On September 9, 2015, two months before the game shipped, the Bethesda team announced it was selling a Season Pass for $30 that would entitle gamers to a lifetime of DLC.

“We’ve always done a lot of DLC for our games. We love making them, and you always ask us for more,” Bethesda said in a post, according to the lawsuit. “To reward our most loyal fans, this time we’ll be offering a Season Pass that will get you all of the Fallout 4 DLC we ever do for just $30. Since we’re still hard at work on the game, we don’t know what the actual DLC will be yet, but it will start coming early next year. Based on what we did for Oblivion, Fallout 3, and Skyrim, we know that it will be worth at least $40, and if we do more, you’ll get it all with the Season Pass.”

One special price

Above: Fallout 4’s DLC includes stories, skins, and functional items.

Image Credit: BioMed Illustrations/The X-Law Group

Over time, the Season Pass description consistently stated gamers would “get the Fallout 4 Season Pass and get all Fallout 4 DLC for one S.P.E.C.I.A.L. price.” It hasn’t been revealed how many people bought the DLC based on that promise, but the lawyers believe it was in the millions of players. Bethesda increased the price of the Season Pass to $50 in March 2016.

But on June 11, 2017, Bethesda announced something called Creation Club. The company characterized Creation Club as “a collection of all-new content for both Fallout 4 and [The Elder Scrolls V:] Skyrim. It features new items, abilities, and gameplay created by Bethesda Games Studios and outside development partners including the best community creators. Creation Club content is fully curated and compatible with the main game and official add-ons.”

While it sounded like “mods,” or community-created modifications for the game, it was really DLC, mostly created by Bethesda itself, said Filippo Marchino and Thomas Gray, attorneys at the class-action law firm The X-Law Group. Players like Jacob Devine of California thought they were entitled to that DLC, based on the promises that Bethesda made in the past. He bought a Season Pass in April 2019 at a GameStop store.

“I bought the first season pass, and I was like, cool. That’ll give me all access for the rest of the game, right,” Devine said in an interview with GamesBeat. “Then they dropped that new batch. I’ll go check it out, just to find out I had no access at all. And I had to buy another season pass basically to have access to it. I was just disappointed. I felt like I was ripped off.”

Devine was familiar with season passes in other games like Call of Duty and knew that they often had time limits. But he didn’t see any wording to that effect on this one and really thought he was buying a pass for all future content.

But Bethesda said those purchasers weren’t entitled to the Creation Club content.

“Simply put, Bethesda sold a Season Pass with the understanding that it was going to give the holders of the Season Pass any and all DLC content there was going to be created for the game Fallout 4 on a go-forward basis,” Marchino said in an interview with GamesBeat. “They released a limited amount of DLC. Then they released a second wave of DLC, but decided to call it the Creation Club content and artificially removed it from the definition of DLC. Meaning that they promised people at the onset, we will give you everything we made. And then they reneged on that promise, and they did so to their benefit or the detriment of the plaintiffs. So that’s where they did something wrong. They lied. They took money from gamers, and then they made more money.”

A class-action lawsuit

Above: Fallout 4 DLC is indistinguishable from Creation Club content.

Image Credit: BioMed Illustrations/The X-Law Group

On behalf of the 19-year-old Devine, The X-Law Group filed a lawsuit against Bethesda for false advertising on July 9, 2019.

“It’s just about right or wrong,” Devine said.

Jacob Devine’s father, Trevor Devine, is a former Marine. He encouraged his son to seek redress and was also disappointed when the company didn’t step up.

“I feel like there’s some social responsibility by these companies to not take advantage of kids,” said Trevor Devine in an interview. “We’re forking out money, assuming that large companies are being ethically correct. I think the moral compass here, in my estimation, has been a bit skewed. I was honestly very surprised at the immediate response that they’re pushing back and resisting any sort of compensation or refund. They’re taking no ownership or responsibility. That’s difficult to see for kids who bought this and were suckered in. And it just really felt like they were taken advantage of. I think there is an enormous class of people here who would otherwise just be forgotten, in our same situation. There’s different levels of society where if you’re a little less fortunate, economically you’re not in a similar position, and you’ve worked your butt off, and you’ve paid for that because you’ve worked so long. My heart goes out to those people.”

The plot got thicker as ZeniMax announced in September that Microsoft was buying Bethesda for $7.5 billion. That deal is still pending, but it could create a behemoth in the game industry, enabling Microsoft to make far more games for the PC and consoles than rival such as Nintendo and Sony can do. But this lawsuit might have to go away first.

The lawsuit charges Bethesda with breach of contract, unjust enrichment, promissory estoppel (breaking a promise, even in the absence of a legal contract), deceit or fraud, fraudulent concealment, negligent misrepresentation, tort arising out of breach of contract, breach of express warranty, and violation of Maryland’s Consumer Protection Act.

Margaret Esquenet, a counsel for Bethesda, filed an answer to the lawsuit, denying most of the legal claims. We’ve asked for additional comment. On its face, Bethesda’s defense is that the new content wasn’t DLC. The company itself was one of the pioneers of selling DLC, which goes back to the mid-2000s. It includes content that is developed as an addition to a game, released either with the game or after it comes out.

The DLC business model enables publishers to further monetize a game after they release it by selling smaller collections of content to those who own the original game. DLC may be developed by the same studios that are responsible for creating the game itself or by outside entities that enter into contracts to create DLC for the game. Bethesda has had a DLC controversy in the past with The Elder Scrolls IV: Oblivion’s horse armor.

As DLC proliferated in the video game industry, publishers began to offer “season passes.” Season passes are a bundle of DLC offered to consumers, typically at a discount over purchasing DLC à la carte. Season passes specify the content that will be included with the purchase of the season pass, either by listing the specific DLC that will be included, or by stating that the season pass encompasses all DLC that will be released for the game. Season passes are frequently available for purchase before the game itself is released, well before the DLC included in the season pass is released, and often before the DLC itself has been created.

Bethesda created typical DLC for Fallout 4, such as new weapons, armor, apparel, locations, characters, creatures, and quests.

Gamers, meanwhile, have created modifications, or “mods,” for games for decades. These predate DLC, but they serve some of the same functions of keeping players engaged. Most mods are offered for free, or sold by players, while DLC is sold by the publisher for a profit.

“It clearly is downloadable content,” Marchino said. “It walks like a duck, quacks like a duck. So it is DLC. They try to slap a sticker on it and call it Creation Club content to remove it from the purview of the people that had already bought the Season Pass. But that’s artificial in nature. And it’s part of the fraud.”

Here’s where Bethesda made some amateur legal mistakes, the opposing attorneys say. Surprisingly, Fallout 4 didn’t come with an End User License Agreement, which could have spelled out the details about what gamers were entitled to, Marchino said.

“It’s surprising to me,” said David Hoppe. He’s the managing partner at Gamma Law, a game industry-focused law firm. “It’s a surprising situation for a sophisticated company.”

Hoppe, who does not represent either party in the case, said the litigation has been going on for a year and a half. He notes that neither side has been able to talk much yet about the merits of the case.

On top of that, it didn’t say what was included in the Season Pass, or what was the cutoff date for the pass when it came to future content. Players like Devine believed that their pass entitled them to everything that would ever come out. DLC descriptions did not include fine print contradicting that.

“On the Steam Store web page to this day, for the Fallout 4 Creation Club, it is listed under the category of downloadable content,” said Gray at The X-Law Group in an interview. “It says DLC and downloadable content on several parts of the Steam page. There is no way that Bethesda can say that Creation Club is downloadable content on Steam.”

None of the marketing material ever mentioned that the Season Pass did not or would not include Creation Club content.

The thin line between DLC and Creation Club

Above: Which is the DLC?

Image Credit: BioMed Illustrations/The X-Law Group

That’s why the Creation Club came as a surprise. While it appeared to be a collection of mods, the $281 worth of content in the club was mostly created by Bethesda itself. It included new weapons, armor, outfits, new locations, decorations, foliage, new types of gameplay like “survival mode,” and character items. Marchino’s legal team believes it should have been included in the Season Pass.

But Bethesda disagreed, and even after the lawsuit’s filing, it declined to give credits to gamers. In a Frequently Asked Questions section of their website, Bethesda said, “Is Creation Club paid mods? No. Mods will remain a free and open system where anyone can create and share what they’d like. Also, we won’t allow any existing mods to be retrofitted into Creation Club, it must all be original content. Most of the Creation Club content is created internally, some with external partners who have worked on our games, and some by external Creators.”

Bethesda continued, “All the content is approved, curated, and taken through the full internal dev cycle; including localization, polishing, and testing. This also guarantees that all content works together. We’ve looked at many ways to do ‘paid mods,’ and the problems outweigh the benefits. We’ve encountered many of those issues before. But, there’s a constant demand from our fans to add more official high-quality content to our games, and while we are able to create a lot of it, we think many in our community have the talent to work directly with us and create some amazing new things. In short, Creation Club content is indistinguishable from DLC, including DLC released for Fallout 4 by Defendants themselves.”

Bethesda marketing and public relations chief Pete Hines called the new content “almost like mini-DLCs” in interviews with publications such as IGN and GameSpot, said Gray.

“There are pieces of DLC that are skins for weapons and armor,” Gray said, referring to the images in this story. “And there are pieces of Creation Club content that are skins for weapons and armor. There are DLC quests, and there are Creation Club quests. It’s a distinction without a difference.”

Listings for the Season Pass still say that purchasers will “get all Fallout 4 DLC for one S.P.E.C.I.A.L. price.” Instead, Bethesda has created a distinction without a difference so that it can sell Creation Club content to purchasers of the Season Pass, Marchino said. No arbitration agreement was in place, as is often the case in purchases, when Devine bought his Season Pass, Marchino added. If Devine wasn’t happy, he was free to sue Bethesda, Marchino said.

The lawsuit isn’t yet certified as a class action. Both sides are in the discovery stage. Marchino and Gray have asked for any details related to the deal — and Bethesda’s legal exposure — from Microsoft, Bethesda, and one of Bethesda’s big investors, Providence Equity Partners.

As Microsoft tries to close the transaction, Marchino said he is concerned about what Bethesda is telling Microsoft about the lawsuit. He said that he is concerned that Bethesda might try to shift its assets to a new legal entity and shield itself from any legal liability related to the class-action lawsuit.

The Human Head deal

Above: You can get more stories with Fallout 4 DLC or with Creation Club.

Image Credit: BioMed Illustrations/The X-Law Group

Marchino said he has reason to be concerned because of the way Bethesda allegedly behaved in another acquisition. Bethesda was sued in California by Ragnarok Game, which gave money to Nine Realms, which did business as Human Head, to develop a video game called Rune II and another one called Oblivion Song. Bethesda effectively acquired Human Head, which transferred all of its assets to another company, Roundhouse, in secret.

Rune II in particular was a rival to Bethesda’s Elder Scrolls franchise, the lawsuit said. Ragnarok learned about the transfer of assets when its representatives visited Human Head, only to find the Roundhouse Studios name on the door. Human Head, with whom Ragnarok had its agreements, was left as an empty shell. Human Head’s employees were dismissed and rehired by ZeniMax. And Human Head never finished the games. Ragnarok sued Bethesda for $4.5 million in losses, and the case is pending. Bethesda has denied the charges.

Ragnarok managed to ship Rune II on the Epic Games Store in November 2019. The day after it shipped, Human Head announced it had been acquired by Bethesda.

“Behind the scenes, the conglomerate had conspired with the developer for months to gain control of the games and undermine their release,” the lawsuit against Bethesda alleges.

Possible outcomes

Above: Bethesda has called its own Creation Club content as “DLC.”

Image Credit: BioMed Illustrations/The X-Law Group

But Marchino is concerned that Bethesda will use the same tactics related to the class-action lawsuit, transferring its assets to another company or Microsoft, and then leaving another empty shell. That’s why Marchino has filed papers to seek more information, and if necessary, to block Microsoft’s $7.5 billion purchase of Bethesda.

“We have a very big concern. Because this class action we’re engaged in is a proverbial bet the company litigation, meaning that the value of a judgment could end up being greater than the assets,” Marchino said. “It’s curious to us that, all of a sudden, there is this rush to sell. It liquidates the company, and it prevents the millions of people that are members of the class from recovering money.”

During the case, the plaintiffs asked if Bethesda was amid an acquisition. Two months before the big deal was announced, they received an answer from Esquenet, the outside attorney for Bethesda.

She replied in a letter on July 10, 2019, saying, “With respect to the alleged sale of Bethesda, your letter is nothing but rank speculation and suspicion (apparently tracing back to some third-party report referencing unconfirmed ‘high-level, informal talks’), and the relief you seek is not grounded in reality and lacks merit. You have failed to provide any credible evidence of any impending sale or asset transfer, much less that anyone at Bethesda is allegedly plotting to commit fraud and/or dissipate assets to avoid some hypothetical, non-existent future judgment (which of course is not the case). Moreover, the discovery you are seeking is intrusive, irrelevant to any claims in the case, and is an attempt to harass Bethesda and its management.”

Marchino said it was odd that less than two months later, the acquisition agreement was announced.

Marchino added, “What we’re going to try and do is go in and ask a judge to stop the sale between Microsoft and Bethesda to preserve the assets. And it’s known as a motion for preliminary injunction.”

Since ZeniMax’s longtime CEO Altman passed away, it’s not clear what would happen. Marchino said he isn’t sure if that will cause Bethesda to change its legal stance.

“I think corporations don’t have a sense of guilt, because they’re not humans. But it is fundamentally wrong to lie to people, just so you can make an extra dollar,” Marchino said. “That’s what this case is about.”

Marchino said he can’t comment on whether any attempt has been made to settle the case, as such matters are considered confidential. The plaintiffs are asking to recover economic losses and damages suffered (such as the $281 in content the lawyers say the DLC purchasers are entitled to). The lawyers are also asking for punitive damages, legal fees, pre and post-judgment interest, and other relief. Bethesda said in a filing that the plaintiffs have not been damaged at all.

A trial might happen by 2022, but the risks are clear, given the pending acquisition. If the actual damages alone are considered, and the number of players owed the money is somewhere around four million (not unreasonable given the total population of more than 13.5 million), then the actual damages could be $1.1 billion. If punitive damages are awarded, the amount could be multiple times that amount.

“I just can’t imagine a judge ordering, or even a jury, really, approving the award of billions dollars with respect to virtual downloadable content,” Hoppe said.

Hoppe said he doesn’t think that either side wants this to go to trial, and he believes a settlement is likely.

“It’s really hard to believe that the exposure would be that big,” Hoppe said. “It seems like the easiest thing to do would be to open up the Creation Club to everyone who bought the season pass.”

With the passing of time, the risks escalate on both sides, as costs will mount and the options for settlement become narrower.

“It’s a multibillion-dollar lawsuit, depending on the factor of the punitive damages,” Marchino said. “Even a conservative multiplier of four or five times the damages would yield multibillions of dollars in damages. We can’t reveal the exact number of people that bought the season pass, but you know that it is a substantial portion of the people that bought the game.”

Would Microsoft still go through with the acquisition if Bethesda lost the case and got stuck with a $10.1 billion judgment? It might be a smarter move for all parties concerned to settle the case and make it go away.

Given Bethesda’s reputation, this case is full of irony.