Stealth attack: A Ninja Saga from Hong Kong

24 June 2013

Padraig Walsh, Jay Qin

Start ups are messy. Even when they become successful, they stay messy. 

This is a cautionary tale.  Boniface Lee is an entrepreneur. In 2009, he came up with a business idea for an online social game using a ninja theme. He employed three people to develop the idea.  They designed and created the game, now called Ninja Saga. Mr. Lee set up a company, Emagist, and transferred the employments to that company. Ninja Saga became a big success on Facebook. Mr. Lee then restructured the business so it would be held by a Cayman company. Mr. Lee fulfilled a prior promise to give some shares to the three creators. Now here’s the problem. None of this was in writing.

Fast forward to 2012. Mr. Lee is on a business trip in Germany. He notices that Ninja Saga is interrupted on Facebook. He hears rumblings of discontent in Hong Kong. He returns quickly.  His business is gone. Ninja Saga was transferred to a server that Emagist did not control.  Databases had been removed. Source codes were gone. Materials were deleted. Contracts were missing. Passwords were changed. The Ninja Saga business - 99% of the revenue of Emagist - was now under the control of Nether Games, owned by the three creators.

The three creators did not hide; in fact, they believed they were right.  Their evidence was they were not employees; they were co-founders of the business. They owned the copyright; after all, they created the Ninja Saga game. They terminated the licence to Emagist to use the Ninja Saga game when Mr. Lee did not give them the agreed equity stake in the business.

Messy, right?  An employment dispute. A copyright dispute. A shareholder dispute. All in one. All it would have taken to stop this reaching the Courts was a written employment agreement between Emagist and each of the three creators. 

The presiding judge found Mr. Lee’s evidence more credible. He believed there was an employment relationship.  A work created in the course of employment belongs to the employer.  The Court granted a mandatory injunction requiring Nether Games and the three creators to give back control and operation of Ninja Games to Emagist.

An employment agreement could have sorted this out from day one. An employment agreement can confirm that the company owns the intellectual property of the business.  Employee incentivisation is critical for start-ups.  Often the business cannot afford to pay market rate wages.  An employment agreement can also introduce an employee incentive scheme, including a share scheme for key employees.  

Not tying down these issues in writing at the start is risky. Not documenting it when the business turns the corner of success is downright dangerous. That’s when the business becomes a target. That’s when Nether Games and the three creators took action. 

This was round one; the case may yet proceed to full trial. Regardless, I suspect Mr. Lee will not let it come to this again. He will have proper contracts in place. He will make sure that only he has access to the key trade secrets and assets of the business. He will not want the story of his business to become like a storyline in Ninja Saga.

Emagist Entertainment Ltd and Nether Games (Hong Kong) Ltd and Others [2013] HKCFI 15