It will take months to sort out how a Supreme Court decision yesterday might affect exclusive licenses sports leagues grant to game makers. But the side suing EA Sports, alleging Madden is an illegal monopoly, believes it helps their case.
Some believe that the Supreme Court’s 8-0 ruling that the National Football League, for purposes of negotiating licenses, isn’t a single entity but instead 32 separate ones, is narrow enough that it covers only the apparel business (the plaintiff in the case once held a licence to make NFL caps.) After all, it makes little sense for 32 teams to have to individually negotiate their appearances in a video game, where the inclusion of an entire league is integral to the product’s value.
Stuart Paynter, the lead attorney in Pecover vs Electronic Arts, thinks it’s important not to lose sight of the difference between group licensing and an exclusive licence. “There are efficiencies in group licenses,” he said. “There are a lot of transactional costs to signing a licence with each team, and this applies in the apparel context as well. Where we can run into trouble under this new opinion is where someone’s offering an exclusive licence.”
Paynter is not an impartial analyst, of course. He’s representing the class of consumers suing Electronic Arts over its practice of securing exclusive licenses in its sports games, which Paynter alleges was a response to 2K Sports developing lower-priced competing products in the mid-2000s. Paynter also is co-counsel in former Nebraska and Arizona State quarterback Sam Keller’s lawsuit against EA, alleging his likeness was used without his permission in EA’s NCAA Football series while he was in college. Neither have yet gone to trial.
But he contends that American Needle vs NFL is very relevant to Madden – especially given how often that case’s lower court rulings were cited by EA in its filings in the Pecover matter. The Supreme Court’s decision overturned that ruling and sent the case back to be heard by a federal district court.
“A reversal of that decision kills Electronic Arts’ main legal defence,” Paynter said. “It has factual defences that it may still bring up in trial to a jury.” But should Electronic Arts need to appeal an unfavourable decision, it has lost a good chunk of its original argument, Paynter reasoned.
Interestingly, though, he pointed out one possible silver lining for Electronic Arts with yesterday’s ruling – although its hard to imagine the company using it.
“EA could have an antitrust claim against the NFL,” Paynter said. “EA kind of publicly stated that the NFL was the one that insisted on an exclusive licence to make one video game. And if so, EA could have a potential damages claim against the NFL, based on the difference between the huge licensing deal it signed, and the (less expensive) one it would have had if the NFL’s teams hadn’t gotten together and decided to agree to an exclusive group licence.”
But it would seem that EA’s claim of the NFL seeking a single licensee is helpful mostly in an argumentative sense, hardly something worth rupturing a very strong, 20-year publishing relationship with the league. EA also negotiated an exclusive licence with the NFL Players’ Association.
While a ruling that has the force of invalidating such exclusive group licenses would not by itself create competition, Paynter believes it would put the NFL in a mood to solicit other publishers to develop competing games. Electronic Arts would almost certainly negotiate a cheaper deal if it couldn’t secure a guaranteed, legally binding exclusive licence. The NFL would seek to make up the lost revenue by selling another, possibly to Take Two Interactive, whose NFL 2K5 was the last licensed football video game on a console other than Madden.
“Obviously EA would not be willing to pay as much, so economically it would not make sense for the NFL to have one licence,” Paynter said. “It’d be a business decision for Take Two at that point.”