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GT Interactive sues Midway
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January 25, 1999: 5:32 p.m. ET
Computer gaming company seeks millions from its one-time ally
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NEW YORK (CNNfn) - GT Interactive Software Corp. said on Monday it filed a civil complaint against its distribution partner, Midway Games Inc., seeking "tens of millions of dollars" in compensatory and punitive damages.
The entertainment software maker is suing Midway (MWY), a Chicago-based video game maker, in New York Supreme Court for alleged breach of contract, interference with prospective business relations and defamation.
GT Interactive (GTIS) said that in late 1994, it entered into a series of contracts with Midway that gave it exclusive distribution rights.
GT Interactive alleged that, having paid Midway $35 million in advance, Midway intentionally delayed new product notices and development schedules and failed to provide "bug-free" disks. The company also claims Midway defamed GT Interactive by issuing false public statements designed to damage GT's reputation.
Midway had no immediate comment on the suit.
According to the terms of the contracts between the two companies, GT must meet certain sales benchmarks by July 1, 1999, if it is to retain the foreign sales rights to Midway Games. Should it meet those numbers, it will keep the rights through June 30, 2001, according to the lawsuit.
A GT Interactive spokesperson said the company expects to meet those goals, but was filing the suit as a safety measure should it fall short.
The suit alleges that when Midway went public in late 1996, the company was "viewed unfavorably by the investment community in light of the GTIS distribution contracts. Industry analysts and others were concerned that unless (Midway) gained more complete control over the distribution of new games they developed, their viability as an investment vehicle would be impaired."
Some analysts say the lack of an international arm isn't the only thing investors focus on, though. Robert Fagin, director of equity research at CIBC Oppenheimer, said the key concern is Midway's future visibility in an industry where it's getting harder and harder to stand out.
"There are a whole slew of fundamental issues, only one of which is international sales," he said.
In fact, said Fagin, if Midway were to regain the international distribution rights to its games, it doesn't presently have the infrastructure in place to distribute them properly.
"The stage is set, but they're not ready for action," he said.
Midway Games, which went public in 1996, was spun off from WMS Industries Inc (WMS) in April 1998. Midway stock closed down ¼ of a point Monday at 8-3/4. GT Interactive was up 1/8 at 4-3/4. 
-- from staff and wire reports
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