Krafton’s Subnautica 2 Lawsuit: Ruling and $250M Earnout

The Krafton Subnautica 2 lawsuit ended its first phase on March 16, 2026, when Delaware Vice Chancellor Lori Will ruled that Krafton Inc. had breached its acquisition agreement with Unknown Worlds Entertainment by firing the studio’s three top executives in a scheme to avoid paying up to $250 million in earnout bonuses. The court reinstated CEO Ted Gill, extended the earnout measurement window by 258 days, and singled out Krafton CEO Changhan Kim’s use of ChatGPT to plan the ouster as evidence of bad faith. Two months later, Subnautica 2 launched into early access and sold so well that Krafton reportedly agreed to pay the earnout anyway.¹²

The $250 Million Earnout at the Center of the Case

Krafton, the South Korean publisher behind PUBG: Battlegrounds, bought Unknown Worlds Entertainment on October 31, 2021, for $500 million up front, with an additional earnout of up to $250 million tied to the performance of Subnautica 2.³ Under the Equity Purchase Agreement (EPA), once the studio’s revenue in a given month cleared $69.8 million, Krafton owed $3.12 for every additional dollar earned, up to the $250 million cap. The measurement window ran through December 31, 2025, with an option to extend to June 2026.⁴

Three protections in the EPA became central to the case. Three “Key Employees” — co-founders Charlie Cleveland and Max McGuire, plus CEO Ted Gill — held operational control over Subnautica 2, including roadmap, launch timing, budgeting, and hiring, for as long as any of them remained employed. Krafton was barred from taking any action whose “primary business purpose” was to strip sellers of the earnout, and had to consult in good faith with studio management before doing anything that would materially reduce it. The bar to fire a Key Employee for “Cause” was set high: a felony, intentional fraud, deliberate trade-secret disclosure, or willful gross misconduct.⁵⁶

Project X and the ChatGPT Strategy

Krafton’s internal projections put the likely earnout between roughly $192 million and $242 million. CEO Changhan Kim considered it a “bad deal.”⁵⁷ Maria Park, Krafton’s head of corporate development, warned him that firing the founders for cause would not void the earnout and would expose Krafton to “lawsuit and reputation risk.”⁸

Kim then consulted ChatGPT. According to the court, the chatbot produced a “Response Strategy to a ‘No-Deal’ Scenario,” including a “pressure and leverage package,” negotiation talking points, instructions to secure control of the publishing platform, and a “two-handed strategy” pairing legal and financial pressure with retention incentives. ChatGPT itself flagged that it would be “difficult to cancel the earn-out.”⁵⁹ Kim formed an internal task force called “Project X” whose mandate, the court found, was to either renegotiate the earnout or execute a “Take Over” of Unknown Worlds. Strategy discussions ran over internal Slack, and Kim later admitted at trial to deleting the AI platform logs.⁷

On July 1, 2025, Krafton’s board terminated all three Key Employees. The company publicly justified the firings by arguing that the founders had failed to prepare Subnautica 2 for a timely launch and had worked on outside projects and attempted to take unauthorized material before their exits. Steve Papoutsis, previously of Striking Distance Studios, was installed as CEO.¹¹⁰ Fortis Advisors LLC, acting as shareholder representative for Unknown Worlds’ former stockholders, sued Krafton in the Delaware Court of Chancery later that month. The case, Fortis Advisors, LLC v. Krafton, Inc. (C.A. No. 2025-0805-LWW), went to trial from November 17 to November 19, 2025.¹¹¹²

How the Court Ruled

Vice Chancellor Will’s post-trial opinion, issued March 16, 2026, held that Krafton breached the EPA on two fronts: firing the Key Employees without valid cause, and improperly seizing operational control of Unknown Worlds. She rejected both of Krafton’s stated grounds for the terminations as pretextual, concluding the company “essentially made up its reasons for their dismissal to avoid the payout.”¹³

Two Delaware doctrines did most of the work. Under the “mend-the-hold” doctrine, Krafton could not shift to new termination rationales — the founders’ role changes — that were absent from the original termination notices. Under the “after-acquired evidence” doctrine, the founders’ downloading of files could not retroactively justify firings already planned for other reasons. The court found the downloads did not meet the EPA’s “intentional dishonesty” standard, writing that “the deception itself must be the actor’s specific aim” and that “these are not the actions of thieves.” Because Kim had already scripted the ouster using his AI-generated strategy, the doctrine “does not grant an employer license to retroactively invent grounds for termination.”⁴⁵

Kim’s ChatGPT session was treated as evidence of premeditation and bad faith. The court wrote that “company executives are expected to exercise independent human judgment — not outsource good-faith decisions to an AI.”⁸

Remedies

Ted Gill was reinstated as CEO of Unknown Worlds with full operational authority over the studio and the Subnautica 2 early access launch, and the July 1, 2025 board resolution removing him was declared ineffective.
Krafton was enjoined from using the Unknown Worlds board to route around Gill’s authority and was ordered to immediately restore his access to the game’s publishing platform.
The base earnout measurement period was equitably extended by 258 days, the length of Gill’s ouster, moving the deadline to September 15, 2026. Fortis kept the contractual right to extend it further to March 15, 2027.⁴

Cleveland and McGuire were not reinstated to their former roles, though they were reported to have “limited roles” approved by Krafton after the ruling.¹³

What Happened After the Ruling

In April 2026, Krafton was quietly removed as the listed publisher on the Subnautica 2 Steam and Epic Games Store pages, with Unknown Worlds now appearing as both developer and publisher. Neither company explained the change; Krafton said only that it was “focused on successfully supporting the Early Access launch of Subnautica 2” and had “nothing further to share.”¹⁴¹⁵

Subnautica 2 launched into early access on May 14, 2026, on Steam, Xbox Series X/S, and the Epic Games Store. It cleared two million copies in 12 hours and topped four million within a week, generating an estimated $100 million in gross revenue and peaking above 467,000 concurrent players on Steam. Analysts called it the fastest-selling Steam game of 2026.¹⁶¹⁷

With revenue far past the $69.8 million monthly trigger, Krafton reportedly agreed to pay the earnout to Unknown Worlds’ former shareholders. That was a company agreement rather than a court-ordered judgment.²

What’s Still Unresolved

Vice Chancellor Will bifurcated the case. The March 2026 opinion resolved only whether Krafton breached the EPA. A second phase will decide whether Krafton’s actions “actually impaired the earnout” and what additional money damages, if any, are owed on top of the earnout payments the game’s sales triggered.¹³ Kim’s admitted deletion of ChatGPT logs is expected to factor into that analysis.⁵ As of mid-2026, no public filings have appeared on the docket since April 1, 2026, and no scheduling updates for the second phase have been reported.

1
Kotaku. Subnautica 2 Ted Gill Unknown Worlds Lawsuit Krafton
2
Rock Paper Shotgun. Krafton Have Reportedly Agreed to Pay Subnautica 2’s Devs That $250 Million Bonus
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GamesIndustry.biz. Krafton Inc Versus Subnautica 2 Former Lead Developers
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HSF Kramer. Delaware Court of Chancery Reinstates Seller CEO and Extends Earnout Payment Window
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Harvard Law School Forum on Corporate Governance. How a Buyer’s AI Conversations Sank Its Earnout Avoidance Strategy
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GamesIndustry.biz. Former Unknown Worlds Leaderships Legal Complaint Alleges Pressure Tactics by Krafton
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The Guardian. Subnautica 2 Publisher Krafton CEO Reinstated After AI ChatGPT Failed Bid to Avoid Paying Bonus
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Fortune. Krafton Subnautica ChatGPT Delaware Court Ruling CEO Reinstated
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IGN. Fired Subnautica 2 Founders Claim Krafton CEO Used ChatGPT to Brainstorm Ways to Avoid Paying $250M Bonus
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Krafton. Krafton Announces Gaming Industry Veteran Steve Papoutsis as New CEO of Unknown Worlds
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Courthouse News Service. Judge Foils AI-Fueled Takeover of Subnautica Video Game Developer
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Justia. Fortis Advisors, LLC v. Krafton, Inc.
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Game Developer. The Subnautica 2 Early Access Dispute Is Far From Over
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TechPowerUp. Subnautica 2 Ditches Krafton as Publisher Following Legal Drama
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Yahoo Tech. Krafton’s Publisher Status Vanishes From Subnautica
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Game Informer. Subnautica 2 Is an Early Access Hit Crossing 2 Million Copies Sold in Just 12 Hours
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IGN. Subnautica 2 Has Sold So Well That Krafton Has to Pay That $250 Million Earnout