Spirited Courtroom Argument Highlights Madden Monopoly Case

As GamePolitics reported last June, a class-action suit filed against Electronic Arts  alleges that game consumers were penalized by EA’s exclusive licensing deal with the NFL and NFLPA.

Pecover vs. Electronic Arts claims that the EA-NFL-NFLPA deal essentially created a Madden Monopoly, killed off Take Two’s excellent NFL2K series, and significantly jacked up prices for consumers of pro football games. Here at GamePolitics we’ve been saying the same thing for years.

As it now stands, the case is scheduled for trial on September 14th in U.S. District Court in San Francisco. In the meantime, GamePolitics has obtained the just-released transcript of arguments made by lawyers in the case before Judge Vaughn Walker on November 4th of last year.

While the middle section of the 48-page transcript bogs down into legalese that will appeal only to attorneys, the transcript is otherwise full of lively and informative banter. Notably, Judge Vaughn seems receptive to the plaintiff’s argument – or, at least not dismissive of the consumer view.

In the transcript excerpts below the players are Judge Vaughn Walker (left), attorney Stuart Paynter for plaintiff Jeffrey Pecover, and attorney Daniel Wall for EA.

THE COURT: All right. Now, tell me, Mr. Paynter, do I understand the complaint to allege that each of these license agreements with NFL, NCAA Football and Arena Football are all exclusive license agreements?

MR. PAYNTER: That is correct, Your Honor.

THE COURT: Now, when Take-Two Interactive, the Sego [sic] company, first marketed its branded football video game, I assume it had a license?

MR. PAYNTER: Yes, Your Honor. I hope so. Yes. From the NFL, yes… [from the] the Players Union.

THE COURT: And similarly, it’s your allegation that Electronic Arts had a license with the NFL… But neither of these licenses, prior to 2000 — is it 2004? … were exclusive licenses? …Then, in 2004, the beginning of 2004, Electronic Arts entered into exclusive licenses with NFL, NCAA and Arena Football? Is that it?

MR. PAYNTER: Your Honor, it was actually, I believe, toward the end of 2004 that they entered into new licenses. It was during 2004 that they were forced to lower their prices as the result of the release of the 2K5 game.

THE COURT: Let’s just talk about the licensing first. My guess is it was December of 2004, was it, when the first of these exclusive licenses was entered into? …And that was with NFL, correct?

MR. PAYNTER: That was, I believe, simultaneously with the NFL and the NFL Players’ Union…

THE COURT: All right. I don’t follow these things too closely. Now, are there any other branded football games?

MR. PAYNTER: Your Honor, I believe… that the Take-Two does have a game that utilizes some former players. I believe that that is the case, Your Honor. I do not believe they are or could be any football, interactive football software utilizing NFL, Intellectual Property or Players Union Intellectual Property [other than EA].

THE COURT: These are individual football players?

MR. PAYNTER: I believe, Your Honor. And again, Your Honor, I don’t know this for a fact, but I believe that’s the case, that these are… they have a game (GP: Take Two’s regrettable All Pro Footbal 2K8). You know, I think we would — we don’t believe it’s commercially successful or viable or a competitor, but I think they do offer a game that uses ex-players. You know, players who aren’t part of the Players’ Union agreement. And I believe, although I’m not positive, that that is sort of a diminishing pool of
25 players, I think.

THE COURT: You could probably find some of them up with Judge Allsup… at the moment…

GP: This is a bit of judicial humor on the part of Judge Walker. At the time of this hearing, the trial in which  NFL retirees alleged that their former union, the NFLPA, had screwed them out of Madden royalties was going on in another courtroom.

Hit the jump for the rest of the excerpted transcript.

THE COURT: at any rate. All right. So do I understand the basic theory that you’re pursuing is that Electronic Arts has signed up all of the football organizations that offer brands or video games that
create a market for branded football video games?

MR. PAYNTER: Well, Your Honor, I think the market is  simply interactive football games. Because our allegation, Your Honor, which we believe is true, there is essentially no market for a game that isn’t branded with an actual sports league… People just simply —

THE COURT: They won’t buy it.

MR. PAYNTER: They won’t buy it. Or if they do, maybe it’s a separate small market, Your Honor. But our — there is just really no — they are not viable competition. There is no competitive pressure Electronic Arts sees on branded games where no one wants to just play — be a generic  quarterback. It has to be connected with a real-life team and real-life players.

THE COURT: Okay. I think I understand that allegation… I don’t think it’s material to the case. But why would that be?

MR. PAYNTER: Your Honor… there’s, you know, perhaps certain games where, you know, people participate in themselves… I think, in that type of game, that it needs to be based on actual sports leagues. And I think the proof of that, Your Honor, is the fact — is the pricing evidence. If that wasn’t the case, Your Honor, [EA] wouldn’t have been able to dramatically raise their prices again after they had successfully foreclosed the market.

THE COURT: …So that’s very helpful, Mr. Paynter.

GP: Next up is attorney Daniel Wall, representing EA.


— what’s wrong with this complaint? It seems like a pretty solid theory, doesn’t it? Your client has essentially foreclosed any competition for these games if, in fact, there is a separate market for branded football video games.

MR. WALL: …They’re complaining about the acquisition of three league football licenses, so they have drawn a circle around that and defined the market… But we think the market is much broader, includes other kinds of sports games…

THE COURT: Well, the plaintiffs’ theory, as I understand it, and the reason I had that little dialogue with your friend, Mr. Paynter, is that what your client has done is to enter into exclusive license agreements with all of the parties who can provide a brand to brand this video football software and foreclose any competition in what they contend is a separate market. Putting aside whether or not they’ll be able to prove a separate market or not… But isn’t that, as stated in the complaint, a viable claim?

MR. WALL: Not even close.

GP: Plaintiff’s attorney Paynter is once again up:

MR. PAYNTER: In our case, Your Honor, in addition to monetary damages, our clients, for example, suffered antitrust injury in the sense that they don’t have a choice of alternative games now, higher-quality games. And the quality of Electronic Arts’ games, now that it’s not in a competitive market, Your Honor, would have suffered…

THE COURT: I know absolutely nothing about video games, but how in the world would the quality of a video game be affected in this fashion?

MR. PAYNTER: Well, in the same way that, any time, Your Honor, a market becomes uncompetitive, there’s not the same incentive by the entity that’s monopolized the market to continue to invest in that product. And you know, I’m not a video game player, either, Your Honor… But my  understanding is, you know, there are websites out there that review these games. And you know, we have alleged that, at the time, that the Take-Two game was widely viewed as a higher-quality game, presumably, Your Honor, in terms of the graphics.

THE COURT: Maybe that would be fun, a fun issue for us to decide or allow a jury to decide that. We could have a lot of fun in this case….

THE COURT: Why are consumers harmed by the corralling all of the licensors, as you allege Electronic Arts has done, as opposed to the competitive harm that Mr. Wall speculates about that might befall Arena Football and the NCAA and these subsequent licensors?

MR. PAYNTER: Well, precisely, Your Honor. He speculates about it because that’s all he can do, speculate about it; whereas, the consumer harm for consumers is clear. They were able to buy interactive football software for, you know, $19, and now they’re paying $60 as a result of this — as a result of this conduct. And you know, look, Your Honor, we’re not — we’re certainly not saying that exclusive licenses are always anticompetitive. There may be competitive reasons to sign
them… one would have to weigh the, as one always does, the pro-competitive affects against the
anticompetitive affects…

The difference between a five-year acquisition [such as EA’s NFL license] and a permanent acquisition, Your Honor, is simply a matter of degree in the sense that, you know, Electronic Arts would be able to jack up their prices for a longer period of time, harming more consumers. But from the perspective of a consumer right now, Your Honor, for the term of a five-year agreement, which is not by any means a short-term agreement, is precisely the same. And what I mean by that, Your Honor, is if you look at it from a perspective of a consumer right now in a store thinking about
buying Madden ’09, there is not a single consumer there sitting in the store thinking to themselves that, you know, "Madden is really overpriced right now, so why don’t I wait until 2012 and maybe the price will come down, you know, if some other competitor enters the market?" So from a perspective of a consumer right now, Your Honor, these might as well be permanent acquisitions….

(additional argument takes place at some length…)

THE COURT: So that means we wouldn’t have a jury trial. We would have a bench trial. It would be a lot easier to play the games.

MR. WALL: It would be, yeah. We would only need one machine. It would be much better. But we would have a bench trial where what? Your Honor is going to assess the relative quality of games before and after exclusivity contracts? That should be interesting.

THE COURT: I’m up for any challenge.

MR. WALL: Well, it would be quite a challenge. I’ll observe — not that it matters at this point. But it probably should be universally understood that quality increases under exclusivity. That’s one of the reasons people have exclusives, because it creates the incentive to invest more in quality…

There is no allegation that we conspired with Take-Two. There is no allegation that the NFL conspire[d] with the AFL or the NCAA. The only action [claim]offered, is that, on three separate bidding occasions, Electronic Arts showed up and bid for what was offered, and it won. And that’s what is [alleged to be] illegal, that it won. It’s [allegedly] anticompetitive to win three times. That’s the theory of this case….

DOCUMENT DUMP: Grab your copy of the full transcript here.

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