January 27, 2006

Los Angeles sues over ‘Grand Theft Auto’ game

By Gina Keating

LOS ANGELES (Reuters) - The city of Los Angeles has sued
Take-Two Interactive Software Inc. for selling pornographic
video games to children with its best-selling game "Grand Theft
Auto: San Andreas," which last year was found to have hidden
sex scenes.

Shares of Take-Two plunged 13.7 percent to $14.69 on the
Nasdaq -- a level unseen since 2003 -- after an analyst
downgraded its shares to "sell" from "neutral," citing a
variety of financial, operational and management risks.

Los Angeles City Attorney Rockard Delgadillo, in the suit
filed on Thursday, accused the game publisher of failing to
disclose the pornographic content to get the game onto shelves
of major retailers that do not carry games rated "Adults Only

Delgadillo said the company further deceived consumers by
first claiming that hackers had modified the original version
of the games, then announcing a week later that the sex scenes
were written into the original game code.

The lawsuit demands that Take-Two and Rockstar Games, the
subsidiary behind "Grand Theft Auto," one of the best-selling
in video game franchises history, stop marketing the games to
children, pay fines and return $10 million in profits.

A Take-Two spokesman had no comment on Friday.

Last summer, the video game ratings board slapped a
restrictive "adult" rating on "Grand Theft Auto: San Andreas"
because of explicit sex scenes, known as "Hot Coffee," that
allow players to engage in virtual sex acts.

The Entertainment Software Ratings Board launched an
investigation and took the unusual step of changing the rating
on the game to "Adults Only 18+" (AO) from "Mature 17+."

Take-Two had to pull the games off store shelves and
repackage them with the new rating, which crimped game sales
and disrupted company operations.

The lawsuit charged that Take-Two knowingly deceived the
video game ratings board and flouted California law to market
the game as suitable for teens, the lawsuit alleged.

The city also claims that Take-Two "marketed the 'Grand
Theft Auto' series in a fashion that encourages the creation of
(software modifications), which has added to the
counter-culture image of the games, enhancing their popularity
and hence their profitability."

The lawsuit asks that Take-Two be ordered to disgorge the
profits from the estimated 200,000 copies of the game it sold
for about $10 million in California, and that it alert
customers who purchased "Grand Theft Auto: San Andreas" before
the ratings change about the sex scenes.

It also demands a $2,500 fine for each untrue or misleading
statement the company purportedly made about the games.

Delgadillo appears to have a good case if he can prove that
the scenes were embedded in the game and that the company
misled the ratings board and the public, said attorney Stephen
Smith, a partner at Greenberg Glusker in Los Angeles.

"It's a pretty black and white issue. If they can prove
it's true, I think they have a claim," said Smith.

"The greatest direct risk to Take-Two is that they would
have to turn over the money," said Smith, who represents a
variety of video game companies including Ubisoft, but has no
affiliation with Take-Two or the Los Angeles city attorney.

Consumers in New York already have sued the company over
the debacle and are seeking class action status. Take-Two also
disclosed in July that the Federal Trade Commission was
investigating advertising claims related to the controversial

(Additional reporting by Lisa Baertlein in Los Angeles)