Video Game Distribution: The Next Player to Attract Digital Platform Antitrust Scrutiny

The heated video game wars—Xbox Series X vs. PlayStation 5, PC vs. console vs. mobile, AMD vs. Nvidia—show that no one has a monopoly over video games. The hotter question is whether there are monopolies over video game distribution. Private litigants and government enforcers are accusing companies that operate video game platforms of engaging in monopolistic behavior and creating unreasonable restraints. Private plaintiffs recently filed three class-action litigations against Sony and Valve alleging antitrust violations in the distribution of electronic games. The lawsuits come on the heels of the European Commission's (EC) fine against Valve for anticompetitive behavior. The message is clear. Companies distributing video games should prepare for increased attention into their competitive conduct.

PlayStation Store

On May 5, 2021, a PlayStation game buyer, on behalf of himself and all others similarly situated, filed a class action complaint alleging Sony Interactive Entertainment violated antitrust laws when it changed its policies to require that digital content, including video games, be purchased solely through PlayStation Store.¹ Previously, game buyers could purchase digital games from retailers such as Amazon, GameStop, Best Buy, and Walmart.

To support their allegation that Sony has "an unlawful monopoly," the plaintiffs defined the relevant product narrowly as "downloadable, digitally-delivered video game content that is compatible with a PlayStation console."² They allege that games are "not cross-compatible on different consoles"³ and "[p]rices for digital games on the PlayStation Store are not responsive to changes in prices for physical games available from other retailers, and physical games are not substitutes for digital games."⁴

The plaintiffs further allege that, prior to April 2019, Sony permitted retailers to sell digital codes for PlayStation games, creating price competition for PlayStation digital games.⁵ However, the plaintiffs claim that Sony's new policy illegally eliminates competition and provides Sony with the ability to charge supracompetitive prices as shown by the difference between the price of digital and physical games.

The case is pending in the Northern District of California. Sony has not yet responded to the complaint.

Steam

Valve Corporation runs Steam—the world's largest Windows, Mac, and Debian game store. Two new private antitrust class-actions allege that Valve, through Steam, controls and illegally maintains a monopoly in the PC game platform market.

Colvin v. Valve Corp.: In January 2021, a class of game buyers (and parents who pay their tab) sued Valve and five game developers (CD Projekt, Ubisoft, kChamp Games, Rust, and Devolver Digital), claiming that the defendants conspired to maintain elevated prices through most favored nation (MFN) clauses. The plaintiffs claim that the MFNs require that game developers price their PC games on any other gaming platforms as they do on Steam, thereby eliminating price competition among gaming platforms. They point to Steam's instructions to developers not to treat Steam customers worse than non-Steam customers, and other requirements Valve imposes on game developers.

The plaintiffs defined the relevant markets as the "market for sale of PC games to consumers" or, in the alternative "the two-sided transactions market for the sale of PC games by game developers, through platforms, to consumers" based on the idea that PC games do not work on game consoles or mobile devices.⁶ Interestingly, the plaintiffs also quote Valve as saying: "Valve does not make or sell phones, tablets, or video games for mobile devices, or otherwise compete in the mobile market."⁷ Valve's statement is found in its recent court filing opposing the breadth of the subpoena for documents it received in the Epic v. Apple litigation. The plaintiffs voluntarily dismissed the five game developers and amended their complaint on April 8, 2021. The amended complaint focuses on Valve's individual monopolistic conduct, although the MFNs remain the focus of the conduct at issue. The plaintiffs seek compensatory damages, treble damages, and injunctive relief. The case was filed in the Central District of California (Los Angeles) and then transferred to the Western District of Washington (Seattle) where Valve is headquartered. Valve has not responded.

Wolfire Games v. Valve Corp.: Last month, another class alleged that Valve unlawfully tried to protect its monopoly in PC Desktop Games and PC Desktop Gaming Platforms. The group of game players and a game developer allege that PC Desktop Games and PC Desktop Gaming Platforms are the relevant markets because PC games cannot be interchanged with console or mobile games.⁸ The plaintiffs also allege that PC games are qualitatively different because of their advanced graphics and range of controllers.⁹

Like in Colvin, the plaintiffs point to MFN clauses (which they call the "Price Veto Provision"). The Wolfire plaintiffs also claim that Valve creates supracompetitive pricing by limiting and regulating how game publishers can provide Steam Keys to third-party stores. (Steam Keys are alphanumeric codes that can be redeemed for copies of games in a Steam account.) The plaintiffs seek treble damages, punitive damages, and injunctive relief. The case is pending in the Western District of Washington. Valve has not yet responded to the complaint.

Antitrust Enforcement Agencies and Lawmakers

The rise of private antitrust litigation in video game platforms is likely tied to the increased scrutiny of digital platforms by global antitrust enforcers and lawmakers. In the United States, for example, the Federal Trade Commission's (FTC) Bureau of Competition launched its Technology Enforcement Division (TED), which is dedicated to monitoring competition and investigating anticompetitive conduct in technology platforms.¹⁰ After TED investigated Facebook, the FTC sued Facebook in 2020, alleging that Facebook is illegally maintaining a monopoly in social networks through anticompetitive conduct, which includes its acquisitions of Instagram and WhatsApp.¹¹

Meanwhile, the antitrust subcommittee of Congress investigated and released its findings on the digital markets, which Wolfire cites to in its discussion of the importance of PC Gaming platforms.¹² Following Congress's report, Senator Amy Klobuchar introduced the Competition and Antitrust Law Enforcement Reform Act, which calls for significant changes in U.S. antitrust laws. Wilson Sonsini provided analysis of that bill here.

In the United Kingdom, the Competition and Markets Authority (CMA) published its final Government Response to CMA Digital Advertising Market Study and launched its Digital Markets Unit in shadow mode to oversee a pro-competition regime for digital platforms.¹³ And, as discussed in a recent Wilson Sonsini client alert, in Europe, the EC proposed several laws to regulate digital platforms.

Not only are there proposed laws, the EC recently fined Valve and five publishers, Bandai, Capcom, Focus, Koch, and ZeniMax, a total of €7.8M for violating competition laws by agreeing to restrict cross-border sales of video games based on "the geographical location of the users," an action known as geo-blocking.¹⁴ EC Commissioner Margrethe Vestager also recently announced that the EC "take[s] an interest in the gaming app market."¹⁵

Antitrust scrutiny of digital platforms, therefore, is a growing global hot-button issue. In the current environment of heightened digital platform antitrust enforcement, video game distributors should prepare for increased regulation, antitrust scrutiny, and private actions.

For more information, please contact Ken O'Rourke, Robin Crauthers, Allison Smith, or another member of the firm's antitrust and competition practice. Wilson Sonsini Goodrich & Rosati routinely helps companies navigate antitrust matters for technology companies in the United States, Europe, and beyond. For more information about gaming companies generally, please contact any attorney of the firm's electronic gaming practice.

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[1] Compl. ¶ 1, Caccuri v Sony Interactive Entm’t, LLC, No. 3:21-cv-03361 (N.D. Cal May 5, 2021).

[2] Id. ¶ 48.

[3] Id. ¶ 49.

[4] Id. ¶ 51.

[5] Id. ¶ 52.

[6] Compl. ¶¶ 54-55, Colvin v. Valve Corp., No. 2:21-cv-00801, (C.D. Cal. Jan. 28, 2021).

[7] Amended Compl. ¶ 48, Colvin v. Valve Corp., No. 2:21-cv-00801 (C.D. Cal. Apr. 8, 2021).

[8] Compl. ¶ 43, Wolfire Games, LLC, v. Valve Corp., No. 2:21-CV-563 (W.D. Wash. Apr. 27, 2021).

[9] Id. ¶¶ 47, 49.

[10] Fed. Trade Comm’n, Technology Enforcement Division, https://www.ftc.gov/about-ftc/bureaus-offices/bureau-competition/inside-bureau-competition/technology-enforcement-division.

[11] Press Release, Fed. Trade Comm’n, FTC Sues Facebook for Illegal Monopolization (Dec. 9, 2020), https://www.ftc.gov/news-events/press-releases/2020/12/ftc-sues-facebook-illegal-monopolization.

[12] Wolfire Compl. ¶ 62.

[13] Government response to the CMA digital advertising market study, GOV.UK, (Nov. 27, 2020), https://www.gov.uk/government/publications/government-response-to-the-cma-digital-advertising-market-study; Deirdre Carroll, Incoming: Increased UK enforcement in Digital Markets, Wilson Sonsini Client Alert (Apr. 8, 2021) https://www.wsgr.com/en/insights/incoming-increased-uk-enforcement-in-digital-markets.html.

[14] Press Release, European Commission, Antitrust: Commission fines Valve and five publishers of PC video games €7.8 million for “geo-blocking” practices, (Jan. 20, 2021), https://ec.europa.eu/commission/presscorner/detail/en/IP_21_170.

[15] Tom Warren, EU accuses Apple of App Store antitrust violations after Spotify complaint, The Verge, (Apr. 30, 2021), https://www.theverge.com/2021/4/30/22407376/apple-european-union-antitrust-charges-app-store-music-competition-commission-margrethe-vestager.