Brian Roberts, GW Law, 3L (Contributing Research, Joseph La Vine)
CD Projekt, the Warsaw-based developer behind The Witcher video game franchise, spent several years and most of their resources developing Cyberpunk 2077, an “open world, narrative-driven role-playing game” that was one of the most anticipated video games of 2020 for PC, Xbox One, and PS4 gamers. Initially slated for release on April 17, 2020, the premiere was pushed back multiple times—starting on January 16, 2020—for testing, bug fixing, and polishing to ensure an optimal experience across all platforms. The much-hyped but oft-delayed game was finally released on December 10, 2020.
Although early reviews of the PC version were promising, it quickly became clear the PS4 and Xbox One versions were not up to snuff. In a review, IGN (an esports news outlet) slammed the console versions of Cyberpunk 2077 for having poor technical quality and being “difficult to look at.” On December 18, 2020, only eight days after it was released, Sony pulled Cyberpunk 2077 from the PlayStation Store and offered full refunds to anyone who purchased it. Microsoft quickly followed suit, offering full refunds to disappointed gamers as well.
Cyberpunk 2077’s flop on PS4 and Xbox One drew the ire of at least one CD Projekt shareholder who has filed a class-action lawsuit against CD Projekt and three of the company’s officers and directors on behalf of investors who acquired shares in CD Projekt between January 16, 2020 and December 17, 2020. In the complaint, filed on December 24, 2020 in the Central District of California, CD Projekt and its CEO and President of the Board Adam Michal Kicinski (“Kicinski”), CFO and Vice President of the Board Piotr Marcin Nielubowicz (“Nielubowicz”), and Vice President of Development and Board member Michał Nowakowski (“Nowakowski”) (collectively “Defendants”) are accused of making false and misleading statements and/or failing to disclose material information to investors that artificially inflated share prices in violation of section 10 of the Exchange Act and Rule 10b-5. The shareholders argue the named Defendants are also jointly and severally liable as controlling persons of CD Projekt under section 20(a) of the Exchange Act.
The complaint accuses the Defendants of making a series of materially misleading statements regarding the severity of development hurdles Cyberpunk 2077 faced when discussing release delays and financial results throughout 2020. The first occurring on January 16, 2020, when CD Projekt announced the game was “complete and playable” but that the release would be delayed from April to September because more time was needed for “playtesting, fixing, and polishing.” Investors were also allegedly misled when this rationale was repeated in a Management Board Report that accompanied the release of CD Projekt’s annual report on April 8, 2020. Next, Kicinski allegedly misled investors during a September 4, 2020 conference call to discuss CD Projekt’s financial results, stating Cyberpunk 2077 would be playable from day one, November 19, 2020, for Xbox One and PS4, and that ongoing development work was normal. Furthermore, on an October 28, 2020 conference call Kicinski announced the release would be pushed back three more weeks so that processes could be optimized on the PS4 and Xbox One versions. During the same conference call, Nowakowski said there were no “problems” with the PS4 and Xbox One versions and that any delay was merely a matter of optimization. The final alleged misleading statements stem from a press release and conference call discussing quarterly results on November 25, 2020. Specifically, a press release highlighted positive comments from the conference call, including Kicinski’s statements that “[Cyberpunk 2077] is performing great on every platform” and that the level of bugs would be low and hardly noticeable.
The complaint claims all of these statements were materially false or misleading because the Defendants knew or should have known that (1) bugs made the PS4 and Xbox One versions of Cyberpunk 2077 virtually unplayable; (2) as a result, Sony would drop Cyberpunk 2077 from the PlayStation store and that Sony and Microsoft would also be forced to offer customers a full refund; (3) this would cause significant damage to CD Projekt’s reputation and bottom line; and (4) as a result, knew their statements minimizing the bugs and delays were materially false and misleading and/or lacked a reasonable basis for belief. Furthermore, statements made by Kicinski and Nielubowicz on December 14, 2020 acknowledged the console versions were below expectations because CD Projekt did not fully understand the issues or spend enough time on them, showing that the Defendants’ pre-release statements were false and misleading.
The game being pulled from the shelves had a negative impact on CD Projekt’s stock price. The share price of common stock and American Depository receipts fell 27 percent and 33 percent respectively on the highly speculative OTC Pink between December 9, 2020, the day before Cyberpunk 2077 was released, and December 18, 2020, the day Cyberpunk 2077 was pulled from the PlayStation Store. These and other hiccups along way make it feel like Cyberpunk 2077 launch is light-years away.
Trampe v. CD Projekt S.A., No. 2:20-cv-11627 (C. D. Cal. filed Dec. 24, 2020), 2/27/2021,