Antitrust counter-strike: predicting the new wave of EU Competition law issues in eSports
From its humble beginnings with the first chess computer game in the 1950s, gaming has matured and professionalised to indisputably become an industry in its own right. During Covid-19, as traditional sports venues shut down, eSports has come of age and established itself both as a rival and as a complement to more ‘traditional’ bat-and-ball games.
The eSports ecosystem is similar to the structures of traditional sports, with the main stakeholders being players, teams, leagues, organisers of competitions, sponsors, broadcasters, advertisers, betting companies and (emerging) governing bodies. The main difference versus “bat and ball” sports consists in the all-pervasive role of the game developer or publisher, who enjoys intellectual property (IP) rights in relation to most aspects of the game. Publishers can deploy these IP rights to establish and change the rules of the game at their discretion. They can also control access to their intellectual property, i.e. which teams and players may compete in their game and which entities can organise, broadcast and distribute tournaments, as well as how and where.
In this blog post, we analyse some of the areas in which these two aspects of the eSports industry might clash with EU competition law and explain why the principles developed for traditional sports cannot always be applied neatly to resolve these issues.1
Market Definition
In traditional sports, markets have been defined around a single sport – football, cycling, swimming, etc. Within a particular sport, competition authorities have identified standalone markets for specific activities like events organisation, broadcasting, and transfers of players. The basic similarity of stakeholders in eSports suggests that the same approach could be taken in eSports and that narrow product markets will be delineated for a particular game.
Indeed, eSports competitions are also organised for individual games and players tend to specialise in one game only. Studies have shown that viewers are unlikely to switch between eSports given their attachment to specific teams and/or players and the complexity of learning new rules. Moreover, the market for a single game can be further sub-divided into various vertical markets or segments depending on specific activities – organisation of competitions, broadcasting, teams, transfers of players, advertisement, viewers, viewer/user data, and selling the game outside of professional competitions.
However, it is important not to lose sight of the separate market for the sale of the games which is strongly linked to eSports. On this market, publishers fiercely compete with each other, not least on innovation. It could be argued that this rivalry is sufficient to discipline the conduct of the publisher and other market agents within the ecosystem of a particular eSport. Given the relatively short life cycle of most video games, any market power concerns will often be transitory, especially when compared to established traditional sports like football. This speaks in favour of a broader market where different eSports are seen to compete with each other.
In terms of the geographic scope of the eSports market, it can be argued that it is worldwide. Events can be arranged online only (although arguably less effectively) with no need for players or audience to be physically present. Online streaming means that there is no need to enter into contracts with national broadcasters. However, it is possible that narrower geographical markets could be defined e.g. where leagues/events are organised on a national or European basis or if streaming is geo blocked or as a result of regulatory barriers.
The Role of IP
While in conventional sports the powerful governing bodies (such as FIVB in volleyball or UCI in cycling) can, to varying extents, control the organisation of events, they are not able to go so far as banning individuals from playing volleyball in their garden or cycling on their own property. By contrast, any use of a video game, whether in competition or otherwise, is subject to the intellectual property rights of the publisher that has developed it. The game publisher could, if it so wished, impose a perpetual ban on any individual from ever playing its games.
Not only organisers, but virtually all downstream actors (players, teams, broadcasters, viewers, advertisers) depend on the publishers for permission to use the respective IP rights. This means that IP rights holders can control access to these activities as well as the conduct of all downstream actors in ways that may raise abuse of dominance issues (Article 102 TFEU). In EU law, the existence of an IP right as such does not infringe competition law. However, competition law can be applied to inhibit the exercise of such rights to foreclose competition.
Moreover, there is in principle nothing to prevent a publisher from taking up activities throughout the value chain of a game. Such so-called “vertical integration” is often a source of efficiency gains. The stakes would be raised however if publishers at the same time were to take measures that reduce business opportunities for third parties or even decide to set up “walled gardens” where they exclude any rivals. Competition regulators have struck down analogous practices by governing bodies in traditional sports, which suggests that eSports publishers may also face legal challenges if they go down this route. At the same time, publishers may argue that a “walled garden” approach is an efficient and legitimate way to guarantee a uniform image of the product and stay true to the publishers’ creative vision, as well as to reward innovation (game creation is an investment-heavy business).
In any event, friction is bound to arise between different market actors along the eSports value chain as the industry matures. This is likely to lead to legal challenges concerning issues such as:
- excessive licensing fees;
- refusal to grant licenses;
- exclusivity agreements;
- price discrimination; and
- tying and bundling of services offered at different levels of the market.
Again, such conduct should arguably not be seen as per se abusive and might be justified in eSports based on considerations that play less of a role in traditional sports. Regulators and courts will have to precisely understand the particularities of the eSports ecosystem, requiring a broader approach and sensitivity to a variety of aspects stemming from the sports and the tech and entertainment industries.
Comment
The combination of a complex value chain, in which the publishers hold a gatekeeper role, and the potential for massive revenue growth is bound to attract the attention of antitrust regulators and trigger legal disputes involving competition law claims. Indeed, competition law considerations may well end up having a profound impact on how eSports are organised and on how publishers and other market actors in this industry interact with each other.
eSports are different from traditional sports, and perhaps not “sport” at all in the legal meaning of the term. We anticipate that antitrust enforcement will largely revolve around the competition-IP interface, where experiences from other innovation-driven industries may prove more relevant than precedents regarding traditional sports.
As in other nascent markets, legal certainty is a scarce resource, but eSports actors must start weighing up competition law risks as part of their decision-making process.
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