Case Insights: What Fortis v. Krafton Tells Us About the Risk and Liability of Using ChatGPT as a Strategic Advisor
Tools like ChatGPT and Claude often feel like our personalized thought partners. You can ask the tool pretty much any question, and you will instantaneously receive what looks to be substantive, comprehensive guidance. But the Delaware Court of Chancery’s recent decision in Fortis Advisors, LLC v. Krafton demonstrates the pitfalls one may encounter when using ChatGPT as a strategic business advisor.
In 2021, Krafton, a South Korean video game publisher, purchased 100% of the outstanding equity of Unknown Worlds, a San Francisco-based video game developer best known for the Natural Selection and Subnautica series. As part of the acquisition, the parties negotiated a performance-based earnout of up to $250 million. But a few years later, when it became clear that a significant earnout would be triggered upon the release of a new game, the CEO of Krafton recoiled. As the opinion states, he was concerned that making the earnout payment would make him look like a “pushover.”
So what did he do to avoid making the earnout payment? He started by consulting ChatGPT, as well as his legal team and other employees in strategic advisory roles. ChatGPT generated a full response strategy, including a "pressure and leverage package," "implementation roadmap by scenario," and "key summary of responses" that Krafton could deliver to the former Unknown Worlds executives. The tool also advised him to prepare "systematic materials for a legal defense."
Krafton’s CEO followed most of ChatGPT's recommendations, including terminating the three executives who had turned Unknown Worlds into a successful company worth buying. The former stockholders of Unknown Worlds then sued Krafton to reinstate the Unknown Worlds executives to their roles.
On March 16, the Delaware Chancery Court issued its ruling in this case—and it did not go Krafton’s way. Among other things, the court required Krafton to restore the studio head to his leadership role and to extend the deadline for the earnout period to make him eligible for the earnout payment once again.
Many of us know, at least on some level, that ChatGPT's advice to us is guided by our prompts and is designed, at least in part, to tell us what we want to hear. This case demonstrates that following this advice in a business context without awareness of the tool's biases may lead to costly mistakes and could significantly increase legal risk.
Link to the full opinion for anyone interested in reading more.