Background of the Call of Duty League Monopoly Lawsuit

In late 2019, a shift occurred in the Call of Duty esports scene. Activision Blizzard transformed the open tournament format – see our reporting on a proposal on how to conduct esports tournaments in Stormgate – into the exclusive Call of Duty League, requiring a hefty USD 27.5 million entry fee from 12 teams and imposing strict revenue-sharing and sponsorship conditions. This move, plaintiffs argue, unfairly restricted competition and monetization opportunities for teams and players, establishing what they claim to be an unlawful monopoly.

The Allegations

The plaintiffs contend that Activision Blizzard’s control over the Call of Duty esports ecosystem—spanning both professional and amateur levels—violates antitrust laws. Plaintiffs highlight several restrictive practices, including:

• Prohibiting teams from participating in external tournaments or securing sponsorships from certain industries.
• Mandating a 50% revenue share from various income streams.
• Restricting players’ ability to monetize their gameplay outside of CDL.

These conditions, the plaintiffs argue, not only stifled competition but also placed undue financial burdens on teams and players, effectively limiting the market to those who could adhere to Activision Blizzard’s stringent terms.

Activision Blizzard’s Defense

In response, Activision Blizzard has dismissed the lawsuit as “meritless,” accusing the plaintiffs, including high-profile figures like Hector “H3CZ” Rodriguez and Seth “Scump” Abner, of seeking a payout to avoid litigation. The publisher defends its league structure as a legitimate business model aimed at consolidating and elevating the Call of Duty esports scene, countering allegations of monopolistic behavior by emphasizing the investments made by team owners, players, and fans in the league’s success.

Legal Framework

The legal framework surrounding the Rodriguez v. Activision Blizzard Inc. case is grounded in antitrust laws, specifically referencing the Sherman Act and the California Business and Professions Code, including the Cartwright Act and the Unfair Competition Law (UCL). These laws are central to the plaintiffs’ allegations against Activision Blizzard, arguing that the company’s practices in managing the Call of Duty League have unlawfully restricted competition and harmed both competitors and consumers.

Sherman Act Analysis

The Sherman Act, particularly Section 2, which deals with monopolization, is a foundational piece of U.S. antitrust legislation. It prohibits monopolistic practices and attempts to monopolize any part of the trade or commerce. The plaintiffs argue that Activision Blizzard’s control over the Call of Duty esports market constitutes an unlawful monopoly. They claim that Activision has used its monopoly power to impose restrictive conditions on teams and players, effectively controlling and limiting the professional Call of Duty esports market to its own league. This, according to the lawsuit, stifles competition and innovation, restricts players’ earning potential, and limits consumer choice, all hallmarks of anticompetitive behavior prohibited by the Sherman Act.

California Business and Professions Code: Cartwright Act and UCL

The Cartwright Act is California’s antitrust law that mirrors the Sherman Act’s prohibitions against anticompetitive practices but applies within the state of California. It targets a broader range of anticompetitive behavior and is often invoked alongside the Sherman Act in lawsuits alleging antitrust violations.

The UCL, on the other hand, prohibits any unlawful, unfair, or fraudulent business act or practice, providing a wide berth for litigation against practices that may not strictly fall under the definition of antitrust violations but are detrimental to competitive market conditions and consumer welfare. The plaintiffs allege that Activision Blizzard’s practices not only constitute a violation of the Sherman Act but also transgress the Cartwright Act and UCL by creating an unlawful trust and restraint of trade, further restricting the competitive landscape within the esports market in California.

Legal and Economic Implications

Should the court find Activision Blizzard’s practices to violate these legal frameworks, it could lead to significant changes in how esports leagues are structured and operated. It would potentially open up the market for more competition, allowing independent leagues and tournaments to flourish alongside those operated by game publishers. Such a ruling could also influence the negotiation power of teams and players, granting them more freedom and leverage in terms of sponsorships, streaming rights, and participation in multiple competitions.

Conversely, a ruling in favor of Activision Blizzard could reinforce the status quo, where game publishers maintain significant control over their intellectual properties and the associated esports competitions. This could affirm the legality of the franchise league model, where participation is exclusive and tightly controlled, potentially leading to similar structures in other esports titles.

Conclusion

The legal battle between Rodriguez, Abner, HECZ LLC, and Activision Blizzard Inc. is a landmark case with the potential to reshape the esports industry’s legal and competitive landscape. It challenges the balance between protecting intellectual property rights and ensuring a competitive and open market, highlighting the tension between traditional sports league models and the unique dynamics of the esports industry. The outcome of this case will likely have far-reaching implications for how esports competitions are organized, governed, and monetized in the future.

Case Information for Rodriguez v. Activision Blizzard Inc.

Court: U.S. District Court for the Central District of California

Case Number: Rodriguez v. Activision Blizzard Inc., No. 2:24-cv-01287

Filing Date: February 15, 2024

Counsel Information:

For Plaintiffs (Hector Rodriguez, Seth Abner, HECZ LLC):

• Firm: Dynamis LLP and Aaron Katz Law LLC
• Eric Rosen, Constantine P. Economides, Brianna K. Pierce
• Aaron M. Katz
• Locations: Not specified in the provided information

For Defendant (Activision Blizzard Inc.):

• Counsel information not provided in the available documentation.

Image source: thebusinessofesports

Ubisoft’s Everlasting Rights to Major Titles

The deal between Ubisoft and Activision Blizzard, following the latter’s acquisition by Microsoft, is more extensive than initially anticipated. Ubisoft has confirmed that it will retain the rights to major titles like Call of Duty and potentially Diablo 4 indefinitely.

In an internal interview, Chris Early, the manager responsible for Strategic Partnerships & Business Development at Ubisoft, emphasized a crucial detail that wasn’t evident from Ubisoft’s earlier statements. The publisher will hold the cloud gaming rights for all current and future Activision Blizzard games permanently, not just for the previously communicated 15-year period.

This development implies that as game streaming continues to grow, thanks to improving network infrastructure, Ubisoft will be the go-to for the next 374 Call of Duty releases, Diablo 4, possibly Diablo 5, and all other titles from both developers, at least in the realm of cloud gaming.

EU’s Stance on Game Streaming

However, Early also mentioned that the European Union has received an assurance from Microsoft. This assurance states that game purchasers can always use their games for streaming without any additional payment. For instance, if a French company wishes to stream Diablo 4 to its buyers, it can obtain a free license from Microsoft, not Ubisoft. This regulation is applicable within the EU but not globally.

Cloud Gaming via Ubisoft+

According to Early, Ubisoft has secured the streaming rights for all currently available games from Activision Blizzard, including expansions and additional content. Ubisoft plans to market these titles through its platform, Ubisoft+. This gaming subscription currently costs around EUR 18 per month, offering streaming access and a catalog of titles. Presently, users can access it via Amazon Luna on Windows PCs, smartphones, tablets, and select smart TVs.

Image source: Ubisoft

In August 2023, Microsoft made a strategic concession, enabling Ubisoft to purchase Activision’s cloud streaming rights for all PC and console content produced over the next 15 years outside the EEA. This move places the rights in the hands of Ubisoft, a robust and independent competitor with ambitious plans to innovate new methods of content access.

Ensuring Fair Competition

The CMA has been steadfast in its commitment to preventing mergers that could potentially harm competition and yield unfavorable outcomes for consumers and businesses. Sarah Cardell, Chief Executive of the CMA, emphasized,

“We delivered a clear message to Microsoft that the deal would be blocked unless they comprehensively addressed our concerns.”

The sale of Activision’s cloud streaming rights to Ubisoft is a strategic move to prevent Microsoft from monopolizing the burgeoning cloud gaming market. This intervention is designed to safeguard competitive pricing, enhance services, and broaden choices for UK cloud gaming customers. Furthermore, it will empower Ubisoft to offer Activision’s content under various business models, including through multi-game subscription services, and ensure that cloud gaming providers can utilize non-Windows operating systems for Activision content, thereby reducing costs and boosting efficiency.

A Resolute Stance Against Anti-Competitive Practices:

Cardell also highlighted the CMA’s unwavering stance against corporate lobbying and its dedication to decisions free from political influence. The CMA has been resolute in ensuring that Microsoft does not exert excessive control over this pivotal and rapidly developing market.

“With the sale of Activision’s cloud streaming rights to Ubisoft, we’ve made sure Microsoft can’t have a stranglehold over this important and rapidly developing market,”

Cardell added.

A Win for Consumers and Economic Growth

Martin Coleman, Chair of the Independent Panel reviewing the original Microsoft deal, shared that the new transaction, which diverts the cloud distribution of Activision games to Ubisoft, is a positive development for competition, consumers, and economic growth. The deal prevents the distribution of significant, popular content – including blockbuster games like Call of Duty, Overwatch, and World of Warcraft – from being controlled by Microsoft in the realm of cloud gaming.

Conclusion

The CMA’s decision to clear this narrower transaction comes after its original investigation found Microsoft to already possess a strong position in relation to cloud gaming, prompting the deal to be blocked. The restructured deal, which saw the sale of Activision’s cloud streaming rights to Ubisoft, substantially addressed the concerns that the CMA had following its original investigation, which concluded earlier this year. While the CMA identified limited residual concerns with the new deal, Microsoft provided undertakings that will ensure the terms of the sale of Activision’s rights to Ubisoft are enforceable by the CMA.

This development marks a significant milestone in the cloud gaming industry, ensuring that as the market continues to grow, consumers will benefit from more competitive prices, better services, and increased choice.

Image: Analytics India Mag