Explicating Antitrust Scrutiny of IP Rights Extensively Possessed by the eSports’ Publishers

Introduction

The objective behind Intellectual Property (hereinafter “IP”) and Competition Law is that there is a shared vision of ultimately promoting innovation and fair competition in the interest of consumers, though the two are often found to be in conflict. Indeed, IP gives the owner exclusive rights, which, in turn, can eliminate competition. Game publishers have the right to do whatever they want with their creation meanwhile exercising unabridged control over the entire downstream market of e-commerce games. This conduct may lead to abuse of dominance by publishers, for example, denying license of their IP. Logically, this is more likely to happen when publishers vertically integrate and compete directly with tournament organizers and broadcasters.

The basic normative question here is whether Electronic Sports (hereinafter “eSports”) industry must be allowed to retain their decentralized characteristics to encourage competition and experimentation, or whether game publishers may be permitted to use the full range of their IP rights to integrate the eSports market for their games? The answer to this lies in weighing the relative benefits of IP and antitrust policies in the field of eSports. The author through this article will analyse the existing tussle between IP & Antitrust laws within the eSports industry in Part 1. Part 2 deals with the vertical abuse of dominant position by the eSports’ publishers that trigger antitrust scrutiny and Part 3 serves a possible solution i.e. mandatorily licensing publisher’s IP.

Understanding the Tussle between IP and Antitrust Laws within eSports

E-Sport is a booming entertainment industry with viewers from around the world participating in video games such as PubG, Valorant, Garena Free Fire, and CodM. E-Sports typically consist of footage of professional gamers playing video games in front of viewers, with the addition of traditional sports elements such as interviews and highlights. However, the basic characteristic of eSports different from traditional sporting events is, no one owns soccer, basketball, or cricket but OGN (OnGameNet) owns StarCraft.

In eSports, the relevant units are publishers, organizers, broadcasters, teams, professional players, viewers, advertisers, etc. An entity can perform more than one of these roles. Overlapping entities complicates the analysis of competition in the eSports market, as it means that economic relationships are not perfectly horizontal or vertical. However, there lies a vertical relationship between eSports’ publishers and other units like broadcasters and tournament organizers. E-Sports publishers are in the upstream market, i.e. in the “early” stage of production like suppliers of raw materials. On the other hand, organizers and broadcasters operate at a lower level than publishers, in the downstream market – comparable to manufacturers and retailers. The downstream competitors require access to publisher’s IP to compete in the market, however, the exclusive rights which publishers possess, give them the ability to control the downstream behavior of all interested parties. They enjoy significant influence over players, teams, league structures, tournaments, and show status. Typically, publishers try to exclude other broadcasters and tournament organizers when they compete with them in the downstream market. It also helps them to oust other eSports publishers.

Hence, the fundamental antitrust problem embedded in the basic technical and social features of eSports is: the sole game maker has a monopoly on the game it plays. And, while IP rights do not necessarily address antitrust concerns, publishers can legally exclude attendees or exhibitors in a way that would further increase their commercial interests. The burden here is to seek the most accessible and logical strategy to address the anti-competitive concerns without significantly changing the framework that led to the success of eSports or hampering the future development of games or leagues and this lies in antitrust awareness and proper planning.

Vertical Abuse of Dominant Power: Triggering AntiTrust Scrutiny in the Relevant Market.

For establishing abuse of dominant position in the market as mentioned under Section 4 of the Competition Act,2002 (hereinafter “Act”):

  1. Establish the relevant market
  2. Determine if the firm enjoys a dominant position
  3. Only if the firm is dominant, analyze its practice, whether it falls under S.4

The relevant market could be a single sport, an eSport genre, or a market for all eSports based on a number of factors depending on customer preferences, player skill transfer, population demographic of spectators, etc. Such market analysis is naturally complicated by network influences, interdependence, and the number of companies involved.

In the present matter, a vertically integrated publisher that has a dominant position in the upstream market uses this dominant position to distort competition in the downstream market for the distribution of IP licenses, e.g. charge high prices for giving license or denying a license. Also after restricting its competitors, it seeks to consolidate its position in the broadcast market taking undue advantage of its position and thus violates Sections 4(2)(c) and 4(2)(e) of the Act.

Emphasizing on a similar line, Article 102 of the TEFU (Treaty on the Functioning of the European Union), aims at preventing undertakings that hold a dominant position in a market from abusing that position. It also lays down a doctrine of “essential facilities” which conveys “a monopolist has a duty to provide competitors with reasonable access to essential facilities under his control without which one cannot effectively compete in a given market.[1]” This doctrine has been applied in multiple cases on Article 102, TEFU however most recently, in the case of Microsoft Corp. v Commission of the European Communities certain guidelines were laid down with respect to compulsory IP licensing similar to “essential facilities” test.

First, the refusal of an IP license must be related to the product or service required to perform activities in a neighboring market; this is for testing the “objective requirement of some essential facility[2]. Second, the rejection must exclude any effective competition in the neighboring market. The third requirement implies that a company applying for a publisher’s license must demonstrate that it is seeking to create a different product than the one already delivered, and for which there is consumer demand. Given this, it is not necessary to show that the publisher is hindering the development of an entirely new product, but it may still be necessary to demonstrate that a license is required for some form of technical development. This brings us to the main conflict between IP rights and competition law: should publishers be forced to license their IP?

Compulsory Licensing Scheme: A Contrivance serving the Tussle

If sports publishers limit competition to the detriment of participants and fans, publishers may face antitrust challenges against their behavior. Antitrust law provides scope to develop varied solutions for each game. Self-rule lead by subsisting antitrust law would assist in encouraging competition and safeguarding the interests of eSports without even gnawing the existing IP protections.

Hence, it is proposed to introduce a compulsory licensing scheme into the e-sports market through legislation. Under such a system, broadcasters are able to obtain automatic licenses on the publisher’s IP by paying royalties at the rates set by the relevant authorities. Alternatively, publishers can set rates and the authority can intervene when the rates are likely to have exploitative or anticompetitive effects. This license shall include a provision relating to anticompetitive effects to protect the publishers from inappropriate or unreasonable conditions. By this the diversity and competitiveness in the e-sports’ market shall be protected and new entrants are encouraged. Like, Riot Games’ terms of service mention the grant of a limited, non-exclusive, non-transferable, revocable license in its Legal Jibber Jabber policy. They support players who use their IP to create free fan projects for the benefit of the community (“Projects”) but can still shut down any Project at any time if they find that their IP is used inappropriately. Also unless they grant a license, in a written contract signed by them, one may never use any of their IP.

Conclusion

A vertically monopolized market hurts consumers because it reduces competitive incentives on price and quality by eliminating in-game competition for spectators and gamers. A compulsory licensing regime addresses these problems and can promote free and fair competition in the eSports market. Antitrust law enforcement agencies carefully monitor publishers’ vertical integration into the eSports marketplace and challenge restrictive or exclusive licensing agreements that improperly reduce the number of independent tournament organizations.

The fundamental advantage of using antitrust law to regulate the eSports industry is that it creates space for the market to address the difficult issues of league structure, rather than trying to produce comprehensive solutions of the past as a method of governance. And, by expanding its fair use for commercial eSports content, it blurs the incentive for publishers to refuse to degrade their gaming revenue, but antitrust law allows legitimate licensing schemes that establish incentives for publishers and organizers of tournaments. Claimants must continue to issue IP licenses with reasonable royalties; otherwise, they might face antitrust liability. In doing so, the publisher’s interest in recouping development costs and driving creative direction coincides with the interest of viewers and gamers in the diverse, accessible, and competitive eSports industry.

(This post has been authored by Vijpreet Pal, a second year law student at National Law Institute University, Bhopal)

References

  1. S.M. Dugar, Guide to Competition Act, 2002, (7th edn., LexisNexis, 2018) 499.
  2. R. Whish & D. Bailey, Competition Law, (7th edn., Oxford University Press, 2012) 180.

Cite As: Vijpreet Pal,  ‘Explicating Antitrust Scrutiny of IP Rights Extensively Possessed by the ESports’ Publishers’ (The Contemporary Law Forum, 23 December 2020) <https://tclf.in/2020/12/23/explicating-antitrust-scrutiny-of-ip-rights-extensively-possessed-by-the-esports-publishers> date of access.

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