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Competition

The Battle Beyond the Game: A Legal Deep Dive into the Call of Duty League Monopoly Lawsuit

The esports world is no stranger to high stakes and intense competition, but a recent legal battle has shifted the arena from virtual battlefields to federal courts. The lawsuit filed by Call of Duty League (CDL) team owners and members against Activision Blizzard marks a significant moment in esports history, alleging monopolistic practices and seeking damages exceeding USD 680 million. This article delves into the legal intricacies of the case, the arguments from both sides, and the potential implications for the esports industry.

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Call of Duty League

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.

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.

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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.

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.

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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):

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  • 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

Author

  • Leonid Shmatenko

    Leonid Shmatenko is part of Eversheds Sutherlands’ data protection and technology law team. He has vast experience in regulatory and general issues in the areas of eSports and Blockchain. He advises eSports associations and clubs on all legal issues, advises and supports crypto startups in all matters from planning, preparation to execution of private and public token offerings (so-called Initial Coin Offerings or ICOs). Furthermore, Leonid Shmatenko specializes in international arbitration and has participated in several arbitration proceedings (SAC, ICC, DIS, UNCITRAL, ICSID, ad hoc) as a party representative and secretary of the tribunal. Leonid Shmatenko studied at the Heinrich Heine University in Düsseldorf and is currently pursuing a PhD in international law. After his successful first state examination (2011), he completed his legal clerkship, inter alia, at the German Embassy in Lima and within international law firms in Düsseldorf and Paris. He passed the second state examination in 2015. He is an external lecturer at the National Law University of Ukraine “Yaroslav Mudryi”, where he teaches International Investment Law. He is admitted to the Bar in Switzerland and Germany. Before joining Eversheds Sutherland, Leonid Shmatenko worked as an attorney at leading law firms in Geneva, Munich and Paris. View all posts

Competition

Ubisoft Secures Permanent Game Streaming Rights

Ubisoft has made a significant move in the gaming industry by securing permanent streaming rights for several major titles.

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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.

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Image source: Ubisoft

Author

  • Leonid Shmatenko

    Leonid Shmatenko is part of Eversheds Sutherlands’ data protection and technology law team. He has vast experience in regulatory and general issues in the areas of eSports and Blockchain. He advises eSports associations and clubs on all legal issues, advises and supports crypto startups in all matters from planning, preparation to execution of private and public token offerings (so-called Initial Coin Offerings or ICOs). Furthermore, Leonid Shmatenko specializes in international arbitration and has participated in several arbitration proceedings (SAC, ICC, DIS, UNCITRAL, ICSID, ad hoc) as a party representative and secretary of the tribunal. Leonid Shmatenko studied at the Heinrich Heine University in Düsseldorf and is currently pursuing a PhD in international law. After his successful first state examination (2011), he completed his legal clerkship, inter alia, at the German Embassy in Lima and within international law firms in Düsseldorf and Paris. He passed the second state examination in 2015. He is an external lecturer at the National Law University of Ukraine “Yaroslav Mudryi”, where he teaches International Investment Law. He is admitted to the Bar in Switzerland and Germany. Before joining Eversheds Sutherland, Leonid Shmatenko worked as an attorney at leading law firms in Geneva, Munich and Paris. View all posts

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Competition

Microsoft’s Savvy Concession Unlocks Merger, Boosts Competition

In a pivotal development for the cloud gaming industry, the Competition and Markets Authority (CMA) has greenlit a restructured deal, allowing Ubisoft to acquire Activision’s cloud gaming rights instead of Microsoft. This decision, announced on 13 October 2023, comes after a thorough investigation and is anticipated to foster competition, ensuring competitive pricing and superior services in the rapidly evolving cloud gaming sector.

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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.

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“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

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Author

  • Leonid Shmatenko

    Leonid Shmatenko is part of Eversheds Sutherlands’ data protection and technology law team. He has vast experience in regulatory and general issues in the areas of eSports and Blockchain. He advises eSports associations and clubs on all legal issues, advises and supports crypto startups in all matters from planning, preparation to execution of private and public token offerings (so-called Initial Coin Offerings or ICOs). Furthermore, Leonid Shmatenko specializes in international arbitration and has participated in several arbitration proceedings (SAC, ICC, DIS, UNCITRAL, ICSID, ad hoc) as a party representative and secretary of the tribunal. Leonid Shmatenko studied at the Heinrich Heine University in Düsseldorf and is currently pursuing a PhD in international law. After his successful first state examination (2011), he completed his legal clerkship, inter alia, at the German Embassy in Lima and within international law firms in Düsseldorf and Paris. He passed the second state examination in 2015. He is an external lecturer at the National Law University of Ukraine “Yaroslav Mudryi”, where he teaches International Investment Law. He is admitted to the Bar in Switzerland and Germany. Before joining Eversheds Sutherland, Leonid Shmatenko worked as an attorney at leading law firms in Geneva, Munich and Paris. View all posts

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Competition

CJEU rules Steam’s geo-blocking violates EU competition law; Valve fined EUR 1.6M.

In a judgement dated 27 September 2023, the General Court of the Court of Justice of the European Union (“CJEU”) has upheld the European Commission’s decision concluding that Valve, the operator of the Steam platform, along with five PC video game publishers infringed European Union competition law by engaging in unlawful geo-blocking practices.

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Background

In 2013, acting on information received from market participants, the European Commission initiated an ex officio investigation into the geographical blocking of certain PC video games on the basis of the geographical location of the user.

On 2 February 2017, the Commission initiated proceedings against Valve and five publishers, namely Bandai, Capcom, Focus Home, Koch Media and ZeniMax.

On 20 January 2021, the Commission found that Valve and the five above-mentioned publishers participated in five single and continuous infringements of Article 101 Treaty on the Functioning of the European Union (“TFEU”) and Article 53 of the European Economic Area (“EEA”) Agreement. In particular, the Commission found that Valve and the five publishers had participated in a group of anti-competitive agreements or concerted practices which were intended to restrict cross-border sales of certain PC video games that were compatible with the Steam platform, by putting in place territorial control functionalities during different periods between 2010 and 2015, in particular the Baltic countries and certain countries in central and Eastern Europe.

Key Findings

  • Objective of Geo-Blocking: The General Court found that the geo-blocking measures were not aimed at protecting copyright but rather at eliminating parallel imports of PC video games. This served to safeguard the high royalty amounts collected by publishers and the profit margins of Valve. In essence, it prevented games, available at lower prices in some countries, from being purchased in regions where prices were significantly higher.
  • EU Competition Law and Copyright: The General Court addressed the relationship between EU competition law and copyright, emphasizing that copyright protection primarily aims to ensure the right holders’ commercial exploitation of their content through licensing and remuneration. It does not grant them the right to demand the highest possible remuneration or create artificial price differences between national markets. Such partitioning and the resulting artificial price differences are incompatible with the completion of the internal market.
  • Harmful to Competition: The General Court rejected Valve’s attempts to challenge the characterization of the collusive conduct as harmful to competition. Valve’s claims of pro-competitive effects of the geo-blocking measures were dismissed.

In the end, the General Court dismissed Valve’s action and confirmed the EU Commission decision to fine Valve.

Conclusion

This case serves as a significant precedent in addressing anti-competitive behaviour in the digital entertainment industry and underscores the EU’s commitment to fostering a competitive and unified market for consumers and businesses alike. The CJEU’s decision to uphold the Commission’s findings against Valve and the five video game publishers highlights the importance of fair competition and access to digital content within the European Union.

Full judgement (Case T-172/21) here : https://curia.europa.eu/juris/document/document.jsf;jsessionid=93B210A75D93737B6CDD01D294183133?text=&docid=277867&pageIndex=0&doclang=en&mode=req&dir=&occ=first&part=1&cid=1885424

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Photo:

 Pixabay via Picryl.com, Public Domain Dedication (CC0)

Author

  • Patrick Pithon

    Patrick Pithon is a Swiss attorney-at-law working as an associate in the Arbitration and Sports department of the Geneva office. His practice focuses on international commercial and sports arbitration, as well as domestic and cross-border litigation. Patrick Pithon holds a law degree from the University of Lausanne (summa cum laude). During his studies, he represented the University of Lausanne in the 25th Annual Willem C. Vis International Commercial Arbitration Moot Competition held in Vienna, where his team finished second amongst nearly 400 universities. Patrick Pithon initially served as a law clerk of the District Court of Yverdon-les-Bains. He then joined a boutique law firm in Lausanne as a junior associate before working in the International Cooperation team of the Enforcement Division of the Swiss Financial Market Supervisory Authority (FINMA). Prior to joining Bonnard Lawson, he worked in the Litigation and Arbitration department of a prestigious law firm based in Geneva. Patrick Pithon was subsequently admitted to the bar in 2022, ranked first of his class. Alongside his practice, Patrick Pithon acts as the Legal Coordinator of the Swiss Esports Federation as well as an arbitrator in the Willem C. Vis International Commercial Arbitration Moot Competition since 2020. Patrick Pithon works in both French and English. He also has good working knowledge of German. View all posts

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