Examining the Implications of Activision-Blizzard's Alleged Monopoly on Competitive Gaming and Its Future
A new lawsuit is making headlines in the world of esports, and while I tend to roll my eyes at headlines stating that a particular case might "change esports forever," in this particular case, that may actually be true, so I thought I would provide a summary of the case and the issues it brings up.
The lawsuit essentially alleges that Activision-Blizzard, publisher of the of the hugely successful Call of Duty video game franchise and operator of the associated Call of Duty esports league is acting as an illegal monopoly in breach of applicable anti-trust laws.
The plaintiffs are Hector Rodrigues, the owner of a franchise in Activision's Call of Duty League and Seth "Scump" Abner, a retired player from that franchise. They are seeking $680 million in damages, arguing that Activision-Blizzard's ownership of the exclusive intellectual property rights in Call of Duty video games gives the company monopoly power in respect to the Call of Duty esports scene, and that the company abused this power in its dealings with teams and players participating in the Call of Duty league.
The key question at the heart of this case is whether the power that publishers wield as owners of the intellectual property in their games constitutes an unlawful monopoly. To get at why this issue is so important a quick summary of the esports business landscape as it currently stands is warranted.
Unlike pro sports leagues, video game publishers own the copyright and other intellectual rights in the games being played in professional esports leagues. This means that anyone using their games for commercial purposes without their consent is likely infringing on the publishers' intellectual property rights.
For instance, anyone wanting to organize a commercial Call of Duty tournament needs license from Activision-Blizzard. If they proceed without a license, the company can sue them for copyright infringement, trademark infringement and various other causes of action.
This gives publishers massive levels of power within the esports industry. It's not much of an exaggeration to say that no one involved in esports can do anything – run a tournament, build a business – without a publisher's consent (or at least their benign neglect).
As esports has grown, publishers have increasingly used this power in potentially anti-competitive ways. For instance, during the past few years, Activision Blizzard created its own publisher-operated leagues for Call of Duty and Overwatch, two very popular esports titles. After announcing each league, Activision-Blizzard quietly stopped granting any third-party tournament organizers licenses to hold tournaments for these games, essentially killing the independent scene for each title.
This makes sense for Activision-Blizzard from a business perspective – why would they allow someone to compete with their publisher-driven league if it didn't have to? At the same time, it may be argued that restrictions like this stifle competition and innovation, and are thus harmful to the development of the esports industry in general.
The level of power wielded by publishers is probably the key difference between esports and traditional sports. No one "owns" the rules of a traditional sport like football. If a competing group wants to create their own football league to compete with the NFL, there's nothing the NFL can do to stop them.
In esports, as discussed, that's not the case. Publishers essentially wield the power of life and death over any third parties that may compete with them, and anyone negotiating with a publisher – whether they are tournament organizer, team, or player – will have almost no leverage. Their only options are to take what the publisher is offering or not participate in that esport – period.
The lawsuit provides an example of this. It alleges that teams participating in the Call of Duty League were required to sign a "Participation Agreement" with Activision-Blizzard containing some arguably punitive provisions, including a requirement that each team pay 50% of its total revenue to Activision Blizzard and severe restrictions on each team's ability to obtain sponsorships without Activision Blizzard's consent.
If Call of Duty was instead a traditional sport like football, team owners could simply tell Blizzard "No, we're not going to give you 50% of our revenue," walk away, and work with a competing league or set up their own league. There would be nothing to prevent them from doing this because again, no one "owns" the rules of football.
Unfortunately, since Activision-Blizzard in fact does "own" Call of Duty, the teams forming part of the league didn't have that option. There are no competing Call of Duty leagues because Activision Blizzard is not granting anyone else licenses, and if the team owners tried to set up their own league without Activision-Blizzard's consent, Activision-Blizzard could simply sue them out of existence. Their only option was to accept Blizzard's terms or walk away and shut down their businesses.
The power of publishers has always been a major dark cloud hanging over the industry, affecting its potential growth. Anyone trying to build a business in esports has to keep in mind the fact that anything they build can be upended overnight based on a publisher's whims. Tournament organizers, for instance, can spend years organising tournaments and building a brand, only to have a publisher's decisions fundamentally alter their entire business model without any notice, even if that publisher had been cooperative and supportive of the third-party scene to that point.
We saw an example of this late last year when Nintendo, publishers of the popular Super Smash Brothers game, put out new tournament guidelines requiring licenses for most commercial tournaments. Until then, Super Smash Brothers has been one of the last remaining major esport titles where third-party tournament organizers could organize tournaments without a great deal of interference by the game's publisher. This change had the effect of turning the Smash Brothers scene on its head, with many tournament organisers now seriously concerned about the long-term viability of their business under the new rules.
While this is the way things currently stand in the industry, this case has the potential to change that if it is successful, fundamentally alter the existing economic models and power structures of the industry moving forward.
If the court finds that Activision-Blizzard holds a monopoly over Call of Duty esports and acted in an anti-competitive manner, a path may open through which third parties such as independent tournament organizers may be able to legally use publishers' games for esports purposes to some extent without requiring the publishers' consent. As a result, publishers will no longer be able to exercise the almost unfettered level of power they currently do over the industry, and these third parties will have the freedom to compete with them in a way that they were not previously able to.
This may be a welcomed change for the industry as a whole, unleashing innovation that had previously been stifled by the unilateral control exercised by publishers, and allowing the industry to grow in ways it may not otherwise have. Because of this, this case is certainly worth following.
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