sign in sign up
<<
Home , 2K (company), AFL (video game series), EA Sports, Electronic Arts, ESPN NFL 2K5, Jason Schreier

THE NFL'S EXCLUSIVE VIDEOGAME CONTRACT - A MONOPOLY THAT MUST END Louis M. Peters I. INTRODUCTION

Every new NFL season brings so much excitement. Teams have brand new players, new coaches, new plays, and even new stadiums. Children and adults across America are excited by the opportunities their respective teams have to be successful. Everyone is equalized, teams have a clean slate, and fans and players alike hope to build on previous years or to erase their memories of losing.

One of the most realistic ways that NFL fans are able to engage with the is through playing video games. But year after year, fans are disappointed by the new NFL video that is released. The Madden franchise has had an exclusive contract to produce the NFL's only licensed since December 2004.1 Capitalizing on this, (EA or EA

Sports), the maker of the Madden video game franchise, fails to please its enthusiastic fan base year after year. Instead, each new Madden release in August is essentially a roster update of the teams and nothing more. The games are glitch-ridden, the game play is unrealistic, and the fans are left disappointed.2 Year after year, kids are ecstatic for the new Madden release only to be disappointed with the game after a week. This phenomenon is not common among video games.

New and innovative games such as Rockstar 's Redemption 2 and Epic

1 Matt Richtel, Electronic Arts Gets an Exclusive N.F.L. Deal, (Dec. 14, 2004), https://www.nytimes.com/2004/12/14/technology/electronic-arts-gets-an-exclusive--deal.html. 2 Brett Molina, Ready for some ? 'Madden NFL 20' is officially here: What you need to know, USA TODAY (Aug. 2, 2019, 10:01 AM), https://www.usatoday.com/story/tech/gaming/2019/08/02/madden-nfl-20-everything- you-need-know-football-video-game/1898094001/ (“It ain't Madden season without the glitches…Did the weird bugs that appear to accompany Madden every year become part of its charm? Most notable: the ball sticking to players' helmets… Is this funny? Yes. Is it also kinda frustrating since this seems to happen pretty much every season? Also yes. Some other glitches I spotted: my receiver celebrating a touchdown then suddenly disappearing, my Bengals deciding to wear a jersey during training.”).

1

Games' dominate in their popularity.3 This is for one primary reason, those games are fun.4

It is time to expose the NFL's exclusive video game contract with Electronic Arts for what it is, an illegal monopoly. The NFL's exclusive contract with Electronic Arts to produce

NFL licensed interactive football software is violation of US antitrust law. This monopoly has allowed EA to release an inferior and flawed product year after year.5 Without competition, which forces innovation and has pressured EA in the past, there is no hope for an NFL videogame of the quality fans deserve.

II. BACKGROUND

A. Antitrust Law

The purpose of antitrust law is to preserve a competitive marketplace to protect consumers from abuses.6 The public is to be protected against wrongful concerted conduct by actors that have economic power.7 Section 2 of the Sherman Antitrust Act8 protects against

3 See Peter Suderman, 2 Is True Art, THE NEW YORK TIMES (Nov. 23, 2018), https://www.nytimes.com/2018/11/23/opinion/sunday/red-dead-redemption-2--76-video-games.html (“After its October release, earned $725 million in just three days, giving it the highest-grossing opening weekend of any entertainment product — ever.”). See also Ben Gilbert, How big is 'Fortnite'? With nearly 250 million players, it's over two-thirds the size of the US population, BUSINESS INSIDER (Mar. 20, 2019, 1:41 PM), https://www.businessinsider.com/how-many-people- play-fortnite-2018-11. 4 Although “fun” is a subjective description, scholars have tried to quantify what makes videogames fun. However, popularity and sales likely suffice as indicators of how fun a game is. See Rachel Ehrenberg, In figuring out what makes video games fun, the mystery is in the math, SCIENCE NEWS (Feb. 20, 2012, 3:25 PM), Deleted: , https://www.sciencenews.org/article/figuring-out-what-makes-video-games-fun-mystery-math. 5 See Matt Richtel, Relying on Video Game Sequels, THE NEW YORK TIMES (Aug. 8, 2005), https://www.nytimes.com/2005/08/08/technology/relying-on-video-game-sequels.html? 6 "This focus of U.S. competition law, on protection of competition rather than competitors, is not necessarily the only possible focus or purpose of competition law. For example, it has also been said that competition law in the European Union (EU) tends to protect the competitors in the marketplace, even at the expense of market efficiencies and consumers."Cseres, Katalin Judit (2005). Competition law and consumer protection. Kluwer Law International. pp. 291–293. ISBN 9789041123800. Archived from the original on May 12, 2013. Retrieved October 3, 2019. 7 A. NEALE, THE ANTITRUST LAWS OF THE UNITED STATES OF AMERICA (2d ed. 1970). 8 UNITED STATES STATUTES AT LARGE, 51 Cong. Ch. 647, July 2, 1890, 26 Stat. 209.

2 unilateral conduct by combatting monopoly power. The Sherman Antitrust Act9 was proposed in

1890 by Senator John Sherman from Ohio and was passed at the height of the "Gilded Age."10

The Act is an early example of competition law designed to ensure that the economic playing field remained competitive and maintain a functioning capitalistic system.11

Section 1 of the Sherman Act declares illegal "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States."12 To state a Section 1 claim, a plaintiff must plead facts plausibly suggesting: (1) a contract, combination, or conspiracy (meaning, an agreement); (2) a resulting unreasonable restraint of trade in a relevant market; and (3) an accompanying injury.13 These elements are discussed briefly here and in more depth below.

Plausibly pleading the first element, an agreement, requires "enough factual matter (taken as true) to suggest that an agreement was made"—that is, "enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal agreement."14 Plaintiffs can do this in one of two ways, by pleading either direct or circumstantial evidence of an illegal agreement.15 Direct evidence of an agreement "is explicit and requires no inferences to establish the proposition or conclusion being asserted."16 Simply, direct evidence constitutes a "smoking gun."17

Circumstantial evidence, in contrast, is facts "from which the existence of such an agreement can

9 Id. 10 Sherman Anti-Trust Act § 1, 15 U.S.C. § 1 (2004). 11 A. NEALE, THE ANTITRUST LAWS OF THE UNITED STATES OF AMERICA (2d ed. 1970). 12 15 U.S.C. § 1 13 Agnew v. NCAA, 683 F.3d 328, 335 (7th Cir. 2012). 14 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556, 127 S. Ct. 1955, 1965 (2007). 15 In re Text Messaging Antitrust Litig., 630 F.3d 622, 629 (7th Cir. 2010). 16 In re Baby Food Antitrust Litig., 166 F.3d 112, 118 (3d Cir. 1999)). See also In re Dairy Farmers of Am., Inc., Cheese Antitrust Litig., 60 F. Supp. 3d 914, 950 (N.D. Ill. 2014). 17 Omnicare, Inc. v. UnitedHealth Grp., Inc., 629 F.3d 697, 706 (7th Cir. 2011). See also In re High Fructose Corn Syrup Antitrust Litig., 295 F.3d 651, 654 (7th Cir. 2002) ("an admission by the defendants that they agreed to fix their prices is all the proof a plaintiff needs").

3 be inferred."18 Mere allegations of "parallel conduct," without more, do not "tend to exclude the possibility of independent action," and are therefore insufficient.19 It is likely that EA's contract with the NFL is direct evidence of harm to the competition. They have no competition and through the contract they signed, all competitors were forced to leave the market by 2005.20 EA made this deal to crush the competition and become the sole maker of NFL videogames.21 When faced with competing with a much cheaper yet superior product (NFL 2K5), the NFL made this agreement to solidify their position so that no competitors could undercut them again.22 This constitutes a

“smoking gun” because no inferences are required to determine that the agreement closed off the market to others.23 The market here, as explained below, is officially licensed NFL interactive football software.24 Because the NFL made a deal with EA not to license any other developer’s videogames, it became impossible for competitors to stay in the market.25 Thus, this contract forced the competitors out of the market through a total consolidation of the NFL’s videogame license.26

The second element, an unreasonable restraint, hinges on whether the alleged violation is per se unreasonable or is, instead, subject to the rule of reason.27 Per se violations—those with which courts have "considerable experience" and "inevitably result in a finding of

18 High Fructose Corn Syrup, 295 F.3d at 654. 19 Twombly, 550 U.S. at 554. 20 Matt Richtel, Electronic Arts Gets an Exclusive N.F.L. Deal, THE NEW YORK TIMES (Dec. 14, 2004), https://www.nytimes.com/2004/12/14/technology/electronic-arts-gets-an-exclusive-nfl-deal.html 21 Tom Bissell, Kickoff: Madden NFL and the Future of Video Game , GRANTLAND (Jan. 26, 2012), http://grantland.com/features/tom-bissell-making-madden-nfl/ 22 Id. 23 Pecover v. Elecs. Arts Inc., 633 F. Supp. 2d 976, 983 (N.D. Cal. 2009). 24 Id. 25 Id. 26 Id. 27 Denny's Marina v. Renfro Prods., Inc., 8 F.3d 1217, 1220 (7th Cir. 1993)).

4 anticompetitive effect"—are presumed to be unreasonable restraints on trade.28 Under established law, "joint efforts by a firm or firms to disadvantage competitors by either directly denying or persuading or coercing suppliers or customers to deny relationships the competitors need in the competitive struggle" merit per se treatment.29 Rule-of-reason violations, however, require that a plaintiff plead "anticompetitive effects," and "that the injury complained of be of a type that the antitrust laws were designed to guard against, and further that the antitrust violation be the direct cause of plaintiff's injury."30

Here, EA has agreed with the NFL to exclusively produce its sole officially licensed NFL interactive football software.31 It is a contract by which a party (here, the NFL who is procuring videogame development) agreed to fulfill all of its requirements exclusively from one source,

EA.32 Thus, it is clearly an exclusive dealing (explained further below). The rule-of-reason analysis for exclusive dealings has been laid out by the Federal Trade Commission (FTC).33 The

FTC, assessing case law, says “a proper analysis of exclusive dealing arrangements should take into account market definition, the amount of foreclosure in the relevant markets, the duration of

28 Phil Tolkan Datsun, Inc. v. Greater Milwaukee Datsun Dealers' Adver. Ass'n. Inc., 672 F.2d 1280, 1284 (7th Cir. 1982); see also, e.g., Omnicare, 629 F.3d at 706 (an unreasonable restrain is "conclusively presumed once the first element is proved" in per se cases). 29 Nw. Wholesale Stationers, Inc. v. Pac. Stationery & Printing Co., 472 U.S. 284, 294, (1985); see also Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 212, (1959). 30 Havoco of Am., Ltd. v. Shell Oil Co., 626 F.2d 549, 556 (7th Cir. 1980); see also Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 885, 127 S. Ct. 2705, 168 L. Ed. 2d 623 (2007) (rule of reason ultimately requires "the factfinder to weigh all of the circumstances of a case in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition"); see also, e.g., Watkins v. Smith, No. 12 CIV. 4635 DLC, 2012 U.S. Dist. LEXIS 165762, 2012 WL 5868395, at 7 (S.D.N.Y. Nov. 19, 2012) ("The rule-of-reason inquiry requires, at the motion to dismiss stage, that the plaintiff identify the relevant market affected by the challenged conduct and allege an actual adverse effect on competition in the identified market."). 31 Matt Richtel, Electronic Arts Gets an Exclusive N.F.L. Deal, THE NEW YORK TIMES (Dec. 14, 2004), https://www.nytimes.com/2004/12/14/technology/electronic-arts-gets-an-exclusive-nfl-deal.html 32 Id. 33 1982 FTC LEXIS 33, 100 F.T.C. 66. See also Alden Abbott, Exclusive Dealing and Competition: A US FTC View, FEDERAL TRADE COMMISSION (Nov. 2, 2018), https://www.ftc.gov/system/files/documents/public_statements/1421189/abbott_-_icn_workshop_11-2-18.pdf.

5 the contracts, the extent to which entry is deterred, and the reasonable justifications, if any, for the exclusivity.”34

Alleging the third element, antitrust injury, requires pleading an "injury of the type the antitrust laws were intended to prevent and that flows from that which makes the defendants' acts unlawful."35 "When a horizontal merger, price fixing, market division, or similar collaboration among competitors substantially reduces competition, consumers suffer while existing rivals benefit."36 Consumers have been injured by higher prices for NFL videogames.37 They have also had to deal with subpar and no market alternatives.38 Antitrust laws were intended to prevent both of these harms and it is clear that consumers will continue to suffer this injury if EA’s monopoly is permitted to continue.39

It is well-established that a competitor "cannot recover for a conspiracy to impose nonprice restraints that have the effect of either raising market price or limiting output. Such restrictions, though harmful to competition, actually benefit competitors by making supracompetitive pricing more attractive."40 The law generally permits unilateral refusals to deal by monopolists under Section 2,41 and so certainly permits such unilateral refusals by non-

34 Id. 35 Southwest Suburban Bd. of Realtors, Inc. v. Beverly Area Planning Ass'n, 830 F.2d 1374, 1377 (7th Cir. 1987). 36 Areeda & Hovenkamp, ANTITRUST LAW ¶ 348b. 37 Matt Richtel, Relying on Video Game Sequels, THE NEW YORK TIMES (Aug. 8, 2005), https://www.nytimes.com/2005/08/08/technology/relying-on-video-game-sequels.html? 38 See Brett Molina, Ready for some football? 'Madden NFL 20' is officially here: What you need to know, USA TODAY (Aug. 2, 2019, 10:01 AM), https://www.usatoday.com/story/tech/gaming/2019/08/02/madden-nfl-20- everything-you-need-know-football-video-game/1898094001/. 39 For an analysis of the development of the antitrust laws see A. NEALE, THE ANTITRUST LAWS OF THE UNITED STATES OF AMERICA (2d ed. 1970). 40 Matsushita, 475 U.S. at 583 (emphasis in original); see also, e.g., JTC Petroleum Co. v. Piasa Motor Fuels, Inc., 190 F.3d 775, 778 (7th Cir. 1999) (holding that there was no injury and stating, "You want your competitors to charge high prices."). 41 15 U.S.C. § 2.

6 monopolists under Section 1.42 For example, in Trinko,43 the Supreme Court held that a monopolist exchange carrier, Verizon, had no duty to share access to system services it owned and competitors needed to operate their business effectively. The Supreme Court explained that

"compelling such firms to share the source of their advantage is in some tension with the underlying purpose of antitrust law, since it may lessen the incentive for the monopolist, the rival, or both to invest in those economically beneficial facilities."44 In other words, companies are not required to give away all of their hard work just for competition's sake (colloquially: they do not have to give away the store.)

A few years later, in Linkline, 45 the Court repeated the principle. It held that another telecommunications monopolist, AT&T, had no antitrust duty to deal—let alone a duty to deal on favorable terms—in selling services to its competitors in the retail market.46 The Supreme

Court said, as was true in Trinko, a monopolist can generally wield its upstream power "to prevent rival firms from competing effectively" in a downstream market.47 This gives companies room to operate in a monopolistic way, granted that there are competitors (as both AT&T and

Verizon had in those cases). In this instance, EA has no competition.

1. Exclusive Dealing Contracts

"An exclusive dealing contract obliges a firm to obtain its inputs from a single source."48

"The objection to exclusive-dealing agreements is that they deny outlets to a competitor during the

42 15 U.S.C. § 1. 43 Verizon Communs., Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 410, 124 S. Ct. 872 (2004). 44 Id. at 407-08. 45 Pac. Bell Tel. Co. v. linkLine Communs., Inc., 555 U.S. 438, 450, 129 S. Ct. 1109 (2009). 46 Id. 47 Id. 48 Paddock Publ'ns, Inc. v. Tribune Co., 103 F.3d 42, 46 (7th Cir. 1996); see also Areeda & Hovenkamp, Antitrust Law, supra, par. 1800a, (Supp.2006).

7 term of the agreement."49 Courts, however, "'often approve' of exclusive dealing because of its

'procompetitive benefits.'"50 These benefits include "increasing allocative efficiency, reducing adverse selection and moral hazard barriers to deals, and preventing free-riding."51 Because of those recognized procompetitive effects, exclusive dealing "must be analyzed under the Rule of

Reason."52 Under that standard as laid out above, "exclusive dealing arrangements violate antitrust laws only when they foreclose competition in a substantial share of the line of commerce at issue."53 The Rule of Reason balances anti-competitive effects against pro-competitive effects.54

It is discussed below why in this case the contract imposes more anti-competitive than pro- competitive effects of the officially licensed NFL interactive software market. EA has totally foreclosed the competition, as discussed below.

2. Section 2 Claim

To plead a Section 2 claim, a plaintiff must allege (1) that the defendant "possessed monopoly power" in an antitrust market, and (2) that the defendant "willfully acquired or maintained that power by means other than the quality of its product, its business acumen, or historical accident."55 Here, EA will be shown to possess monopoly power because it is the only

NFL videogame maker. The relevant market is defined below as officially licensed NFL interactive software. Further, it maintains this power solely through its exclusive deal with the

49 Roland Mach. Co. v. Dresser Indus., Inc., 749 F.2d 380, 393 (7th Cir. 1984). 50 Republic Tobacco Co. v. N. Atl. Trading Co., 381 F.3d 717, 736 (7th Cir. 2004)). 51 Id. at 736. 52 Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 81 S. Ct. 623, 5 L. Ed. 2d 580 (1961)). 53 Id. (plaintiff "must prove that the arrangement is likely to keep at least one significant competitor of the defendant from doing business in a relevant market . . . and he must prove that the probable (not certain) effect of the exclusion will be to raise prices above (and therefore reduce output below)"). 54 Id. 55 Mercatus Grp., LLC v. Lake Forest Hosp., 641 F.3d 834, 854 (7th Cir. 2011); see also Corp. v. Behrend, 569 U.S. 27, 43, 133 S. Ct. 1426, 185 L. Ed. 2d 515 (2013).

8

NFL that prevents competitors from entering the market. This is an impermissible method of limiting competition.56

3. Acquisition of Power by Anticompetitive Means

"Where defendant has engaged in unlawful restraint of trade that would independently violate Section 1 of the Sherman Antitrust Act, it is well established that it also violates Section 2 if it acquires or maintains a monopoly by means of that restraint of trade."57 Thus, EA is likely liable for both Section 1 and Section 2 violations.

B. The NFL's Exclusive Contract with EA Sports' Madden NFL

Franchise.

For years, Electronic Arts produced interactive football software, including the Madden

NFL videogame that dominated the market because of its relative quality.58 The Madden franchise saw a lot of competition in its earlier days between its initial release in 1988 and

2004.59 These included the NFL series (1999-2004), (1998-2004), NFL Gameday

(1995-2004), and NFL Quarterback Club (1995-2001), to name a few.60 The competing

56 This is contrasted by J. Brandeis’ opinion giving an example of a “good” restraint of trade. In Chicago Board of Trade v. United States, the Supreme Court found that the Board of Trade’s rule that commodities traders were not allowed to privately agree to sell or buy after the market’s closing time to ensure that all traders had an equal chance to trade at a transparent market price. 246 U.S. 231 (1918). “Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain, is of their very essence. The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. To determine that question, the court must ordinarily consider the facts peculiar to the business to which the restraint is applied, its condition before and after the restraint was imposed, the nature of the restraint, and its effect, actual or probable.” Id. at 244. Here, there is no competition that is promoted. All of EA’s competitors in the relevant market have been kicked out of making officially licensed NFL interactive software. 57 United States v. Griffith, 334 U.S. 100, 106, 68 S. Ct. 941, 92 L. Ed. 1236 (1948)). 58 John Gaudiosi, Madden: The $4 billion video game franchise, CNN (Sep. 5, 2015), https://money.cnn.com/2013/09/05/technology/innovation/madden-25/. 59 Id. 60 Tom Bissell, Kickoff: Madden NFL and the Future of Video Game Sports, GRANTLAND (Jan. 26, 2012), http://grantland.com/features/tom-bissell-making-madden-nfl/ (“The Madden franchise has seen a lot of competition over the years: Football (the first sports game I can recall that had variable weather conditions), which was released in 1991; the NFL 2K series, which ran from 1999 to 2005; NFL Gameday, which ran from 1994 to 2005.”).

9 products were licensed by the NFL to include the actual teams and players, making it an authentic and inviting playing experience. Furthermore, there was a variety in the game play and user interfaces of the game.61

For example, ' NFL Blitz series expanded on the traditional football videogame.62 While the Blitz titles largely follow standard rules as outlined by the NFL, there are key differences that encourage faster and more aggressive play.63 This included playing with only seven players on each team, instead of the traditional eleven.64 Along with having fewer players, the positions were flexible at best and different positions could run the ball, pass, and all players had similar speed.65

Additionally, pass interference is allowed, along with excessive celebrations, late hits, and can accurately throw the ball the entire length of the field.66 The animations also allowed for a violent and theatrical style that allows players to execute professional moves.67 This made for a very different and amusing game that combined NFL football with professional wrestling and was very popular in arcades.68

Then in 2004, partnered with Take Two Interactive, Inc., one of the world's largest videogame makers, to update and distribute its existing interactive football software.69 Take Two

61 Aaron Gordon, How in the Hell did NFL Blitz Ever Get Made?, VICE (Nov. 6, 2014), https://www.vice.com/en_us/article/nzpmgq/how-in-the-hell-did-nfl-blitz-ever-get-made. 62 Id. 63 Id. 64 Id. 65 Id. 66 Id. 67 Aaron Gordon, "How in the Hell did NFL Blitz Ever Get Made?". VICE (Nov. 6, 2014), https://www.vice.com/en_us/article/nzpmgq/how-in-the-hell-did-nfl-blitz-ever-get-made. 68 Id. 69 Tom Bissell, Kickoff: Madden NFL and the Future of Video Game Sports, GRANTLAND (Jan. 26, 2012), http://grantland.com/features/tom-bissell-making-madden-nfl/.

10

Interactive took the sports videogame market by storm with its release of NFL 2K5.70 "The NFL

2K series pulled off one of the greatest, most insidious guerrilla-warfare moves in the history of video game competition when . . . it released ESPN NFL 2K5 at the ridiculously enticing price of

$19.99 and carved a serious gouge in Madden‘s domination of the football space. One of the

Madden devs I spoke to still remembers 2K5’s day of sneak-attack infamy: “It scared the hell out of us.” NFL Gameday proved an arguably tougher opponent (from the same dev who was scared by ESPN NFL 2K5: “We were always nervous about Gameday. We wanted to crush them”), in that it was a PlayStation exclusive and had all of ’s considerable resources backing its development."71 That leaked inside knowledge could be argued as evidence of a concerted effort to eliminate its competition. Faced with real competition, that admission makes it clear the EA developers were scared.72 It was arguably and highly likely this competition that prompted them to take out any possibility of being surpassed by a competitor and the motivation for carrying out a concerted effort to eliminate its competition, in conjunction with the NFL.73

Nevertheless, the result, NFL 2K5, was released to rave reviews by numerous industry publications, including Editors' Choice awards from the Official Magazine and the influential gaming websites GamePro.com and IGN.com.74 Despite its superior quality, Take Two priced its interactive football software nearly thirty dollars below the Madden NFL title. Faced with a serious competitor for the first time, Electronic Arts was forced to lower its prices from

70 Id. 71 Id. 72 Id. 73 Matt Richtel, Electronic Arts Gets an Exclusive N.F.L. Deal, THE NEW YORK TIMES (Dec. 14, 2004), https://www.nytimes.com/2004/12/14/technology/electronic-arts-gets-an-exclusive-nfl-deal.html (“A spokesman for Take Two said the decision by the NFL and its players to restrict its license to an exclusive deal would be bad for consumers. The spokesman, Ed Nebb, said that the decision would mean that there would only be a single game on the market with N.F.L. players and other league-owned content. "You'll see prices go up," Mr. Nebb said. "Instead of it being a case of, 'Let the best game win,"' he said, it will mean that Electronic Arts "has the only game in town."). 74 Id.

11

$49.95 to $29.95. This vigorous competition benefitted consumers. Electronic Arts could have chosen to continue to compete by offering a better product than Take Two at a lower price. Instead, approximately one month after being forced to lower its prices, Electronic Arts entered into an exclusive licensing agreement with the NFL and the NFL Players Union.75 In rapid succession,

Electronic Arts also signed exclusive licensing agreements with the NCAA, through its licensing arm the College Licensing Company, Inc.,76 and the AFL.77

As a result of these agreements, Electronic Arts acquired the exclusive right to produce interactive football software that utilized the brands, teams and player likenesses of the NFL, AFL and NCAA football leagues.78 This was monumental because consumers demand that teams and players in interactive football software be identified with actual teams and players. Electronic Arts itself recognized this fact in an annual report to investors where it noted that if it were "unable to maintain" licenses with "major sports leagues and players associations" its "revenue and profitability" would "decline significantly."79 Consequently, Electronic Arts' conduct had the intended result of driving Take Two from the market and foreclosing the entry of any new

75 Matt Richtel, Electronic Arts Gets an Exclusive N.F.L. Deal, THE NEW YORK TIMES (Dec. 14, 2004), https://www.nytimes.com/2004/12/14/technology/electronic-arts-gets-an-exclusive-nfl-deal.html. 76 Chris Morris, EA Secures Rights, CNN/MONEY, (Apr. 11, 2005, 9:42 AM), https://money.cnn.com/2005/04/11/technology/personaltech/ea_ncaa/index.htm. 77 Brian Smith, The Huddle: EA Sports Sacks AFL License, THE GAMESPOT (Nov. 21, 2008, 12:59 PM), https://www.gamespot.com/articles/the-huddle-ea-sports-sacks--license/1100-6234235/. 78 See footnotes 75 (NFL), 76 (NCAA), 77 (AFL), respectively. 79 Electronic Arts Inc. Fiscal Year 2005 Proxy Statement and Annual Report, p.9, ELECTRONIC ARTS, INC. (2005), https://s22.q4cdn.com/894350492/files/doc_financials/annual/2005/2005_Annual_Report_and_Proxy_Statement.pdf See also Pecover, 633 F.Supp.2d at 983.Plaintiffs alleged this in their complaint at paragraph 15 stating "As Electronic Arts well knew, consumers demand that the teams and players in interactive football software be identified with actual teams and players. This is only achievable through a license with a and associated players associations. There is essentially no demand and therefore no market for interactive football software that is not based on real life teams and/or players. Electronic Arts recognizes this fact in its annual report to investors where it notes that if it were "unable to maintain" licenses with "major sports leagues and players associations" its "revenue and profitability will decline significantly.""

12 competitors. With its competition eliminated, Electronic Arts raised its prices nearly seventy percent.80

In Take Two's stunning release of NFL 2K5, Electronic Arts was truly exposed for the first time. This game, in partnership with ESPN, had so many features that it garnered rave reviews and has since maintained a cult following.81

NFL 2K5’s entry into the officially licensed NFL interactive football software market at such a low and competitive price in 2004 clearly scared Electronic Arts. In retrospective analyses, ESPN NFL 2K5 has continued to receive favorable comparisons to the Madden NFL series and has been acclaimed as the greatest football video game ever.82 Many reviews compared NFL 2K5 to Madden NFL 2005, which was released in the same year. In a direct comparison of the two games, GameSpot recommended NFL 2K5, noting superior offensive gameplay, special teams, online play, features, presentation, graphics, and sound. From the

"Crib" feature that allowed game players to furnish and play in their own NFL-player like mansion to in-game challenges that recreated some of the most iconic moments in NFL history, to the authentic ESPN halftime shows, the game was filled with features that Madden has failed to offer.83 Unfortunately, since the exclusive deal was signed with the NFL in 2004, all of this went away.

80 Pecover, 633 F.Supp.2d at 983. 81 Owen Good, "NFL 2K5 — sports gaming's King Arthur — launched 10 years ago today". (Jan. 25, 2015). https://www.polygon.com/2014/7/20/5921365/nfl-2k5-ps4-xbox-one-madden-nfl-2k15. 82 Owen Good, "NFL 2K5 — sports gaming's King Arthur — launched 10 years ago today". POLYGON (Jan. 25, 2015). https://www.polygon.com/2014/7/20/5921365/nfl-2k5-ps4-xbox-one-madden-nfl-2k15. (“In 2014, Owen Good of Polygon wrote that NFL 2K5 was "sports video gaming's King Arthur, eternally populist, noble and heroic, champion of an age long ago enough to make its triumphs soar and its shortcomings recede to nothingness". Good went on to state that EA's Madden developers "for 10 years have been haunted by NFL 2K5 — in forums, in comments, in social media — that nothing they do could be as good as something that by now really isn't a video game, but a mythological ideal that grows more romantic with every year"). 83 Fitzpatrick, Alex; Pullen, John Patrick; Raab, Josh; Grossman, Lev; Eadicicco, Lisa; Peckham, Matt; Vella, Matt "The 50 Best Video Games of All Time". TIME (Aug. 23, 2016), https://time.com/4458554/best-video-games-all-

13

In fact, this issue has already been brought to the court's attention. In 2008, a class action suit was filed by a consumer against Electronic Arts for its exclusive agreement to create

Madden NFL.84 The case was certified by the Northern District of but ultimately settled for $27 million.85 The settlement allowed EA to maintain its exclusive license.86

As a result of its anticompetitive conduct Electronic Arts now has a monopoly on the market for interactive football software. Its ability to raise the price of its interactive football software substantially above competitive levels for a significant period of time without consumers substituting another product clearly demonstrates its monopoly power.87

III. Videogames - The Rule of Reason Analysis

A. Market Definition

More antitrust cases have turned on market definition than any other substantive issue.

Market definition is important because it determines the scope of the entire antitrust analysis. This

time/. (“A 2016 retrospective by Matthew Kato praised the variety of features in the game, which was noted as "a from the stark decline that followed in EA's NFL titles." Kato concluded by stating, "The title is more than just a novelty or a case of its reputation exceeding its value, a feat for the genre in my eyes." Also in 2016, Time ranked ESPN NFL 2K5 as the 41st greatest video game of all-time, stating, "Sorry, Madden NFL fans, true football gaming fanatics know this is the best gridiron game ever made."). 84 Pecover, 633 F. Supp. 2d at 983. 85 A copy of the settlement agreement is viewable at http://assets.sbnation.com/assets/1251538/EASettlementMotion.pdf. 86 Id. at 6:7-17 There is no mention of EA giving up its exclusive license with the NFL. (“As consideration for the settlement, Electronic Arts has agreed to refrain from renewing or otherwise entering into an exclusive trademark license with the AFL for five years from the final date of approval of the proposed settlement.22 Moreover, Electronic Arts agrees not to renew its current collegiate football trademark license with the CLC on an exclusive basis after that license expires in 2014, or seek any new exclusive trademark license regarding football video games with the NCAA, the CLC, or any NCAA member institution covered by the current exclusive license for a period of five years thereafter. As further consideration, Electronic Arts has agreed to pay $27 million into a Settlement Fund. This amount represents the total amount that Electronic Arts will pay, and includes all payments to class members, any attorney’s fees and costs, costs of class administration, and potential participation awards to the Named Plaintiffs”). 87 See Alden Abbott, Exclusive Dealing and Competition: A US FTC View, FEDERAL TRADE COMMISSION (Nov. 2, 2018), https://www.ftc.gov/system/files/documents/public_statements/1421189/abbott_- _icn_workshop_11-2-18.pdf.

14 definition serves as a lens for the rest of the factors that go into determining antitrust law compliance. "Courts should dismiss antitrust claims based on a market argument only when it is certain that the alleged relevant market clearly does not encompass all interchangeable substitute products"; because market definition is a deeply fact-intensive inquiry, courts hesitate to grant motions to dismiss for failure to plead a relevant product market"88 Market definition is often the point on which antitrust cases turn and is a very important analysis.

A party asserting an antitrust violation must prove which products that are in the market and the geography that contains the market.89 The courts have given deference to the enforcing agencies how to actually define these markets. The Federal Trade Commission and Department of Justice maintain Horizontal Merger Guidelines to notify the public how they intend to measure the competitive effects of mergers, including methods for defining markets. 90 Mergers, like exclusive dealings, reduce the number of competitors in a relevant market.91 It is not clear whether the FTC has defined a market for sports videogames, but this market has been realized by the judiciary as well as market analysts.92

88 Todd v. Exxon Corp., 275 F.3d 191, 199-200 (2d Cir. 2001)). (“See, e.g., Viamedia, 218 F. Supp. 3d at 696-97; accord Pecover v. Elecs. Arts Inc., 633 F. Supp. 2d 976, 983 (N.D. Cal. 2009) ("The rule of reason analysis requires a factual analysis of the line of commerce, the market area and the affected share of the relevant market. Such a factual inquiry is improper at this stage in the proceedings."). 89 Brown Shoe Co. v. United States, 370 U.S. 294 (1962). 90 https://www.ftc.gov/sites/default/files/attachments/merger-review/100819hmg.pdf. 91 Id. 92 Pecover, 633 F. Supp. 2d at 978. (“Defining the market as “interactive football software”). Sports videogames are further realized as their own market by industry analysts and are some of the oldest games in history. Ernie Tretkoff, October 1958: Physicist Invents First Video Game, APS NEWS (Oct. 2008), https://www.aps.org/publications/apsnews/200810/physicshistory.cfm. (“In October 1958, Physicist William Higinbotham created what is thought to be the first video game. It was a very simple game, similar to the classic 1970s video game , and it was quite a hit at a Brookhaven National Laboratory open house.”)

15

1. Product Market Definition

A product market is defined by looking for substitutes for the product to be analyzed.

This is only to include products that would be close substitutes. In this case, the product market can be defined as officially licensed NFL interactive football software.93

"Determination of the relevant product and geographic markets is 'a necessary predicate' to deciding whether a merger contravenes the Clayton Act."94 The Clayton Act was passed in 1914 to clarify and strengthen the Sherman Antitrust Act of 1890.95 "Without a well-defined relevant market," an examination of the merger's competitive effects would be "without context or meaning."96 The relevant market is defined in terms of two components: the product market and the geographic market.97

a) Defining the Product Market

The Supreme Court in Brown Shoe98 set forth the general rule for defining a product market: "The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it."99 Stated another way, a product market includes all goods that are reasonable

93 Id. 94 United States v. E.I. du Pont de Nemours & Co., 353 U.S. 586, 593, 77 S. Ct. 872, 1 L. Ed. 2d 1057 (1957)). 95 ENCYCLOPEDIA BRITTANICA, https://www.britannica.com/event/Clayton-Antitrust-Act, (“The vague language of the latter had provided large corporations with numerous loopholes, enabling them to engage in certain restrictive business arrangements that, though not illegal per se, resulted in concentrations that had an adverse effect on competition. Thus, despite the trust-busting activities of the administrations of Presidents Theodore Roosevelt and William Howard Taft under the Sherman Act, it appeared to a congressional committee in 1913 that big business had continued to grow bigger and that the control of money and credit in the country was such that a few men had the power to plunge the nation into a financial panic. When Pres. Woodrow Wilson asked for a drastic revision of existing antitrust legislation, Congress responded by passing the Clayton measure.”). 96 FTC v. Freeman Hosp., 69 F.3d 260, 268 (8th Cir. 1995). 97 Id.; see Brown Shoe Co. v. United States, 370 U.S. 294, 82 S. Ct. 1502 (1962) 98 Brown Shoe, 370 U.S. at 325. 99 Id.

16 substitutes, even though the products themselves are not entirely the same.100

Whether goods are "reasonable substitutes" depends on two factors: functional interchangeability and cross-elasticity of demand. "Functional interchangeability" refers to whether buyers view similar products as substitutes.101 "If consumers can substitute the use of one for the other, then the products in question will be deemed 'functionally interchangeable.'"102

"Courts will generally include functionally interchangeable products in the same product market unless factors other than use indicate that they are not actually part of the same market."103 Here, there is no functional interchangeability. Even if another videogame developer were to create a football themed game, it would by no means be the same as a game that is officially licensed by the NFL. As publicly admitted by EA, without the likenesses of the actual players, few consumers are interested in playing football based videogames.104 This is further evidenced by the abysmal sales of non-licensed football games.105 Thus, no products are functionally interchangeable with

Madden NFL. If there were other licensed NFL football videogames, then they would certainly be functionally interchangeable and competing products within the same market.

As for cross-elasticity of demand, the question turns in part on price.106 Price elasticity is

100 Cardinal Health, 12 F. Supp. 2d at 46; Staples, Inc., 970 F. Supp. at 1074 (stating the question as "whether two products can be used for the same purpose, and if so, whether and to what extent purchasers are willing to substitute one for the other"). 101 See Id. 102 FTC v. Arch Coal, Inc., 329 F. Supp. 2d 109 (D.D.C. 2004). 103 Id. 104 Electronic Arts Inc. Fiscal Year 2005 Proxy Statement and Annual Report, p.9, ELECTRONIC ARTS, INC. (2005). 105 Mike Hughlett, Midway calls `Blitz' in attempt to upset video football rival, (Oct. 2, 2005), https://www.chicagotribune.com/news/ct-xpm-2005-10-02-0510020013-story.html. It is well known that fans are not enthused about playing games with ‘no-name’ players (“Typically, football are also big football fans. And analysts say they relish the idea of controlling their favorite team and favorite players on screen, as is the case in the Madden game. But in Blitz, the players are made up. "I really don't think guys who like football simulation games [like Madden] are going to want to play a game that has a bunch of characters who are no-name players," said Michael Pachter, a stock analyst at Wedbush Morgan Securities in . "I don't think they want to see some no-name receiver outrun some no-name secondary."). 106 E.I. Du Pont De Nemours, 351 U.S. at 400 ("An element for consideration as to cross-elasticity of demand between products is the responsiveness of the sales of one product to price changes of the other.").

17 an important component of the cross-elasticity of demand analysis.107 If an increase in the price for product A causes a substantial number of customers to switch to product B, the products compete in the same market.108 Price is not, however, the only variable in determining the cross- elasticity of demand between products. Cross-elasticity of demand also depends on the "ease and speed with which customers can substitute the product and the desirability of doing so."109

Substitution based on a reduction in price will not correlate to a high cross-elasticity of demand unless the switch can be accomplished without the consumer incurring undue expense or inconvenience.110 These are called “switching costs” and are important in determining the likely behavior of consumers.111 Because there is no NFL licensed videogame for consumers to switch to, a price analysis is improper here. But on that note, when NFL 2K5 released at $19.95 compared to Madden NFL '05 releasing at $29.95 there was certainly a cross-elasticity of demand as consumers were able to easily buy the less expensive game at the same retailer.

Market definition is also guided by the "narrowest market" principle.112 That is, "a relevant market cannot meaningfully encompass an infinite range of products. The circle must be drawn narrowly to exclude any other product to which, within reasonable variations in price, only a limited number of buyers will turn."113 Judge Bates in Arch Coal succinctly described the

"narrowest market" principle in practice as follows:

The analysis begins by examining the most narrowly-defined product or group of products sold by the merging firms to ascertain if the evidence and data support the conclusion that this product or group of products constitutes a relevant market. If not, the analysis shifts to the next

107 Id. 108 See Id. See also Arch Coal, 329 F. Supp. 2d at 120. "("If a slight decrease in the price of cellophane causes a considerable number of customers of other flexible wrappings to switch to cellophane, it would be an indication . . . that the products compete in the same market."). 109 FTC v. Whole Foods Market, Inc., 548 F.3d 1028, 1037 (D.C. Cir. 2008). 110 See United States v. Phila. Nat'l Bank, 374 U.S. 321, 83 S. Ct. 1715 (1963) (observing that "the factor of inconvenience localizes banking competition as effectively as high transportation costs in other industries"). 111 Id. 112 Arch Coal, 329 F. Supp. 2d at 120. 113 Times-Picayune Pub. Co. v. United States, 345 U.S. 594, 73 S. Ct. 872 (1953).

18

broadest product grouping to test whether that is a relevant market. This process continues until a relevant market is identified.114

The critical question regarding the narrowest market principle, therefore, is whether officially licensed NFL interactive football software is narrow enough. It likely is as football videogames are in their own category separate from action games, shooting games, and even other types of sports games. Officially licensed NFL interactive football software is narrow enough as a market and is not an overbroad definition. This definition does depend on whether other football videogames, perhaps involving fictional players, are adequate market substitutes.

This, however, seems to be clear as football videogames with fictional characters can never substitute the real thing. Nearly every game that has tried to compete with Madden has flopped115 and EA admits116 in its annual reports that having real player likeness’ is critical to the of the game. A large part of the appeal of football videogames is consumers being able to further interact with the players they watch play real football every Sunday. With “no-names” this interaction is absent. Nobody “want[s] to see some no-name receiver outrun some no-name secondary."117

114 Arch Coal, 329 F. Supp. 2d at 120; see also United States v. H&R Block, Inc., 833 F. Supp. 2d 36, 58-60 (D.D.C. 2011) (explaining "the principle that the relevant product market should ordinarily be defined as the smallest product market that will satisfy the hypothetical monopolist test"). 115 Mike Hughlett, Midway calls `Blitz' in attempt to upset video football rival, CHICAGO TRIBUNE (Oct. 2, 2005), https://www.chicagotribune.com/news/ct-xpm-2005-10-02-0510020013-story.html. (“That new version, "NFL Blitz: Pro," flopped. So Midway went back to the drawing board in mid-2003 . . . [and] 2nd Blitz bombed”). This is opposed to NFL Blitz franchise’s glory days when it was able to make NFL licensed videogames and (“In 1998, Midway said, Blitz outsold the Madden game on 64 consoles”). 116 Electronic Arts Inc. Fiscal Year 2005 Proxy Statement and Annual Report, p.9, ELECTRONIC ARTS, INC. (2005). 117 Mike Hughlett, Midway calls `Blitz' in attempt to upset video football rival, CHICAGO TRIBUNE (Oct. 2, 2005), https://www.chicagotribune.com/news/ct-xpm-2005-10-02-0510020013-story.html.

19

2. Geographic Market Definition

Turning to the geographic market definition, the relevant geographic market "is that area in which a potential buyer may rationally look for the goods or services he seeks."118 Determined within the specific context of each case, a market's geographic scope must "correspond to the commercial realities of the industry" being considered and "be economically significant."119

A common method employed by courts and the FTC to determine the relevant geographic market is the hypothetical monopolist test. Under the Horizontal Merger Guidelines issued by the U.S. Department of Justice's Antitrust Division and the FTC, if a hypothetical monopolist could impose a small but significant non-transitory increase in price ("SSNIP")120 in the proposed market, the market is properly defined. 121 If, however, consumers would respond to a SSNIP by purchasing the product from outside the proposed market, thereby making the

SSNIP unprofitable, the proposed market definition is too narrow.122 In other words, if consumers react to this hypothetical price increase by buying other products, then those products are included in the relevant market and the test is repeated.

The hypothetical monopolist test can be applied to the NFL videogame products, or the market definition above of officially licensed NFL interactive football software. The smallest possible group of products could be said to be NFL videogames per individual console. If the price is increased on those games, then it would be likely for consumers to purchase the games on a different gaming console. The next biggest group would be NFL videogames as a whole. If

118 Gordon, 423 F.3d at 212. 119 Brown Shoe, 370 U.S. at 336-37. 120 The SSNIP is typically about 5%. U.S. Dep't of Justice & Fed. Trade Comm'n, Horizontal Merger Guidelines, § 4.1.2, at 10 (2010) ("Merger Guidelines"). 121 Merger Guidelines, § 4, at 7-8. Although the Merger Guidelines are not binding on the courts, they are often used as persuasive authority." St. Alphonsus, 778 F.3d at 784 n.9 (citations and internal quotation marks omitted). 122 Id.

20 prices were to increase on this product, then customers would have nowhere to go. Thus the geographic market can reliably be defined as all NFL videogames.

"Defining a geographic market means determining whether geography limits consumers’ willingness or ability to substitute products or a supplier’s willingness or ability to serve consumers."123

In this case, videogames are sold nationwide at big and small retail outlets. Also, games can be downloaded onto consoles remotely from anywhere in the world. Here, geography does not limit consumers' ability to substitute products. Thus, the market is further defined as officially licensed NFL videogames worldwide.124

B. Amount of Foreclosure in the Relevant Markets

"Once the relevant geographic market is determined, a prima facie case is established if the plaintiff proves that the [exclusive licensing agreement] will probably lead to anticompetitive effects in that market."125 Market concentration is a useful indicator of the likely competitive, or anticompetitive, effects of an exclusive licensing agreement.126

Market concentration is measured by the Herfindahl-Hirschman Index ("HHI"). The HHI is calculated by summing the squares of the individual firms' market shares. In determining whether the HHI demonstrates a high market concentration, we consider both the post-licensing

HHI number and the increase in the HHI resulting from the licensing.127 A post-licensing market

123 Id. 124 Ohio v. Am. Express Co., 138 S. Ct. 2274 (2018). 125 St. Alphonsus, 778 F.3d at 785. 126 Merger Guidelines, § 5.3, at 18. 127 Id. at 18-19.

21 with a HHI above 2,500 is classified as "highly concentrated," and a that increases the HHI by more than 200 points is "presumed to be likely to enhance market power."128

The HHI in this instance is at the maximum level of 10,000 for the defined market as EA controls the whole market. Thus, the market is fully concentrated into one entity; a monopoly.129

A prima facie case of substantial foreclosure is made by demonstrating first that a significant percentage of the relevant market is foreclosed by the provision challenged. "The share of the market foreclosed is important because, for the contract to have an adverse effect upon competition, 'the opportunities for other traders to enter into or remain in that market must be significantly limited.'"130

Courts have not established a firm percentage of market foreclosure that constitutes substantial foreclosure.131 In this case, the market is been completely foreclosed and consolidated into one entity, Electronic Arts. There is 100% market foreclosure.

128 Id. 129 https://www.justice.gov/atr/herfindahl-hirschman-index " The HHI is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. For example, for a market consisting of four firms with shares of 30, 30, 20, and 20 percent, the HHI is 2,600 (302 + 302 + 202 + 202 = 2,600). The HHI takes into account the relative size distribution of the firms in a market. It approaches zero when a market is occupied by a large number of firms of relatively equal size and reaches its maximum of 10,000 points when a market is controlled by a single firm. The HHI increases both as the number of firms in the market decreases and as the disparity in size between those firms increases." 130 Tampa Elec., 365 U.S. at 328. 131 Professor Hovenkamp suggests 20% as an appropriate minimum foreclosure percentage and 50% as a level at which courts routinely condemn foreclosure. See XI Herbert Hovenkamp, Antitrust Law P 1821c (1998). Courts have condemned provisions involving foreclosure as low as 24% while provisions involving foreclosure as high as 50% have been upheld. Compare Twin City Sportservice, Inc. v. Charles O. Finley & Co., Inc., 676 F.2d 1291, 1301, 1304 (9th Cir. 1982) (24% foreclosure unlawful where contracts were long-term) with Barry Wright, 724 F.2d at 237-38 (50% foreclosure lawful where requirements contract had limited anticompetitive effect) and Sewell Plastics, Inc. v. Coca-Cola Co., 720 F. Supp. 1196, 1213, 1218-20 (W.D.N.C. 1989) (40% foreclosure lawful where no anticompetitive harm shown), aff'd in part, 912 F.2d 463 (4th Cir. 1990).

22

Market foreclosure is the result of commercial practices by one market participant or a group of market participants that limit the access of buyers and sellers to each other. This can result in a number of potential harms to the market as well as introduce some efficiencies. 132

Potential harms include price increases due to output reduction. EA Sports' contract with the NFL has allowed them to charge a high price of $59.99 for many years.

Another harm is the exit of existing competitors due to an exclusive dealing arrangement.

This has happened here as 2K Sports, NFL Quarterback Club, and NFL Gameday franchises that once made NFL videogames no longer make NFL videogames at all anymore. Thus, EA has no competition in this sphere.

Another harm is entry deterrence in the sense that competitors are deterred from entering the market because of this agreement. Because of its exclusive dealing with the NFL, EA Sports has successfully deterred any competitors from entering the field and offering consumers a potential alternative.

Some efficiencies that result from exclusive dealing include minimizing risk to both parties. Long-term flexible contracts can minimize costs and risks to both parties of dealing with future uncertainties. The NFL's contract with EA Sports ensures that it will have an NFL videogame produced each year that can represent its brand. Also, on the other side, EA Sports is insured that its large investment to create a videogame will be worthwhile and continuous, motivating both parties to potentially keep innovating.133 The astronomically high costs to

132 Alden Abbott, Exclusive Dealing and Competition: A US FTC View, FEDERAL TRADE COMMISSION (Nov. 2, 2018), https://www.ftc.gov/system/files/documents/public_statements/1421189/abbott_-_icn_workshop_11-2- 18.pdf.

133 , Why Video Games Cost so Much to Make, (Sep. 18, 2017), https://kotaku.com/why- video-games-cost-so-much-to-make-1818508211. (“Video game publishers are notoriously secretive about the

23 undertake developing a videogame are typically prohibitive for smaller developers.134 Having a contracted relationship with a powerful entity like the NFL, however, gives the developer the ability to create content knowing there will be a constant demand.135 Without such an exclusive dealing, a developer may not want to take the risk of a game flopping and consumers could potentially be left without a football videogame altogether.136

C. Duration of the Contracts

Courts have held that contracts of one year or less are presumptively legal.137 However, other cases have noted that short duration and early terminability do not prohibit liability in all cases.138

The NFL's deal with EA Sports to produce the Madden videogame is indefinite and has been ongoing since December, 2004.139 This cuts heavily against EA Sports and the NFL as the extremely lengthy contracts deter any competition and maintain that the exclusive dealings are to be indefinite barriers to entry.

D. Extent to which the entry is deterred

There has been a total exit of existing competitors due to the exclusive dealing arrangement by Electronic Arts and the NFL.

budgets behind their games, but when a number does slip out, it can be shocking. Games like and cost hundreds of millions of dollars to make, which is tough to fathom—until you do the math.”). 134 Id. 135 Id. 136 Eric Abent, The best games aren’t being made by big studios anymore, SLASHGEAR (Jul. 4, 2019, 12:00 PM), https://www.slashgear.com/the-best-games-arent-being-made-by-big-studios-anymore-04582724/. 137 Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039 (8th Cir. 2000). This, of course, does not include contracts that explicitly fix prices. 138 United States v. Dentsply Int'l, Inc., 399 F.3d 181 (3d Cir. 2005). 139 Nick Wingfield, Electronic Arts Acquires Rights To Produce NFL Videogames, (Dec. 14, 2004, 12:01 AM), https://www.wsj.com/articles/SB110298397548199124.

24

There is a total bar to entry on making officially licensed NFL videogames. The NFL has an exclusive contract with EA Sports and unilateral refusal to deal with any videogame developers, except EA. It is thus impossible for competitors to enter the market. No competitors can have successful NFL videogames because the game's success depend on their realism and use of the players' likenesses. This can only be done through a license which the NFL has exclusively granted to EA Sports.

E. Reasonable Justifications for the Exclusivity and Consumer Harms

Potential defenses for Electronic Arts' contract with the NFL include relying on intellectual property laws, the length of duration of their contracts, and the oft-used efficiencies defense. These defenses are detailed in Section IV below.

Since EA's exclusive stronghold on interactive football software began, consumers have suffered. From lack of variations in games such as the arcade style NFL Blitz series described above to horrendous game play riddled with glitches and lack of innovation, consumers are fed up with the Madden franchise.140 Regardless, EA is able to get away with it year after year because they are alone in the field of competition. This is exactly what the antitrust laws are designed to stop.

140 Chris Jarrard, 'Madden NFL 20' review: No love for the game’, CHICAGO TRIBUNE (Aug. 7, 2019), https://www.chicagotribune.com/entertainment/sns-201908071233--tms--invideogctnzs-a20190807-20190807- story.html (“A bit more than 15 years ago, American football games were a dominant force in the video games industry. The annual arrival of "Madden" and its competitors was marked on the calendar as an event rivaling the importance of the holiday sales season. In recent years, the player base and release day excitement surrounding the series has diminished with first-week retail sales of "Madden NFL 19" cut in half from where they were with "Madden NFL 13." This has been a trend despite the NFL being more popular than ever. How can this be? It's simple. The "Madden" series is now stale and lifeless, only existing to sell card packs and roster updates. EA doesn't seem to care about what was once its golden goose and neither should prospective buyers. "Madden NFL 20" cements the series as the worst major series available, by no small margin.”)

25

To illustrate how much consumers are being harmed, entire online communities have been formed for players of the game to express their disdain. There are numerous online forums where consumers voice all of their disgust.141 Further, running an online search for "Madden

Glitches" yields 119,000 hits on Google Video.142 These glitches ruin gameplay and cause the game to fail at its most basic task, simulating basic NFL football rules and gameplay.143 There are many YouTube reviews that tear each release of the game to shreds.144 In fact, because of

EA's refusal to innovate or improve each new release of Madden, the game is mused to be nothing but a mere roster update of the included players.145 It's the same problematic game year after year. But because of their stranglehold on the market, EA does not have to improve as consumers have no other choice for playing an NFL videogame.

On top of all this, the exclusivity has resulted in very poor game play146 and higher cost of NFL videogames. As mentioned above, Madden NFL '20 currently retails for $59.99.147 This is a 300% increase over what its competitor NFL 2K5 sold for in 2004.

141 See https://forums.operationsports.com/forums/madden-nfl-football-pc/955494-madden-20-quick-review.html. See also https://www.reddit.com/r/Madden/comments/ag18i2/madden_19_literally_sucks/ 142 https://www.google.com/search?q=madden+glitches&newwindow=1&client=firefox-b-1- d&source=lnms&tbm=vid&sa=X&ved=2ahUKEwiD- 6juuJvmAhVPMqwKHSXHCaIQ_AUoAXoECA0QAw&biw=1366&bih=635 143 See The 20 Funniest Madden Glitches of All-Time... LMAO! https://www.youtube.com/watch?v=jw4W3EFA0hU. See also Madden Glitches Montage https://www.youtube.com/watch?v=Iq6vHuhQUz0&t=136s. These glitches cause outlandish things to happen such as reward a player a touchdown instantly upon receiving a kickoff and preventing players from being tackled no matter what. 144 See Madden NFL 20 is NOT GOOD - Review https://www.youtube.com/watch?v=OaTfsGUkqPc&t=109s. See also HERE'S WHY PEOPLE HATE MADDEN https://www.youtube.com/watch?v=9OP3YKkxuVY 145 Chris Jarrard, 'Madden NFL 20' review: No love for the game’, CHICAGO TRIBUNE (Aug. 7, 2019), https://www.chicagotribune.com/entertainment/sns-201908071233--tms--invideogctnzs-a20190807-20190807- story.html 146 Id. 147 https://www.bestbuy.com/site/promo/madden-nfl-20 (Archived at http://web.archive.org/web/20190904043406/https://www.bestbuy.com/ from Sep. 4, 2019 showing a retail price of $59.99 for Madden NFL 20.)

26

This lousy product can no longer be justified by Electronic Arts' flimsy defenses, discussed below. There are no reasonable justifications for the exclusivity of Electronic Arts creating the only licensed NFL interactive football software in the world.

IV. EA Sports' Defenses A. Electronic Arts Cannot Rely on Intellectual Property Laws

Electronic Arts raised a number of defenses of its contract with the NFL to produce Madden in its defense of the class action antitrust suit brought against it, but they did not succeed.148

Electronic Arts argued that because its anticompetitive agreements happened to be licenses for intellectual property it was somehow immune from antitrust law. But even assuming that

Electronic Arts can raise intellectual property defenses, its argument fails. As Electronic Arts implicitly recognizes, the seminal case on the intersection of intellectual property law and antitrust law is Kobe.149

Electronic Arts, when faced with a competitor offering a superior product at a lower price chose not to compete on the merits but instead, to foreclose the market to that competitor and future entrants through a series of exclusive agreements. In Pecover, Electronic Arts tried to distinguish Kobe on the grounds that its licenses were between "(i) non-competitors; (ii) for a short-duration (i.e. not a purchase of the underlying IP right) and (iii) limited to branding rights

148 Pecover, 633 F. Supp. 2d at 983. (EA filed a motion to dismiss the case against it alleging state and federal antitrust violations. These defenses were determined to either not be persuasive or questions of fact for a jury to determine. The case, however, settled for $27 million and never went to trial.) 149 Kobe, Inc. v. Dempsey Pump Co., 198 F.2d 416 (10th Cir. 1952) In Kobe, the defendant utilized a patent pool (over which it ultimately gained complete control) to acquire "every important patent" for the manufacture of hydraulic pumps for oil wells. Id. at 423. As a result of these patent acquisitions, it successfully "cornered the hydraulic pump business for oil wells." Id. Although the Court noted that "ordinarily patent pools when created for legitimate purposes are not illegal in themselves," it held that such agreements "which effect a restraint of trade or create monopolies, if designed for that purpose, are violations of the law." Id. at 422. Because the patents had been accumulated in order to prevent any other pump manufacturer from entering the market, the Court held that section 2 had been violated. Id. at 423.

27

(i.e. trademarks and publicity licenses) which unlike patents or copyrights do not foreclose entry of the manufacture of identical products."150

None of these distinctions are persuasive. First, the defendant in Kobe "acquired a total of more than 70 patents from inventors" that were relevant to the manufacture of hydraulic pumps.151

Nothing in the opinion turned on whether all these patents were acquired from competing pump manufacturers, and commonsense dictates that many, if not most, of the selling inventors were not competing pump manufacturers.152 This matters to the analysis here because the patents acquired in Kobe were of non-competing products and thus did not cover the market.153 EA, on the other hand, reached an exclusive agreement with the NFL precisely to foreclose the market to its sole product.

Second, whether the relevant agreements are "short term" and therefore precompetitive or at least competitively neutral is clearly a fact question for a jury. The question of fact here is easily answered because EA’s agreement has been indefinite and terms have not been released. There is no evidence of EA desiring its agreement to be short term as it has continued from 2004 through the present and continues to renew its terms, however long they may be.154

Third and finally, the relevant agreements are not public and Electronic Arts has never conceded that the agreements are limited to trademarks and publicity rights. This is important

150 Pecover, 633 F. Supp. 2d at 983. 151 Kobe, 198 F.2d at 420. See also Footnote 147 for procedural posture. 152 Although an agreement between two competitors may be an obvious restraint on trade, nothing in the antitrust laws requires that an anticompetitive agreement be between competitors. For example, monopolizing a market by foreclosing methods of distribution would not involve agreements between competitors but may nevertheless violate antitrust laws. See, e.g., United States v. Dentsply Int'l, Inc., 399 F.3d 181, 194 (3d Cir. 2005) (holding defendant liable for exclusive agreements with dealers that foreclosed distribution channels); United States v. , 253 F.3d 34, 70-73 (D.C. Cir. 2001) (holding that Microsoft's licenses with Internet access providers were anticompetitive). 153 Id. 154 Matt Richtel, Electronic Arts Gets an Exclusive N.F.L. Deal, THE NEW YORK TIMES (Dec. 14, 2004), https://www.nytimes.com/2004/12/14/technology/electronic-arts-gets-an-exclusive-nfl-deal.html.

28 because there is no way for a court or the Commission to determine the legality of these agreements without bringing action against EA and benefitting from discovery rules of litigation. But even if

Electronic Arts is correct, the agreements at issue clearly foreclose the entry of an "identical product"; otherwise, competitors would still be producing NFL videogames. Moreover, as established above, there is no meaningful demand for interactive football software that is not based on real life players and teams and that as a result, the relevant agreements completely foreclosed the market for interactive football software.155

B. Duration of the Contracts

Electronic Arts claimed that antitrust claims against it must be dismissed because when exclusive licenses are for a "short-duration and subject to regular rebidding" they are "immune" from antitrust challenge.156 Electronic Arts' argument was meritless. It is clearly a question for the jury whether in the fast paced world of software design the exclusive licenses at issue were "short term" and therefore harmless from a competitive perspective.157 Substantial consumer harm has already occurred. Because demonstrable consumer harm has already occurred, Electronic Arts cannot credibly argue that the length of the contracts makes them harmless from a competitive perspective.

155 In general, the preclusive effect of various types of intellectual property will vary according to market conditions. For example, gaming consoles such as Sony's Playstation and Microsoft's Xbox are the subject of numerous patents but these patents have not prevented vigorous competition. Thus, the blanket distinction as a matter of law that Electronic Arts seeks to draw between the preclusive effect of "trademarks and publicity licenses" and other forms of intellectual property has no basis in reality. 156 Pecover, 633 F. Supp. 2d at 983. 157 U.S. Department of Justice antitrust guidelines for determining a relevant market, for example, require that an potential entrant be able to enter the market within one year in order to be included in the competitive analysis. DOJ Horizontal Merger Guidelines § 1.32. The contracts at issue were signed within months and all for terms well exceeding one year. Any new entry into the market is foreclosed as long as the contracts exist.

29

Although the contracts are not public, at the time of signing in 2004, it was reported that the NFL contract and NFL Players Union contracts were fifteen-year contracts.158

Unlike in Paddock,159 where competition existed at each level of production, Electronic Arts has monopolized the market for interactive football software through its anticompetitive agreements.160 New entry has been foreclosed. Lacking any real competition, it can raise prices significantly above competitive levels and has in fact done so.

C. Efficiencies Defense

The Supreme Court has never formally adopted the efficiencies defense. Contrary to endorsing such a defense, the Supreme Court has instead, on three occasions, cast doubt on its availability.

First, in Brown Shoe, 161 the Supreme Court, though acknowledging that exclusive dealings may sometimes produce benefits that flow to consumers, reasoned that "Congress appreciated that occasional higher costs and prices might result from the maintenance of fragmented industries and markets. It resolved these competing considerations in favor of decentralization."

Next, in Philadelphia National Bank, 162 the Supreme Court made clear that an exclusive

158 https://www.nytimes.com/2005/01/18/technology/electronic-arts-and--sign-15year-deal-to-sell-games.html 159 Judge Easterbrook's opinion in Paddock Publ'ns, Inc. v. Chicago Tribune Co., 103 F.3d 42 (7th Cir. 1996) is also easily distinguishable. That case involved "supplemental news services" set up by major papers such as the New York Times and Wall Street Journal that allow subscribers to reprint the originating papers stories in the subscriber's home market. Id. at 43. These supplemental news services offered exclusive contracts to subscribers in each metropolitan area. For example, the Chicago Tribune had an exclusive with the New York Times News Service while the Chicago Sun-Times had an exclusive with News Services. Id. Plaintiff was a small paper that alleged the Tribune and Sun-Times, acting independently, had "locked up the 'most popular' or 'best' supplemental services." Id. As the Seventh Circuit correctly pointed out, its claim was meritless on its face because even taking its allegations as true competition existed at "each level of production." Id. at 44. The supplemental news services all competed vigorously for newspaper customers and the Sun-Times and Tribune competed with each other for readers. Moreover, nothing in the exclusive contracts restricted entry of any new supplemental news service. Id. at 45. See also United States v. Microsoft Corp., 84 F. Supp. 2d 9, 75 (D.D.C. 1999). where the two-year long agreement was deemed a violation of Section 2 of the Sherman Act.

161 Brown Shoe, 370 U.S. at 344. 162 United States v. Phila. Nat'l Bank, 374 U.S. 321, 83 S. Ct. 1715 (1963).

30 license "the effect of which "may be substantially to lessen competition" is not saved because, on some ultimate reckoning of social or economic debits and credits, it may be deemed beneficial."

Finally, in FTC v. Procter & Gamble Co., 163 the Supreme Court cautioned that "[p]ossible economies cannot be used as a defense to illegality."

Based on this language and on the Clayton Act's silence on the issue, it is unclear that an efficiencies defense even exists.

Nevertheless, other courts of appeals have held that the efficiencies defense is cognizable.164 And still others have analyzed the efficiencies to determine whether they might overcome the presumption of illegality. The FTC's Merger Guidelines also recognize the defense.165

Those courts of appeals to recognize the defense have articulated several requirements, which are also found in the Antitrust Guidelines for the Licensing of Intellectual Property.166 In order to be cognizable, the efficiencies must, first, offset the anticompetitive concerns in highly concentrated markets.167

163 FTC v. Procter & Gamble Co., 386 U.S. 568, 572, 87 S. Ct. 1224 (1967).

164 University Health, 938 F.2d at 1222 ("We think ... that an efficiency defense to the government's prima facie case in section 7 challenges is appropriate in certain circumstances."). See also St. Alphonsus, 778 F.3d at 788-92 (expressing skepticism that the defense exists but nevertheless addressing it); H.J. Heinz, 246 F.3d at 720 (acknowledging that the Supreme Court has never "sanctioned the use of the efficiencies defense," but noting that "the trend among lower courts is to recognize the defense"). 165 See Merger Guidelines, § 10, at 30 ("The Agencies will not challenge a merger if cognizable efficiencies are of a character and magnitude such that the merger is not likely to be anticompetitive in any relevant market."). 166 See Antitrust Guidelines for the Licensing of Intellectual Property, at 17 (“To determine whether a particular restraint in a licensing arrangement is given per se or rule of reason treatment, the Agencies will assess whether the restraint in question can be expected to contribute to an efficiency-enhancing integration of economic activity. In general, licensing arrangements promote such integration because they facilitate the combination of the licensor’s intellectual property with complementary factors of production owned by the licensee. A restraint in a licensing arrangement may further such integration by, for example, aligning the incentives of the licensor and the licensees to promote the development and marketing of the licensed technology, or by substantially reducing transactions costs. If there is no efficiency-enhancing integration of economic activity and if the type of restraint is one that has been accorded per se treatment, the Agencies will challenge the restraint under the per se rule. Otherwise, the Agencies will apply a rule of reason analysis. Application of the rule of reason requires an inquiry into the likely competitive effects of the conduct in question.”) 167 See St. Alphonsus, 778 F.3d at 790.

31

Second, the efficiencies must be "merger specific," meaning, "they must be efficiencies that cannot be achieved by either company alone."168 Otherwise, "the merger's ... benefits could be achieved without the concomitant loss of a competitor."169

Third, the efficiencies "must be verifiable, not speculative," and they "must be shown in what economists label 'real' terms."170 Finally, the efficiencies must not arise from anticompetitive reductions in output or service.171

The presumption of illegality may be overcome only where the defendants "demonstrate that the intended acquisition would result in significant economies and that these economies ultimately would benefit competition and, hence, consumers."172

D. Indirect Purchaser Rule

Since "Illinois Brick's indirect purchaser rule . . . bars only compensatory damages relief and does not apply to injunctive relief," a Sherman Act claim is not subject to dismissal.173 The desire here is not to receive damages, but to stop and enjoin EA from continuing its monopoly.

V. Conclusion - The Madden Deal between EA Sports and the NFL Violates United States Antitrust Law

All in all, Electronic Arts' contract with the NFL to produce its unrivaled Madden NFL Deleted: ' franchise videogame is an antitrust violation. In the relevant market of officially licensed NFL football software, there are no substitutes. EA Sports has swallowed the football videogame

168 H.J. Heinz, 246 F.3d at 722. 169 Id. 170 University Health, 938 F.2d at 1223 (quoting Procter & Gamble, 386 U.S. at 604 (Harlan, J., concurring)). 171 Merger Guidelines, § 10, at 30. 172 University Health, 938 F.2d at 1223. 173 Cargill, Inc. v. Monfort of Colorado, 479 U.S. 104, 111 n.6 (1986)).

32 market whole and wants to keep it that way as long as possible. The result has been disappointing game after disappoint game year after year. What was once a crowned jewel of sports videogames is now a laughing stock with fans going to great lengths to voice their frustrations.

The FTC has quite frankly been asleep at the switch in allowing this to continue. It is the duty of the FTC to bring action against EA as there is no evidence that a private party lawsuit will bring about any different result than that in Pecover.174 EA must not be allowed to pay its way to a monopoly and the FTC must act to reintroduce competition.175 This exclusive dealing arrangement should be struck down so that the American consumers can benefit from competition that may finally force EA to improve its product. The fact that EA paid a $27 million-dollar settlement to retain its exclusive rights is telling enough that it knows what it is doing is monopolistic and illegal.176

It is time for consumers to get the quality product that they deserve, and it is up to the

FTC to stop this monopoly from continuing any longer.

174 Pecover, 633 F. Supp. 2d at 983. 175 A copy of the settlement agreement is viewable at http://assets.sbnation.com/assets/1251538/EASettlementMotion.pdf 176 Id.

33