Subnautica 2 Lawsuit Update: Ruling, $250M Earnout, and Pending Claims

The Subnautica 2 lawsuit ended its first phase in March 2026 with a Delaware Court of Chancery ruling that Krafton, Inc. had fired the founders of Unknown Worlds Entertainment in a pretextual scheme to avoid paying a $250 million performance earnout. The court reinstated ousted CEO Ted Gill, extended the earnout deadline, and after Subnautica 2’s blockbuster early access launch in May 2026, Krafton has acknowledged it will owe the full $250 million. A second phase of litigation over additional damages is still pending.

What the Fight Was Over

Krafton, the South Korean publisher behind PUBG: Battlegrounds, acquired Unknown Worlds in October 2021 for $50 million up front, plus a performance-based earnout worth up to another $250 million.¹² Under the Equity Purchase Agreement, Krafton owed the former shareholders $3.12 for every $1 of revenue Unknown Worlds generated in any month where revenue exceeded $69.8 million.³ The contract also guaranteed the founders continued operational control of the studio and barred Krafton from terminating them without cause or taking actions primarily aimed at depriving them of the earnout.

Three key employees were protected by those provisions: CEO Ted Gill, co-founder and creative director Charlie Cleveland, and co-founder and technical director Max McGuire. Cleveland and McGuire had created the original Subnautica; Gill joined around 2018 and was promoted to CEO in August 2024.⁴

How Krafton Tried To Avoid Paying

In mid-2025, Krafton’s finance department projected that a successful Subnautica 2 early access launch would trigger a base-case earnout of roughly $191 million, with scenarios reaching as high as $242 million.⁵ According to court filings, those numbers alarmed Krafton CEO Changhan Kim, who began exploring ways to reduce or cancel the payment.

Kim consulted ChatGPT. The chatbot told him that canceling the earnout would be “difficult” but proposed a “path forward”: create an internal task force to either negotiate down the bonus or take over the studio outright.⁶ Kim followed that roadmap and set up a task force internally called “Project X.”⁷

Over roughly a month, Project X built a “fan trust” communications plan, tried to secure control of Subnautica 2’s Steam and console publishing rights, and prepared legal defense materials. ChatGPT even drafted a public message intended to rally community support for Krafton’s position.⁷ Internal Slack messages showed CFO Richard Yoon telling Kim, after earnout negotiations stalled, “It might be easier to just take over.”⁵

On July 1, 2025, Krafton’s board terminated Gill, Cleveland, and McGuire, effective immediately. The next day, Krafton announced the leadership change and installed Steve Papoutsis, formerly of Striking Distance Studios, as head of Unknown Worlds.⁸ Almost immediately, Krafton delayed Subnautica 2’s early access release from 2025 into 2026, citing playtest feedback.⁹ The founders argued that was the point: push release past the earnout deadline so the bonus would never vest.

The Complaint

The ousted founders sued in Delaware’s Court of Chancery through Fortis Advisors LLC, the stockholder representative under the acquisition agreement. The case is captioned Fortis Advisors LLC v. Krafton, Inc., C.A. No. 2025-0805-LWW. The complaint alleged a “months-long campaign” to delay Subnautica 2 and firings without contractual cause designed to seize the studio and dodge the earnout.¹⁰

Specific allegations included that Krafton reassigned Subnautica 2 to a new, inexperienced publishing team and pulled marketing support (including trailers, influencer kits, localization, and a planned PC Gamer cover story); seized unknownworlds.com and subnautica.com to post an unauthorized apology disparaging the founders; blocked Steam publishing access to prevent an early access launch; and manufactured pretextual grounds for “for cause” terminations out of the founders’ role transitions and defensive data backups.¹⁰¹¹

Krafton countersued, alleging Cleveland and McGuire had downloaded tens of thousands of confidential files and that the trio had abandoned Subnautica 2. The company said it was protecting the game’s quality and its fans.¹²

The March 2026 Ruling

On March 16, 2026, Vice Chancellor Lori W. Will issued a sweeping Phase One decision almost entirely in the founders’ favor.¹³

The court found Krafton had breached the Equity Purchase Agreement by terminating the key employees without valid cause and by improperly seizing operational control of Unknown Worlds. It rejected each of Krafton’s justifications:

Cleveland’s shift toward film production and McGuire’s move toward other projects were “transparent maneuvers rather than deliberate acts of deception,” and Krafton had known about and accepted them.¹⁴
The founders’ file downloads were “protective measures, lacking the requisite intent to deceive”; they had not stolen data to start a competing venture or enrich themselves.¹⁴
The terminations were pretextual. The court said Krafton went “searching for a pretext” to fire the executives and avoid a “nine-figure liability.”¹⁴

The ChatGPT exchanges proved central. Because Kim’s conversations with the chatbot did not involve legal counsel, they were not privileged and were fully discoverable. The court treated them as a window into Krafton’s true motivations, and legal commentators described the AI logs as a “central” basis for the finding that the firings were financially motivated rather than legitimate business decisions.¹¹

The court ordered Krafton to reinstate Gill as CEO with full operational authority, including sole control over the early access launch, and enjoined Krafton from firing him. His Steam publishing access was restored.¹³ Cleveland and McGuire were not reinstated to their original positions given their previously reduced roles, though both retained limited positions approved by Krafton.¹⁴

The court also extended the earnout testing period by 258 days, the exact time Gill had been kept out of his role, pushing the deadline from December 2025 to September 15, 2026. The founders retained a contractual option to extend the deadline an additional six months, to March 2027.¹⁴

The Launch and the $250 Million

Subnautica 2 entered early access on May 14, 2026, on PC and Xbox Series X/S.⁹¹⁵³

Those numbers easily blew past the $69.8 million monthly revenue threshold. According to reporting by the Korea Economic Daily, Krafton has agreed to pay the full $250 million earnout to Unknown Worlds’ former shareholders. The obligation is roughly 35% of Krafton’s operating profit from the prior year.¹⁶¹⁷

What Is Still Pending

The case has been split into two phases. Phase One, resolved in March 2026, covered whether Krafton breached the agreement, the founders’ reinstatement, and control over the early access launch. Phase Two will determine whether Krafton’s actions wrongfully impaired the earnout and what additional money damages the founders are owed beyond the earnout itself. That phase is still pending, no trial date has been publicly scheduled, and no public filings have appeared on the docket since April 1, 2026.¹⁸

Kim admitted at trial to deleting some of his AI logs, a fact the court flagged and one that may play a role in the damages phase.¹⁹ Krafton has been removed as the listed publisher on the Subnautica 2 Steam page, though it remains listed under the franchise label. No formal settlement of the broader dispute has been announced.¹⁸

Why Corporate Lawyers Are Watching

On earnout disputes, the ruling reinforced that post-closing governance provisions, the rights a seller negotiates to protect an earnout, are enforceable through specific performance, including reinstating executives and extending earnout timelines when a buyer interferes.²⁰ The court also read “ordinary course of business” covenants at the company level, so individual founders scaling back personal involvement did not breach them as long as the studio’s structure held.

On termination “for cause,” the court held that terms like “intentional act of dishonesty” require a conscious objective to mislead, not merely unauthorized or imprudent conduct. Under the mend-the-hold doctrine, employers who approve or acquiesce to changes in an executive’s role cannot later use those same changes as grounds for termination.²⁰

The most novel piece concerns AI. Because Kim brainstormed with ChatGPT rather than with counsel, the transcripts carried no privilege and became evidence of intent. Legal commentators have flagged a new category of discovery risk: executives who work through sensitive strategies with chatbots are creating a written record of their thinking that can be subpoenaed.¹⁹

1
Krafton. Krafton Inc. to Acquire Unknown Worlds
2
Kotaku. Subnautica 2 Devs Will Probably Get That $250 Million Payout
3
IGN. Subnautica 2 Has Sold So Well That Krafton Has to Pay That $250 Million Earnout
4
IGN. Subnautica 2 Developers Entire Leadership Team Replaced in Shock Move
5
Video Games Chronicle. Fired Subnautica 2 Leads Allege That Krafton CEO Asked ChatGPT How to Get Out of Paying Their $250 Million Bonus
6
Fortune. Krafton Subnautica ChatGPT Delaware Court Ruling CEO Reinstated
7
The Guardian. Subnautica 2 Publisher Krafton CEO Reinstated After AI ChatGPT Failed Bid to Avoid Paying Bonus
8
GamesIndustry.biz. Krafton Appoints Steve Papoutsis as Unknown Worlds CEO
9
The Verge. Subnautica 2 Early Access Release Date
10
PC Gamer. Unknown Worlds Founders Lawsuit Accuses Krafton of a Months-Long Campaign to Delay Subnautica 2
11
Courthouse News. Judge Foils AI-Fueled Takeover of Subnautica Video Game Developer
12
Game Developer. Unknown Worlds Claims Ousted Founders Pilfered Business Records
13
Kotaku. Subnautica 2 Ted Gill Unknown Worlds Lawsuit Krafton
14
Aftermath. Subnautica 2 Krafton Lawsuit Reinstated
15
Game Developer. Subnautica 2 Hits Four Million Sales
16
Rock Paper Shotgun. Krafton Have Reportedly Agreed to Pay Subnautica 2 Devs That $250 Million Bonus
17
KED Global. Krafton Earnout Payment
18
Game Developer. The Subnautica 2 Early Access Dispute Is Far From Over
19
Harvard Law School Forum on Corporate Governance. How a Buyer’s AI Conversations Sank Its Earnout Avoidance Strategy
20
Justia. Fortis Advisors LLC v. Krafton Inc., 2025-0805-LWW