Anti-trust deals with the law of competition among businesses. In a capitalist economy, there are proven economic detriments to having monopolies or unfair competition, and therefore the government has seen fit to place restrictions on certain practices that can be injurious to a capitalist economy. In fact, the first US law dealing with anti-trust was the Sherman Act of 1890. Of course, this is not universally approved of, nor is the act universally welcomed; even economists as notable as Alan Greenspan have found fault with the Sherman Act, but I digress. The important point to note is that anti-competitive and monopolistic practices are regulated.
One important aspect of anti-competition law is the FTC's ability to investigate and approve mergers and acquisitions. Under the Sherman Act and its revisions, the FTC is put in the position of 'merger control.' That is, if the FTC believes that, based on the totality of the circumstances, the merger would 'substantially lessen competition,' then it can stop the merger. This happens in the US as well as in many other countries. More importantly, all mergers of companies over a certain size (generally, one party with over $100 million in sales and the other with at least $10 million in sales) are subject to this restriction, so it's not unusual for the FTC to be requesting information from EA. EA and Take-Two are both large enough that the FTC should almost certainly have to give clearance in advance of the merger.
Applying that concept to another real world example, if Microsoft were to be in a position to acquire Apple, that would substantially lessen competition. On the other hand, if id Software were to acquire Gearbox, there wouldn't be a substantial change to competition in the games market. Of course, not everything is nearly so cut and dry. If, say, Ford were to acquire Chrysler, it wouldn't much change the landscape of the global car market, but it would dramatically change the landscape of US car manufacturers. (I really don't want to speculate what the FTC would decide.) Remember, if you will, the EB Games and GameStop merger. While that basically consolidated the retail used games market, it didn't affect overall used game competition, as eBay and other online retailers make up a substantial portion of the market. That merger was, obviously, allowed to go through.
The real problem for lawmakers is balancing the economic inefficiency of certain anti-competitive and monopolistic practices with the potential efficiency that often comes from economies of scale. Economics is a complex area of study, but putting things as simply as possible: not all competition is good and not all monopolies are bad. Basically, sometimes a larger company can more efficiently produce or acquire a product, thereby lowering the price to the consumer. This all depends on the product or service in question though, as some may operate more efficiently with many small players in the market while others work better with a few large competitors.
This brings us back to EA and Take-Two. Many see EA's proposed takeover of 2K sports as an attempt to end competition. I, however, think the competition has long since been over. In fact, it died the day EA signed an exclusive agreement with the NFL. Given that EA will likely renew that contract from now until the end of time, it seems impossible for any sports game developer to compete, at least in football games, with EA Sports. While the same fate hasn't yet fallen on basketball, baseball (almost!), or hockey, it may only be a matter of time before more exclusive license agreements fall into place.
Ultimately, the FTC may not approve the merger, or state the deal cannot go forward with 2K Sports as part of the Take-Two package. But ultimately, the EA acquisition of Take-Two is not nearly as anti-competitive as it may appear. Other companies are still free to pursue sports games to the extent they can dodge the exclusive license agreement barrier. Who knows, perhaps with 2K Sports out of the picture, one of the other major developers, like Ubisoft, will open a new sports games studio, or maybe 2K Sports staff members would set out on their own. The end result of a merger or acquisition is rarely predictable. It's even possible sports games enthusiasts will find themselves with better options than they have now.
Mark Methenitis is the Editor in Chief of the Law of the Game blog, which discusses legal issues in video games. Mr. Methenitis is also a licensed attorney in the state of Texas with The Vernon Law Group, PLLC and a member of the Texas Bar Assoc., American Bar Assoc., and the International Game Developers Assoc. Opinions expressed in this column are his own. Reach him at: lawofthegame [AAT] gmail [DAWT] com.
The content of this blog article is not legal advice. It only constitutes commentary on legal issues, and is for educational and informational purposes only. Reading this blog, replying to its posts, or any other interaction on this site does not create an attorney-client privilege between you and the author. The opinions expressed on this site are not the opinions of AOL LLC., Weblogs, Inc., Joystiq.com, or The Vernon Law Group, PLLC. As with any legal issue that may confront you in a particular situation, you should always consult a qualified attorney familiar with the laws in your state.
(Page 1) Reader Comments
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Nice article as well.
THIRD POST!
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=/= is what you do if you are nerdy enough to remember from math that an equal with a slash in it means "does not equal," but aren't nerdy enough to have ever taken a programming course.
It would be like me using a "$" to denote Euros or something... ie: completely inaccurate.
The 'monopoly' thing is just an excuse. T2 could compete if they put some effort into it.
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There is no reason T2 can't compete.
"It's even possible sports games enthusiasts will find themselves with better options than they have now."
ARE YOU KIDDING ME!?! -You got the nerve to say that! Better from who, EA??
They should just change theirname to EAT
Electronic
Arts
Takeover
Because thats all they do....
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Im sick of it and everthing it represents ,has and does.
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NBA is the same way, EA will sign an exclusive license with them as well and then ruin their competition. I just can't see how you can't see that's going to happen. In fact, I'd bet the first announcement made after the acquisition is done, is the laying off of staff that is working on the current 2K sports games.
See it seems to me that the EA philosophy is that if you can't beat them, buy them. That's why they went after the NFL so hot and heavy, they didn't want the competition, 2K, to beat them, and they were, so buy the license and force 2K out of the business of football. They didn't do that to better their game, in fact for at least two years in a row, there were no significant advances in the EA game.
With competition comes better games, better pricing and all around better gaming.
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http://blog.newsweek.com/blogs/levelup/archive/2008/04/23/law-and-short-of-it-another-hard-look-at-ea-take-two.aspx
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If the FTC wasn't at least considering sports games as its own product market (and maybe even narrower in individual sports), you wouldn't have seen a second request here.
It would be a great thing to see some new sports games that do not try to resemble any real life leagues. There are in fact many games that have done so, but the problem is: they did not strive for realism. Take any of those "street" version of football and basketball games. They can be fun to play and most of them have completely fictional players, but it would be nice if you take those players and give them the same rules and regulations as the NFL or the NBA games.
Sorry for the rant, but I get upset over the religion of sports I see in our society. Seriously, be imaginative, they're video games, not life; play with some friggin' fictional sport stars once in a while!
Also, did you know they actually made the quidditch game? http://www.gamerevolution.com/review/ps2/harry_potter_qui
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Yeah, EA has always dominated football, even when 2K made better games, but NBA 2kWHATEVER is the signature basketball game and by far the obvious best basketball game on the market, as it has been for nearly ten years now.
EA buying them up and forcing everyone to play the turd sandwich that is NBA Live is going to significantly screw over a sports market already near-death because of the Madden-exclusivity deal.
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"Other companies are still free to pursue sports games to the extent they can dodge the exclusive license agreement barrier." When one lists the most popular and profitable sports it consists of 1. football 2. baseball and in a distant 3rd and 4th basketball and hockey respectively. The better half of that list will be all one company. EA needs to improve it's current assets, not acquire more assets, specifically Take Two who happens to be their only other sports game competition.
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For the takeover it does not matter if EA makes better or worse games. Gamers would prefer T2 to be independent but our liking doesn't matter for investors or the law.
The 'effective' monopoly with an exclusive license doesn't hold either as Konami has shown us for Soccer (which is much more popular than American football & Basketball combined in most parts of the world) games. So it is hard to legally object.
That said, it seems that EA isn't as successful as they hoped. So lets hope for a survival of the 'smaller' publishers. Neither of us wants to end up in a world with just Ubisoft and EA ...
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However, trademarks are legal monopolies. The NFL has a monopoly over NFL logos. The FTC can't show up at the NFL headquarters and demand that other leagues be able to use the name. As their trademark, the NFL has full rights to control how it is used, and if they only want the Madden property to use it, that falls under their power. No other game developers have the right to use the property. The NFL (or any other sports for that matter) is not a public domain property.
The same goes for player unions. Players are under no obligation to allow use of their likeness for commercial purposes. You have a legal monopoly over your own name and appearance. The NFLPA serves as a simplified unit for things like lisencing shirts or video game likenesses. Player associations are not compulsory either, which is why Michael Jordan is notably absent from NBA Lam games because he wae not a member of the union. Games branded with Jordan's likeness are no more monopolistic than Madden is.
Football is a game no one owns. The NFL is a brand. A T2 merger would create no monopoly as the NFL is only a competitive advantage.
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If you're really interested in the nuts & bolts of how the FTC looks at these things, I wrote a long piece on it at N'Gai Croal's blog yesterday that someone linked to above. With all due respect to Mr. Methenitis, if I were still at the FTC, my analysis would have tracked a lot closer to Dennis McCauley's piece.
Because I'm no longer at the FTC, my comments are still speculation, but it gave me kind of a rare expertise in an esoteric area of law. If anyone has burning questions for me about this story, I'll try to answer comments here or at Level Up.
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First, while mergers are controlled under Clayton and HSR, they are also regulated under Section 1 of the Sherman Act. I cite the Sherman act as it is the first in the series, and I was not trying to over-complicate the analysis based on citing every possible regulation. This is arguably a "contract, combination or conspiracy in restraint of trade" and therefore the analysis traces through all the acts.
Second, EA owns a legal right to exclusively produce games based on the NFL. As much as anyone wants to argue this leaves the market open to competition, the fact of the matter is Madden will be the only major football game on the market regardless of whether they acquire Take-Two or not, at least until they opt to let the license expire, which seems relatively improbable. Why? Simply, the NFL is the reason. People want to play games based on the real athletes they watch on TV. There is no "next best alternative" to NFL fans. Unless there is a move to invalidate basic intellectual property law on the basis that it is "anticompetitive" (which is unprecedented and would negate the concept of intellectual property to a large extent), then no amount of competition in the marketplace will make a dent in the EA NFL monolith.
Looking at the totality of the circumstances, 2K has also opted not to compete with EA. Football is the highest selling of the sports games. EA does not have any exclusive rights to the NCAA football series (that I'm aware of) and 2K has opted not to use their 2K engine to compete with EA at that level.
The sports game market is, to some extent, in need of additional entrants and new thinking. Consolidation of 2K and EA won't change what is, but may make the market more appealing to a new entrant. If you're a studio looking to greenlight a project, you may see a bigger potential upside to making a basketball game with EA as the only competition versus making a new FPS with dozens of top quality competing games. A lot of this is based on the economic theory of the game industry which, as I stated, could be subject of its own article.
Perhaps I take more the Alan Greenspan approach to economics and anti-trust (whom I linked because his piece is an excellent read), but this merger is being played up to a level far beyond its practical implications. And for the record, no, I do not own stock in EA or Take-Two, nor have I been paid for this opinion.
While I can understand where you and Dennis are coming from on the theoretical side, I disagree on the actual impact, which is a more economic argument than it is an anti-trust one.
There's clearly no competition now in professionally licensed football games due to EA's exclusive. And although Madden is the sexiest product in the sports lineup and it's what everyone wants to talk about, the FTC isn't looking at this deal because of Madden. Nothing about the combination of EA and Take Two affects the NFL exclusive with EA, so it's off the table. You're absolutely right that there's nothing illegal or anticompetitive about the NFL leveraging its intellectual property through an exclusive license--whether or not it's good for consumers.
The FTC's second request is likely about two things (1) the EA/Take Two overlaps in NBA basketball, NCAA basketball, and NHL hockey (as discussed by Mr. McCauley in his column http://www.joystiq.com/2008/04/22/the-political-game-one-vote-against-an-ea-take-two-takeover/); and (2) whether the overall size of EA's sports portfolio after acquiring Take Two would allow it to unfairly exercise market power to the detriment of consumers. The areas of direct overlap are the biggest key here however.
With regards to your general opinions on antitrust, I didn't miss the point of the piece. My main reason for popping in was to point out that a second request isn't routine, which is an admittedly esoteric point of administrative procedure at the FTC that only those who worked in government merger review are likely to know. It just seemed tacky to take issue with the opinion portions in this forum when my piece is out there. But maybe a little back and forth will be beneficial for your readers?
Your point that a new entrant could defeat EA's position where they're not precluded by exclusive licenses is a good one. I'll only add that the merger guidelines judge entry on three factors: (1) likelihood, (2) timeliness, and (3) sufficiency. In my own opinion, EA's stable of exclusive licenses makes it very difficult for a new entrant to compete in a timely or sufficient manner because they can only compete in limited genres without the economies of scale that EA will now enjoy. But there's certainly room for reasonable minds to disagree on that point, and that's one that EA will certainly push hard before the Commission.
Regarding Alan Greenspan's comments on antitrust, I would only add that I believe his views were incorporated into what became known as the "Chicago School" of thought regarding antitrust, which was very popular in the 80s. In general, the "Chicago School" gives greater weight to economies of scale/synergies and is more likely to give the market the benefit of the doubt in resolving anticompetitve concerns.
The 90s saw the rise of a post-Chicago School of thought in response to the belief that antitrust had gone too far and allowed too much consolidation to the detriment of consumers. The post-Chicago School believed that although mergers can absolutely provide real synergies, they don't represent an economic benefit to society if they don't trickle down to consumers. Mr. Greenspan would likely argue that the post-Chicago School of thought swung too far back the other direction, and of course the Microsoft trial brought a lot of these philosophical differences to the forefront.
While I'm sure an EA/Take Two combination would result in synergies for the new company, my own post-Chicago School perspective is skeptical that any of those synergies will benefit consumers. As Mr. McCauley pointed out, Madden jumped from $29 to $49 in its first year as an exclusive. I don't see the loss of competition across other sports games as a benefit to consumers.
But I sincerely hope you're right and that new entry can be the silver bullet that saves competition. I just see those exclusive licenses as a huge barrier.