I haven't read the contract, but I can tell you exactly what happened:
Arrington has good idea, promises to market it, and work on it, plus provide a (modicum) of resources. Engineering Company gets involved. Capitalists get involved and put money in. Guaranteed: Arrington's dollars are all soft-dollars, time, energy, shared office space, PR, marketing, etc.
In the end: it works. Woohoo!
Now, Money guys look at the project, and they think: "OMG, this looks like it will ship and sell. We're all going to make some money, that's good. Let's review the Cap table to see what we'll be making. Hey, WTF? This Arrington guy negotiated like 35-45% of this project for himself, and all he's done is write a few articles about it, and pestered Fusion's engineers.. We could have paid like $20k to some PR firm to do that, how did he end up with 40% of this project?"
They call the engineering guys and say: "Do we need Arrington?"
Engineering guys say "Um, to build this project and ship it, we definitely do not need Arrington. Why?"
Capitalists say: "Because he's worthless, and it would be WRONG to give him the stake he got in the project."
Engineers say: "... um, ?"
Capitalists say: "We're going to execute a clawback, drill Arrington down to 8-10%, and then you and we will get to split the remainder. This isn't being bad, this is being right and moral. He just got too much of the pie up front."
Engineers say: ".. will you talk to him about it?"
Capitalists say: "You're the CEO, you talk to him."
Engineers " .. Okay. "
Guess what, it happens ALL THE TIME. There are a number of possible solutions to a situation like this, but usually you need to plan upfront for it, and be ready. I don't think he was ready, which is too bad.