I think it's somewhat exaggerated. Basically, the story goes like this:I am also interested in any factual info about Paladium almost bringing WOTC to its knees. I would have thought with how closely I follow the industry I would have heard of such a thing.
1. Some dude named Peter Adkison writes a book on how to play gods (The Primal Order), starts a new RPG company called Wizards of the Coast to publish it, and includes an appendix on how to apply the stuff in the book to various RPGs (including AD&D and Palladium).
2. Palladium takes exception and sues Wizards of the Coast. TSR takes a somewhat more mellow stance, sending a C&D note telling WOTC to drop that section if they reprint it.
3. WOTC spins off a second company, Garfield Games, to do some stuff providing a legal shelter from the Palladium lawsuit for those things. This includes RoboRally and, at first, Magic.
4. The lawsuit is settled, WOTC pays Palladium some cash, and go on their merry way.
I don't know if the lawsuit came close to "bringing WOTC to their knees", but it was apparently bad enough that they set up a shell company to keep some of their new properties safe from it. It should be noted that this was pre-Magic, and Palladium was at the time one of the bigshots of the RPG industry (in the top 3 - I'm told that when TSR was on the verge of bankruptcy and closed down for half a year, Palladium actually managed to outsell them that year). The settlement of the lawsuit happened in the same year Magic was released.
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