August 19, 2022 • 53 mins
Host Mary O'Brien interviews Wilson Sonsini antitrust and competition attorneys Thomas Pflock and Brendan Coffman to discuss antitrust laws and potential impact for gaming companies.
Conversation Highlights:
- an introduction to antitrust and competition laws,
- antitrust relevancy to start-up/early-stage companies,
- regulatory considerations for gaming companies,
- recent deals and their regulatory impact, and
- antitrust and competition and gaming in the metaverse.
Meet the Host:
- Mary O'Brien
Learn More:
The information in this podcast episode is for general information purposes only and may not reflect current law in your jurisdiction. Nothing in this podcast should be taken as legal advice for any individual case or situation, and this information is not intended to create, and receipt or listening does not constitute, an attorney-client relationship. No listener of this episode should act or refrain from acting on the basis of any information included in, or accessible through, this episode without seeking legal or other professional advice from an appropriate licensed professional in the recipient’s state, country or other appropriate jurisdiction.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Hi everyone,
thank you for joining Wilson Sonsini's Electronic Gaming Group podcast.
I'm Mary O'Brien, an associate at Wilson based out of Palo Alto office.
I'm thrilled to have you join me as I interviewed several of my colleagues and dig into key topics surrounding early stage companies with a focus on gaming specific issues.
The information in this podcast episode is for general information purposes only and may not reflect current law in your jurisdiction.
(00:25):
Nothing in this podcast should be taken as legal advice for any individual case or situation and this information is not intended to create and receipt or listening does not constitute an attorney client relationship.
No listener of this episode should act or refrain from acting on the basis of any information included in or accessible through this episode without seeking legal or other professional advice from an appropriately licensed professional in your state country or other appropriate jurisdiction.
(00:50):
We're pleased to have Thomas Pflock, Of Counsel, in the antitrust and competition group.
Joining us from our Brussels office and Brendan Coffman, senior counsel in our antitrust and competition group joining us from our Washington D.
C. office.
Both Brendan and Thomas will be speaking at the Games Industry Law Summit in Lithuania on September 7th this year.
Thank you so much for taking the time to join us today.
Would you mind starting off by telling us a little bit about yourselves and your experience in the gaming space.
(01:16):
Thanks Mary,
Thanks for that.
Great introduction.
So hi everyone,
My name is Brendan Coffman as Mary mentioned,
senior counsel in DC focusing on anna.
Just you know,
working on all areas of antitrust litigation,
M&A investigations,
counseling,
pricing, the whole gamut.
Um,
and that's really come in very helpful for,
for the gaming spaces we're jumping into some discussion today.
(01:37):
For me personally,
this is really pretty magical convergence of my avocation and my vocation as Robert Frost would say.
So,
you know,
my entire youth,
up through college,
you know,
even as an adult,
I love gaming.
Um,
it's been a great way for me to,
both release a little bit and also get to know some more people.
(01:57):
It's,
you know,
it's a great community behind gaming and that's one of the things I like most about it.
Uh,
you know,
as antitrust attorney every once in a while,
a gaming question would come up.
You have a pricing question or distribution question,
you know,
a little bit of uh,
you know,
smaller companies asking how they can get on the platforms, a little bit of negotiations.
But for the most part,
um,
it's been a little bit of a quieter space which always surprised me given both,
(02:22):
you know,
the size and,
and frankly the value of the gaming market as a whole.
But what we're seeing now, and I'm sure Thomas will agree, is this,
uh,
you know,
sudden emergence of gaming as a hot topic in antitrust.
Um,
that really cuts a lot of different ways,
right?
And in some ways it's a thing for companies to be aware of um,
be a little protective of one another other aspects.
(02:45):
It's a way for companies to create some opportunities for themselves.
Uh so you know,
hopefully I'm looking forward to a great discussion today on those topics.
Kick it over to you Thomas.
Yeah,
thanks a lot.
Brandon and Mary,
thanks a lot for organizing this podcast.
As you already mentioned.
I'm Thomas Pflock counselor for Wilson Sonsini in the Brussels office and it's a great pleasure doing this with you today.
(03:10):
So just like for Brandon,
electronic gaming is not just a topic that's relevant for me as a lawyer is also a topic that's close to my heart.
I've always loved gaming and I guess my parents were probably afraid I loved it a bit too much as a teenager,
but in a way this was probably also a generational question.
(03:32):
I mean it's it's it's not a coincidence that you will hear Brandon and me today, as besides this being antitrust lawyers, were part of a generation that grew up with gaming and maybe has a bit of a different starting point when it comes to questions related to the topic.
So what electronic gaming probably is just a side topic for many antitrust lawyers,
(03:57):
one industry of many that they're dealing with.
I think Brendan and I also,
um and also some of our antitrust partners that at Wilson Sonsini,
we're dealing with this topic for quite a while and it's a very happy coincidence for us that there are so many antitrust topics surrounding electronic gaming nowadays and I think there will be many more topics following.
(04:24):
I mean one topic that we're probably still gonna dive into that I think is a big thing is going to be the metaverse.
I think that's inextricably linked to gaming,
but as I said,
I think we're still gonna touch upon this later today.
Thank you, both.
And Thomas.
That's a great segue into our first question about we've discussed a few key topics on this podcast that some early-stage companies may be aware of already,
(04:52):
but antitrust is not usually an area that most early-stage companies are familiar with.
So I was hoping on a high level,
could you both run us through your practice and the types of issues you tackle?
Sure,
thanks, Mary.
So,
um this is Brendan again.
Yeah,
so as I mentioned,
I really do handle all areas of antitrust law.
You know,
I really pride myself on being able to just as easily help a company with a merger as defend a litigation as initiate a complaint to a regulatory agency if they are experiencing negative effects of anticompetitive harm.
(05:24):
Um you know,
I think just taking a step back and trying to lay the groundwork for what we're talking about today is,
you know,
people may not,
it's a word that's in the news a lot.
I'm sure people have heard it,
but maybe not know what antitrust is generally.
Um you know,
it used to be the case definitely when I started my career that,
you know,
basically anytime I was getting on the phone,
I had to start off by apologizing that I had to be there because when the antitrust attorney shows up,
(05:47):
it's just bad news.
but that's not really the case anymore.
Uh and it just is definitely much more day to day engaged with clients.
Um you know,
really it's matters of competition and competition is what companies do all day long.
Uh so,
you know,
the need for antitrust counseling has grown and pervaded all areas of companies.
So I like to think about antitrust in three different key areas:
(06:09):
So first is agreements between different players within an ecosystem.
So this can be horizontal agreements.
So horizontal agreements can be very,
very bad.
So that's price fixing,
that's the type of thing you can go to jail for,
don't price fix.
Uh It can be good.
Right?
It can be pro collaborative collaborative agreements between competitors to make something new.
Uh agreements can also be vertical in nature.
(06:31):
Um so either supply agreements or distribution agreements,
other terms between uh,
companies that interact in the same space,
even if they don't address the same customer base or supplier base.
The second main area is uh what you'll hear is unilateral conduct,
that just basically means what one firm can do.
And in the United States that means what monopolists can do. Monopolist is a legal term.
(06:55):
So there's certain things that need to be established for a monopolist to be considered monopolist.
But for the,
you know,
the simplicity of the conversation,
we were talking about how big firms can behave vis a vis others in their ecosystem,
competitors,
uh consumers, suppliers,
everything like that.
And the third area where possibly the audience is a little bit more aware of is M&A.
(07:17):
So um the antitrust agencies throughout the world make sure to protect competition by enforcing in the United States.
It's called the Clayton Act,
ensuring that the no harmful mergers get through.
They look at,
you know,
in simple terms,
they look at mergers that either substantially lessen competition um that can be either horizontal or vertical,
(07:40):
um kick it over to Thomas to explain the same concepts as they apply in Europe and abroad.
Yes.
Thanks Brendan,
Happy to.
And at this point I should probably also stopped briefly and explain why why I'm here on this podcast episode and why Europe and abroad are even relevant for our listeners,
(08:01):
because I think that most of them will probably be based in the U.S. their companies will be based there as well.
And at least some of them may ask themselves why they should care about antitrust outside the U.
S.
And first part of the answer is that antitrust authorities don't care so much where a company is based,
(08:22):
as long as the activities of a company have an impact on local competition within their jurisdiction.
And the second part of the answer while basic structures and and and and concept of competition law identical around the globe,
the application of antitrust is not,
(08:43):
and some companies have learned this the hard way regulators in different jurisdictions have different traditions,
different enforcement priorities.
And if you're having customers or suppliers outside the U.S.,
you definitely want to have an eye on these other jurisdictions.
And that's where our Brussels and London teams come in.
That's where I come in for this podcast.
(09:05):
So, to answer this question, where precisely, Mary, in our practice,
I'm also dealing with the types of issues that Brendan has just mentioned.
So I'm dealing with M.
And A.
Questions agreements between competitors,
agreements within supply relationships that may be anti competitive cartels but also unilateral conduct by dominant players that may foreclose competitors or exploit consumers.
(09:36):
And in many regards,
European authorities tend to be stricter than U.S. authorities, in other regards namely M&A.
The commission sometimes is also more lenient or at least more pragmatic and it's important for our clients that we can give them our European perspective on these questions because a green or orange flag in the U.S. might sometimes still be a red flag in the EU even more important,
(10:10):
even when the legal assessment is much the same as in the U.S.,
The way to present cases and arguments in Europe are often crucially different just sending a U.
S.
Memorandum to an EU authority will often not resonate with them in the right way.
Uh And and finally we have to keep in mind that in the EU.
(10:31):
We have a two level system,
so we have the EU on one level with the European Commission as an agency and we have national jurisdictions on the second level.
And the interplay between both of them can actually be quite complex,
but before I'm getting too much into the weeds here,
(10:51):
So Brendan anything to add from your side on the U.
S.
agencies.
So it used to be and it's still the case for the most part uh that there are really three ways where antitrust can uh come into your lives.
So the first is the federal agencies,
so the Federal Trade Commission and the Department of Justice share authority to enforce the federal antitrust laws.
(11:16):
Uh It's split up between them in a opaque and confusing and uh frankly unknown ways sometimes,
so by industry,
one agency tends to have more familiarity with a particular industry.
And so that agency tends to take on anything that comes up there,
but as industries converge and new ones emerge,
(11:39):
there's been more and more what are called you know,
turf wars between the two agencies as they try to figure out who reviews certain things.
And I think that's apparent,
even in the gaming space,
as you've seen both agencies take on different high profile deals.
Secondly,
is the State Attorneys General,
um you know,
they've always had the ability to enforce antitrust laws.
(12:01):
Historically,
they come and go,
but they're definitely in a waxing moment,
the state AGs are as aggressive and eager to enforce as ever.
Um and we actually spend,
uh,
you know,
a considerable amount of time interfacing with attorneys general from different states and different matters.
And the final area is private enforcement.
(12:22):
So there's a ton of private enforcement,
an entire cottage industry in the United States,
even in the gaming space there,
you know,
a couple very notable private cases going on right now.
Um just to lay that out there.
Thank you both.
And so from the sounds of it,
it really comes across that antitrust comes into play with larger players in the industry.
(12:42):
Does antitrust have any relevancy for earlier stage gaming companies.
Yeah,
so for sure,
trust comes in play for earlier stage companies and a variety of ways.
So,
you know,
the first is their,
their standard antitrust laws that even the smallest companies need to make sure that they are aware of and compliant with.
Um and,
you know,
a small,
(13:04):
early-stage company really doesn't have to worry too much with complying with Section Two of the Sherman Act,
which is monopolization,
but Section One of the Sherman Act that's contracts and conspiracies in restraint of trade obviously comes into play and I think the the number one thing to be aware of in this space is the renewed focus by the Department of Justice on hiring practices,
(13:25):
especially in Big Tech generally.
Um and we know from just observing the news just how aggressive the Department of Justice has been in pursuing employment cases.
These tend to manifest in two different ways.
The first is agreement between competitors on what wages they'll pay can be too particular,
(13:46):
people can be to certain positions can be too entire units,
but um any agreement between competitors on what they will pay is illegal.
And the Department of Justice actually,
recently,
although they lost have tried to prosecute these cases criminally. A second way that this manifest is "no-poach" agreements.
Um this is one that probably is a little bit more uh you know,
(14:10):
fitting to the conversation as it used to be,
you know,
20 years ago in Silicon Valley.
Uh not uncommon for companies to agree not to poach each other's uh employees because it just became an arms race.
and obviously in this space and gaming in particular,
like it all comes down to talent,
talent is the absolute most important thing,
(14:32):
the people developing,
designing the games,
executing,
negotiating the deals like these are how these,
you know,
great products get to market.
Um so I just wanna make sure people are aware of that.
so we all know there's different types of games such as mobile games,
console games and PC games are these regulated as one market or what do regulators consider when it comes to the gaming world?
(14:55):
So,
you know,
historically gaming has been defined by a pretty stark difference between being highly fractured at the development level and you know,
modestly concentrated at the distribution level.
And so what I mean there is that you have a lot of different game developers and a lot of people working on creating these games,
making sure that the art is good,
(15:17):
making sure that the features function as they're supposed to and that they're engaging to consumers.
But then when you actually wanna get that product into the hand of consumers,
there's been just a few different ways you can do it.
So obviously there's the big three consoles,
their PCs and then, now, mobile is obviously emerging.
You know,
what that's meant,
(15:38):
you know,
the way that's manifested is what has typically been a little bit of a siloed approach by the agencies of analyzing,
you know,
how particular people play particular games trying to figure out,
you know,
cross elasticity of demand between platforms or across games or genres within a certain platform.
They are now emerging towards a much more holistic review.
(16:02):
And this is something that's happening in real time and I think,
you know,
we're gonna talk a little bit about some of the high profile mergers that are in the news.
Um,
but the agencies are using these mergers as a way to better understand the industry and are starting to learn that,
the old ways of analyzing these deals may not be the most effective and I think as I say that I need to do a full disclosure that I do represent Bungie in its acquisition by Sony,
(16:28):
and Thomas,
if you added some more on the EU there.
Yeah,
sure.
Um,
before I get to the,
you know,
maybe let me make a more general point.
Um,
what difference does it make,
whether regulators consider gaming markets as broad or narrow?
The sometimes unfortunate truth is that regulators often leave open the exact definition of the market and then tend to go with what suits the best at the moment.
(16:58):
So in a merger situation where the regulator wants to argue that the two merging companies are competitors and close scrutiny is needed.
Maybe an in-depth investigation,
uh,
the authority may then want to define markets as being very broad to generate that overlap.
(17:20):
For example,
that there are wide overall markets for console or mobile games.
On the other hand,
if it's clear that two companies are both creating,
let's say,
AAA ego shooter games for the Xbox or something like that,
then,
(17:40):
um,
the authorities may argue that it cannot be excluded that the market is bad,
narrow,
AAA ego shooters on the Xbox,
which would then possibly create a higher market share of emerging entities that could make it easier to intervene or ask for commitments.
(18:01):
And I'm exaggerating slightly to make the point clear,
but something like this, often absent,
happens in praxis.
so there may often not be one market definition that allows you to give a straightforward reply to your question, Mary,
but last year's decision on Microsoft Dynamics did find that there's no clear support for segmenting different markets within mobile games,
(18:30):
console games and pc games.
So those are all great points.
And I think,
you know,
you can see the way that it's changing in the United States at least basically in real time.
So,
I mean,
there are a couple of high profile litigation in the United States,
there's obviously Epic-Apple.
So you basically have,
you know,
one platform litigating against the other platform for access to the consumer base and what the terms of that access will look like.
(18:57):
My firm is involved,
although I'm not personally,
my firm is involved in litigation in Washington and that is on behalf of the game developer,
but it's also in consolidate with the class of consumers against Valve and that is based on allegations that Valve imposes what's called most most favored nations terms for access to its platform,
(19:21):
which means that,
you know,
at the end of the day,
um developers cannot find it's impossible for them to price their products differently elsewhere
so they can't go to a different platform and try to compete by price without also having to reduce their price on Valve.
And the allegations there that's anti competitive at the same time,
you have a very high profile mergers and that are being investigated.
(19:43):
Um,
the Microsoft-Activision is obviously,
uh,
the elephant in the room that's being investigated globally.
Uh,
we also have Sony's acquisition of Bungie that's being investigated by the Federal Trade Commission,
um,
you know,
and it's in both of these,
it's wide ranging questions on all types of aspects of the company.
(20:05):
Um,
and it's really as much,
you know,
from my opinion anyway,
as much of a learning exercise as it is an actual genuine investigation,
um,
you know,
there's,
uh,
trying to figure out whether or not to look at each game by title,
or game by developer or game by genre,
or we focused on games that have micro transactions?
(20:25):
Are we focused on games that have a subscription model?
What's the important of ubiquity?
You know,
is it important for a game to be cross playable across different platforms?
Uh,
if all these are important,
how do we actually like weigh they're different importance as we evaluate overall competitive effects?
How do consumers respond?
How is the market going to respond as,
(20:45):
you know?
You know,
I think we can all agree that this is still an emerging market it's still a market where a lot of development is going to occur.
So what are the uh what are the effects,
what are the negative consequences of regulators getting involved in a market that is both functioning and growing at the same time?
(21:07):
You know,
there's uh it's probably reasonable to worry about the effects of especially at the distribution level of consolidation.
You know,
I've talked to some friends at the agencies about what types of things they're thinking about and one person made a really good comparison to me and you know,
(21:27):
that's something I've been thinking about for quite a bit.
because I asked them,
you know,
what else does this look like historically?
Like what are you like,
what are you comparing this to?
And his answer was the United States beer industry where I don't know for at least some people in the United States will know there's a wide variety of different beer manufacturers.
(21:48):
You know,
local small craft.
I.
P.
A different breweries throughout the entire country,
but when you go to your grocery store,
it can be hard to find them if you go to a restaurant.
There's only a couple of things on tap.
Why is that?
Well?
you know,
it's because the the large manufacturers,
you know the Anheuser Busch and Coors Miller of the world?
(22:09):
They own the trucks and they own the routes and they have the relationships with the grocery stores and the big chain restaurants and so they can kind of control access.
Um,
and the FTC,
my friends,
the FTC have said that that's the type of thing that they're worried about happening in gaming,
make sure that there's not this sudden bottleneck on distribution and availability.
(22:31):
The current FTC Chair, Lina Khan, has advocated for a more aggressive approach against big tech companies,
which I think you both reflected in your answers before.
So, with technology including gaming advancing at a rapid fire rate,
do you consider the regulatory agencies to have the right tools to be able to properly investigate these antitrust violations?
(22:52):
Um,
to answer your immediate question whether or not,
I think the agencies have the right tools to properly investigate.
I do.
The antitrust laws are written in a way to be flexible.
I mean,
these are passed in 1890 are still vibrant today.
You know,
they,
I kind of argue that an antitrust law in the United States is really the last true common law.
(23:14):
You know,
we have a very simple law that has evolved through uh,
court decisions and agency guidance over the years.
Um,
and that has allowed it to adapt to different markets and realities at the same time.
Um you know,
I think one can't help but notice in the United States the onslaught of new legislation that is coming in.
(23:35):
Um,
you know,
my,
my personal view on this is that it's,
not well tailored to address the issues that they think that they're addressing.
Uh,
the legislation is obviously just too captured as happens in Washington too often,
but it does show perhaps a concern that the antitrust laws aren't being used in the way that they want that,
(23:58):
you know,
some people want them to be used.
Also point out that aside from federal legislation,
you actually have state legislation now coming into play.
So even just yesterday,
uh,
and the New York house voted out,
uh anti-abuse of dominance law,
which would really be the most aggressive unilateral conduct law in the United States to get enacted.
Um,
(24:18):
and of course,
it was voted out of the house before in New York and it was never signed into law,
but it does show a little bit of a,
you know,
evolution in the zeitgeist of trying to make the laws more broad or easily applied.
How about Europe, Thomas?
Yes.
So the European regulator has probably given its own answer already to that question whether it thinks that it has the right tools,
(24:43):
it's now agree politically that there will be a new regulation coming called the Digital Markets Act (DMA),
and the Digital Markets Act (DMA) will designate large online platforms like Google, Apple, Amazon, Microsoft.
Obviously,
maybe maybe another 15 to 20 platforms as gatekeepers.
(25:06):
And these gatekeepers will face additional regulation on top of conventional antitrust law,
uh,
will be the content of the regulation.
It's, it's a very broad set of very,
very specific obligations.
Um,
I should maybe take out three of them that are probably most relevant for our listeners.
(25:27):
So first one is an obligation to provide interoperability.
Large platforms will have to make their platforms their A.
P.
I.
interoperable with other services.
Um that may mean that Meta have to have to open its Oculus,
A P.
I or um Apple.
(25:49):
It's A P I is for the for the Apple App store,
also for for gaming publishers and manufacturers to an additional degree.
A second.
D.
M.
A will address self referencing.
Can Apple self-preference?
its own music services or its own gaming services compared to competing at providers such as say Spotify or Epic.
(26:18):
This is one of the key questions in a whole series of pending lawsuits around the globe and and specifically also in the EU In the future,
there will be a clear prohibition for such self-preferencing,
whatever that means.
So,
uh will this solve the problem?
I think we'll face a lot of litigation around the question,
(26:41):
what does self-preferencing actually mean. Third important practical point for our listeners also want to mention that there will be an enhanced requirements on data access for business users.
So, right now it's often quite obscure for games
(27:01):
companies,
how their content is distributed on platforms like Meta, Facebook IOS app store.
Uh and even more important how their content is used by the players because sometimes also just the platforms have these information and we get questions from our clients quite regularly.
Uh they would like to get more insight into their data and the data of their users and I think that this is also a key topic in a key battlefield in the context of the metaverse.
(27:37):
Just to touch upon that topic briefly.
Uh in the metaverse,
let's say the manufacturer of a virtual reality has that they will collect tons of further data points that will be extremely relevant to the providers of the underlying games or immersive worlds or whatever.
(27:59):
that with this reality headset is used for. And all this being said,
I mean DMA will still take some time to take effect and we'll probably not see any cases before 2024,
but I should also mention that other jurisdictions,
for example,
Germany they already have similar rules in place for quite a bit.
(28:22):
And, so there is already leverage of companies want to bring cases to enforce,
for example,
their access to data. Thomas.
I think you raised a really good point and you know,
one that I know that my colleagues and I have been thinking about and you know,
we just don't know the answer and that is the interplay or the intersection of,
(28:43):
you know,
antitrust in gaming,
on the one hand and data concerns on the other.
you know,
I know for certain that the FTC is,
it's considering it uh,
you know,
considering data in a general sense,
uh,
when they look at these markets,
both in terms of mergers and,
potential conduct cases,
but to me,
it's not clear that,
(29:04):
there is a connection or what that connection would be.
And I'm curious if you have,
you know,
opinion from,
from Europe where there's a little bit more,
maybe of a developed consensus on the interplay between data and competition more generally.
Yeah,
glad you're raising that.
So,
data and competition is a huge topic in Europe,
(29:27):
at least since maybe 2019 where the German authorities started running a case against,
against Facebook.
Now,
now Meta on the use of user data and,
maybe the use without properly asking for consent by these users and without going into detail on this case,
(29:50):
I mean,
it has become pretty clear that data has a competitive dimension,
a very strong competitive dimension.
Those players who have access to data and don't have to share this access with other companies.
That can be pretty,
pretty strong factor in raising entry barriers for other players and making it more difficult to compete for other players and also in influencing downstream markets maybe,
(30:21):
and shaping them in a way that might not concur with the opinion of the regulator,
how it should be.
Thank you both.
So,
despite Lisa Khan's comments as she was FTC chair,
we know that Microsoft's deal with Bethesda was approved by the DOJ and the EU commission last year.
And this year Microsoft announced that it's planning to acquire Activision Blizzard for around $69 billion.
(30:46):
Should we expect the agencies to take a similar analysis as they did to the prior deal?
Hey,
thanks, Mary.
So I think,
you know,
this comparison in the United States just really emphasizes how much things have changed.
So the Bethesda acquisition,
I believe didn't get a second request,
but um,
I think it was,
it was clear within the first 30 days,
whereas we know that the,
(31:06):
uh,
the Activision acquisition is uh,
you know,
has got a second request.
Um,
and there's been a lot of press on it.
Uh,
you know,
I think it makes sense to take a second and dive into what's going on in that transaction because it really,
uh,
you know,
provides a great font for analyzing a lot of different themes that are important in the gaming space and I think going to become more important,
(31:27):
you know,
if I were,
if I were teaching an antitrust class,
I think I would just use this merger as the final exam question and say,
talk to me about everything.
Um,
you know,
when the,
when it was first announced,
the,
the focus of most of the reports was on,
you know,
basically console gaming,
whether or not,
you know,
basically Playstation would still have access to the marquis Activision titles.
(31:53):
And you know,
Microsoft,
you know,
very quickly promised that they would honor all of their commitments uh seemingly to,
you know,
put out that fire,
but there are a lot of other different um you know,
potential impacts on competition and I think those are starting to evolve and come out in the press and be discussed a little bit more uh you know,
so one is,
what is the impact on the over the top the stream gaming market,
(32:18):
Right?
So you have um you know,
Microsoft,
obviously through the Xbox,
you can stream and then Playstation 2 and on the computers,
uh it's not clear what the terms of access will look like they're um but more importantly I think,
and this is really where I believe the FTC is probing deeply,
what does this look like for Game Pass,
which is for anyone who doesn't know it's Microsoft's subscription service,
(32:41):
They frame it as the Netflix of gaming.
The ideas that you pay a monthly fee and you have access to a certain amount of games that are available on a library.
Um and you know,
there's some real concerns there that with the Game Pass basically functioning as a loss leader at Microsoft that they could get a bunch of great titles,
uh you know,
(33:02):
highly demanded content,
put it on there for what boils down to a very cheap price,
per play across all of them and make it impossible for other over the top to to compete with that or maybe end up in a uh subscription model war a little bit that's happened in the tv in the United States.
Uh,
(33:22):
and that really scares some people and I think it makes sense for the FTC to be probing that really intently.
And then finally there is,
what does this acquisition do for Microsoft's other businesses?
Right.
Uh it just acquired Nuance a couple of years ago,
which is voice recognition software.
It obviously has the business line.
Obviously Microsoft is uh,
(33:45):
you know,
the dominant provider of office services,
there's just a lot of businesses there and it's not clear what the interplay between these all will be whether or not this allows them to either create or fortify an advantage in separate markets or whether or not it's benign,
but these are all the types of things the FTC is looking at as they should.
and it really shows just how uh,
(34:07):
analysis into gaming and antitrust has become much more robust and much more detailed.
Yeah,
I,
I don't have much to add on the substance and the underlying issues that Brendan has just described so well.
So maybe let me say a few words on why I'm going to watch this case with particular interest.
I don't,
(34:29):
I don't always defend what the European commission is doing.
naturally I sometimes strongly disagree with them as you can imagine,
but one has to make them the compliment that they have often been quite pragmatic lately,
specifically in merger cases and we've seen this play out recently and cases like Amazon-MGM or Google-Fitbit,
(34:54):
in which cases were either cleared despite all the political buzz behind them cleared pretty pragmatically Google-FitBit.
The commissioners open to accepting pretty far reaching commitments on data storage and really try to enable the deal.
(35:14):
I have impression and I think this is an interesting sign because despite the view that sometimes out there that the commission is going hard after us companies,
I think they really want to be perceived as a regulator.
That also gets to practical solutions.
(35:35):
And I'm curious whether we're also going to see that in Microsoft-Activision of course,
getting through these practical solutions always means that you have to talk to the commission in a constructive way to get such results.
This is the way that that we prefer to operate. But back to the context.
(35:56):
And your question, Mary,
I'm particularly curious how the commission is going to deal with Microsoft-Activision in this context and whether this will get quick clearance or whether the commission will deep dive into the type of issues that Brendan has raised. Earlier this month.
It came out that the FTC actually closed its investigation into Sony's planned acquisition of Bungie was this deal being looked at the same way as the Microsoft-Activision deal.
(36:24):
Thanks, Mary,
I can speak to that a little bit.
So full disclosure,
we're Wilson Sonsini represented Bungie in the deal.
Um you know,
we were a little surprised when we got the second request.
We thought that the transaction,
you know,
just on its face was not one that would raise uh competition questions or any competitive concerns,
but we were able to work collaboratively with the FTC,
(36:46):
answer their questions really quickly,
get them to understand both Sony and Bungie's
motivations for doing the deal,
and we're actually able to get the deal closed much more quickly than really anyone anticipated and we're very pleased that the FTC was willing to work with us so cooperatively.
Um,
it is interesting to think about this transaction in terms of Microsoft Activision or,
(37:09):
you know,
even other potential large scale gaming deals that may be coming down the pipeline.
Um you know,
it's,
I think it's still public right now that the FTC is currently investigating,
has a second request out for that deal.
And a lot of other jurisdictions throughout the globe have announced their investigation into the deal,
(37:29):
Europe,
the European commission,
the CMA in the United Kingdom,
Brazil,
New Zealand,
the HPC in Australia.
So there's a lot of attention being paid to the Activision deal.
Uh and probably for good reason,
um it's a much different type of deal.
Uh you know,
whereas Bungie had,
you know,
for the most part,
a single game that was its franchise,
(37:51):
uh,
you know,
plenty of exciting things in the pipeline.
But you know,
for current competition today,
it's really just the one game and it's a game that is really premised upon opening up the funnel.
Uh,
driving as many players as possible,
driving something that's called in the industry, the ubiquity of gaming.
So really trying to get as many people as possible onto the platform and enjoying the game free to play at the beginning.
(38:14):
So really no,
no barriers for the,
for the player.
Um,
Activision,
on the other hand,
is a one of the leading publishers of games in the world,
many critical titles and is being bought by a company that has had a history of engaging in monopolistic or otherwise anti-competitive practices in the past.
(38:35):
And for that reason,
we're not very surprised to see that many agencies are taking a long look and really investigating,
not just what the Activision acquisition means with respect to,
the games in the catalog right now.
Or maybe Microsoft's,
you know,
immediate,
gaming options,
you know,
Xbox and even Game Pass,
but what this looks like moving forward and how this whole position marks off to participate and potentially even try to exert more influence in the gaming market moving forward a few weeks ago,
(39:06):
it came out that the FTC is seeking to block Meta's acquisition of Within Unlimited and it's popular,
virtual reality app,
Supernatural.
Can you discuss the concerns the FTC has and whether this is setting a new precedent for gaming in the virtual reality landscape or even merger enforcement in general?
Yeah,
Thanks.
Just a super interesting development in uh,
(39:27):
in the gaming space.
And really,
and,
and I trust merger enforcement uh,
generally,
um,
you know,
I think ever since then,
Lisa Khan came into power at the FTC,
there's been a lot of talk about a new wave of enforcement and a new uh new approach to antitrust.
I'd be more aggressive and focus on different tests and different features than uh,
(39:49):
than traditional.
It has been the focus,
but for the most part,
we really haven't seen too much in the way of of a different approach until this complaint landed or,
you know,
technically it's a motion for a T.
R.
O.
While the FTC continues to finish up,
the complaint will be filed,
an administrative court at the FTC.
Um,
but it's a super interesting,
(40:09):
they,
you know,
one of my big takeaways is that they are alleging two different types of horizontal harms.
Um,
One is a kind of traditional horizontal approach,
looking at basically apps, that can, VR apps that can be used for fitness,
uh saying that both Facebook or Meta and within compete in the space and there'll be a lessening of competition there.
(40:32):
Um,
That's a really difficult case for the FTC to make because there's just so many different players there.
Um,
And the second horizontal theory is definitely an interesting and a new one and that is that Meta is actually taking itself out of the market as a future potential competitor in this space by acquiring Within [Unlimited].
So,
the FTC is basically alleging that without this acquisition,
(40:54):
FTC would have actually developed a competing product and launched that and there would've been two options available to consumers rather than just Within moving over to Meta.
Um and that's really interesting because in,
you know,
the it's called uh Mason competition argument.
That's usually what happens is the the big company goes and requires a smaller one to prevent it from encroaching on its space,
(41:16):
not to have to prevent itself from having to develop the product.
But what I think is really interesting here is the allegations that are in the complaint to support the theories but aren't really tied directly to the theory.
So even though these are horizontal claims,
the FTC is really looking at much broader issues.
you know,
(41:37):
they are talking about the,
you know,
Meta's entire vertical stack within VR.
So it has the platform and the games that it develops and also the uh the,
you know,
the Oculus product,
um you know,
that looks a lot more like some of the more traditional tech cases that have been brought,
but not in this type of way.
The second one,
(41:59):
thing to point out is that the complaint does spend a good amount of time talking about Meta's past acquisitions.
Uh and while they're not actually trying to go and unwind any of those acquisitions,
it does kind of signal a little bit of a concern for a roll up theory.
Um you know,
in my final takeaway here is that the FTC pays a little bit more attention to the concept of the metaverse,
(42:22):
or you know,
the next generation gaming platform that you know,
that many people are working,
working on um has been kind of thought that the FTC wasn't taking it so seriously,
but this complaint shows that they are and that they are looking at not just future competition,
but you know,
entire future industries and markets.
Um and I think,
you know,
this is a shot across the bow for a lot of not just gaming companies,
(42:46):
but you know,
tech firms in general. Thomas,
you recently authored an article concerning whether antitrust were a built-in feature as we explore the metaverse. Is the metaverse something gaming companies are going to have to consider in this field.
Yeah,
thanks very,
I love the question.
I think there's different answers to that.
So,
(43:06):
my answer as a consumer is pretty clear.
I'd love to see the creativity we have in the gaming space becoming the foundation of the metaverse in which we're moving around whether the economics of the metaverse are going to be interesting for every gaming company,
something that is hard for me to tell.
But of course,
(43:27):
I think it's not a coincidence that gaming companies are the strongest players in the metaverse. The gaming world just has a 10 to 15 year head start to the rest of the industry when it comes to 3D engines and the processes behind creating immersive content. From a legal perspective.
(43:49):
Well,
the question we're dealing with right now is will the antitrust law for the metaverse
specifically internet through uh internet 3.0.
Um will this be any different than antitrust law in Internet 2.0.?
And I think the answer is probably similar to the answer to the old question whether Internet 2.0 would change antitrust law that we were facing some years ago.
(44:19):
The basic outline is the same.
The basic concepts of antitrust law is still the same.
But we have seen new rules emerge,
we have seen old rules having to be adapted to an interactive type of internet.
Internet 2.0 has not led to a decentralized Internet and has not removed the existence of large companies quite the opposite.
(44:44):
And I think that as the discussion on the matter was and Internet 3.0 emerges,
um there is more and more realization that they will not work in a completely decentralized way. The starts with obvious bottlenecks such as certain gateway devices that will be needed be it virtual reality,
(45:08):
hats be the handheld device with a simple screen interface,
aka, the cell phone,
uh and platforms linked to these devices will probably be used to access the um metaverse.
I recognize that uh many metaverse concepts commonly emphasized that the metaverse is device agnostic,
(45:34):
but companies will invest in developing the best devices out there and add other features to convince consumers to use them and no other device.
This may unlock network effects and the small handful of players,
or even single players could acquire market power or even become dominant.
(45:56):
And I would not exclude that the same could happen in many other metaverse contexts. and Blockchain and N.
F.
T-based transactions are a fantastic way to to decentralize the internet to provide ownership tools to people generating content.
But people are as I said,
(46:18):
starting to recognize that at least some processes need to be re-centralized to make them work in practice.
And this leads me to believe that the metaverse will not remove the relevance of antitrust law,
but in many regards we will see similar issues coming up
to what we're seeing now,
some issues will likely be even more pronounced and we will see if there's new rules coming towards us to deal with them.
(46:48):
For example,
I'm mindful of the data topic that we already addressed.
Think of the incredible amounts of additional and valuable data points generated in a metaverse.
I'm sure that access to this data will be a highly relevant antitrust topic of the metaverse era and there will be a lot of new topics on top of this from distribution,
(47:11):
antitrust law questions to addressing interoperability.
But before I'm getting carried away maybe Brendan,
do you have anything to add on this?
Yeah.
Thanks.
No,
I mean you're,
in my opinion,
you're one of the thought leaders on these questions and it's great to hear your thoughts.
I totally agree with everything you said.
(47:34):
I also I wonder what the kind of antitrust effects will be on the metaverse for those areas that people aren't always thinking about when they think of the metaverse you touched on interoperability.
I think that's a huge one.
And not just interoperability on the metaverse,
you know,
on the actual uh you know,
devices that people use in the software that they are engaging with. Look, the back end.
(47:57):
you know the data centers,
the interconnects,
the software stacks and network virtualization that need to occur for the metaverse to work really just requires an incredible amount of coordination and collaboration between different parts of the economy that, you know, historically have been hard to realize at least without you know certain prompts,
(48:21):
you know,
you go back to the smartphone wars and S.
C.
P.
S.
You know I think just this week we saw a Broadcom announced its intent to acquire VMWare which obviously has uh one of the market leaders in network fertilization.
Uh,
and I saw that deal.
And the first thing I thought as well,
that's a play for the metaverse.
They want to further embed themselves in the backbone of what they see the next stage of gaming to be,
(48:46):
um,
I could be totally wrong.
That that was just my,
you know,
gut instinct.
But,
um,
you know,
I think there's just so many,
this is such a huge market.
This isn't like a new product coming.
This is an enormous thing that will have consequences up and down consumers,
suppliers,
providers throughout.
Thank you both.
So,
(49:07):
as a closing thought,
I was hoping if you could leave the listeners with the biggest piece of advice you could give to founders concerning the antitrust,
space and gaming.
Sure,
Thanks, Mary, and thank you again for organizing this and for inviting me,
this has been a lot of fun.
Um,
for me,
the number one piece of advice is to always have antitrust in the back of your mind,
(49:27):
both as something that you need to be sure you're complying with because nobody wants to,
uh,
be getting phone calls from the government,
but also is something that is a tool that you have at your disposal if you know how to use it appropriately.
Um,
there's just a lot,
you know,
the current zeitgeist and antitrust cannot be overstated.
It's in the Wall Street Journal at least once a week in the front page,
(49:50):
there's a new,
an entire cottage industry of people reporting on thinking about antitrust.
Uh,
the agencies are growing,
they're getting more money.
There's just more activity, overall, in this space.
That provides opportunities.
If you think that you are being harmed,
you should consult an attorney. If you are just theorizing and thinking about your future and are worried about certain events that occur or bottlenecks or maybe there's some unknown M&A.
(50:20):
In the space,
you know,
under the radar,
M&A.
So,
you know,
it's one thing we didn't talk about here earlier,
but you know,
only certain deals are actually reportable to the federal government.
Smalling deals are not reportable,
but you may know about them and they may be negatively affecting you in a way that,
you know,
just the someone who isn't as engaged in the industry will not know about.
(50:40):
You should talk to your attorney because there's a lot that can be done. A lot of opportunity and it's an important part of every company's growth and success moving forward.
Yeah,
certainly 100% agree with Brendan.
I mean that small players have never had better leverage to use antitrust tools to help them if they're facing issues with large platforms and other players.
(51:07):
And what's the other biggest piece of advice?
I I think the other biggest piece of advice overlaps with what many colleagues and many other episodes of this great podcast have already said.
And again,
Thanks, Mary for organizing this podcast.
The messages reach out to us at an early-stage if you're emerging,
(51:31):
reach out early so we can prepare the process,
help you to get around the pitfalls if you're updating your distribution agreements.
Um if you have doubt whether complying with EU law,
when you go into European markets,
contact us early.
When you think that your sales people are discussing the wrong kinds of topics with their peers and other companies don't be shy,
(51:57):
reach out to us.
We'll be quick to tell you that there are no issues if there are none.
If a client or potential client wanted to get in touch with you guys,
what would the process be like for starters,
Thomas and I and the entire antitrust team work with our T T
G.
And corporate colleagues daily on these questions,
(52:18):
you know,
both in the gaming space and just more broadly and obviously you know,
one of the benefits of working with Wilson Sonsini is you get to learn from the experience of other companies,
right?
So it's pretty unlikely that you'll come up with a question or a situation that we haven't thought about in at least some type of context.
Um and in terms of getting in touch with us it's really as easy as reaching out to your contact odds are Thomas or I have spoken to them already and worked with them already.
(52:41):
If not it's very easy for us to get in touch. And if you aren't already working with Wilson Sonsini,
you can find us easily on the websites,
uh,
www.WSGR.com and I'm Brendan,
Coffman and Thomas,
can you tell us about Europe?
Yeah.
Thanks, Brendan.
Same is obviously true for for Europe,
Same home page.
And we're happy to cover all your questions related to Europe.
(53:05):
And when I say Europe,
I mean specifically the EU itself,
but also the main jurisdictions in the EU,
including Germany and France for example.
But we also have a great UK team that can also cover the questions that pop up with regard to Great Britain,
Awesome.
Well,
thank you both so much for your time today.
(53:26):
Really appreciate all of your commentary.
Wilson Sonsini advises a wide variety of clients in the gaming industry as you've just heard.
If you'd like more information about legal issues arising in the gaming space,
please check out our Electronic Gaming Groups newsletter.
If you have any questions,
please don't hesitate to reach out to any member of our Electronic Gaming Group.
Thanks for tuning in everyone.
Hi everyone,
thank you for joining Wilson Sonsini's Electronic Gaming Group podcast.
I'm Mary O'Brien, an associate at Wilson based out of Palo Alto office.
I'm thrilled to have you join me as I interviewed several of my colleagues and dig into key topics surrounding early stage companies with a focus on gaming specific issues.
The information in this podcast episode is for general information purposes only and may not reflect current law in your jurisdiction.
(00:25):
Nothing in this podcast should be taken as legal advice for any individual case or situation and this information is not intended to create and receipt or listening does not constitute an attorney client relationship.
No listener of this episode should act or refrain from acting on the basis of any information included in or accessible through this episode without seeking legal or other professional advice from an appropriately licensed professional in your state country or other appropriate jurisdiction.
(00:50):
We're pleased to have Thomas Pflock, Of Counsel, in the antitrust and competition group.
Joining us from our Brussels office and Brendan Coffman, senior counsel in our antitrust and competition group joining us from our Washington D.
C. office.
Both Brendan and Thomas will be speaking at the Games Industry Law Summit in Lithuania on September 7th this year.
Thank you so much for taking the time to join us today.
Would you mind starting off by telling us a little bit about yourselves and your experience in the gaming space.
(01:16):
Thanks Mary,
Thanks for that.
Great introduction.
So hi everyone,
My name is Brendan Coffman as Mary mentioned,
senior counsel in DC focusing on anna.
Just you know,
working on all areas of antitrust litigation,
M&A investigations,
counseling,
pricing, the whole gamut.
Um,
and that's really come in very helpful for,
for the gaming spaces we're jumping into some discussion today.
(01:37):
For me personally,
this is really pretty magical convergence of my avocation and my vocation as Robert Frost would say.
So,
you know,
my entire youth,
up through college,
you know,
even as an adult,
I love gaming.
Um,
it's been a great way for me to,
both release a little bit and also get to know some more people.
(01:57):
It's,
you know,
it's a great community behind gaming and that's one of the things I like most about it.
Uh,
you know,
as antitrust attorney every once in a while,
a gaming question would come up.
You have a pricing question or distribution question,
you know,
a little bit of uh,
you know,
smaller companies asking how they can get on the platforms, a little bit of negotiations.
But for the most part,
um,
it's been a little bit of a quieter space which always surprised me given both,
(02:22):
you know,
the size and,
and frankly the value of the gaming market as a whole.
But what we're seeing now, and I'm sure Thomas will agree, is this,
uh,
you know,
sudden emergence of gaming as a hot topic in antitrust.
Um,
that really cuts a lot of different ways,
right?
And in some ways it's a thing for companies to be aware of um,
be a little protective of one another other aspects.
(02:45):
It's a way for companies to create some opportunities for themselves.
Uh so you know,
hopefully I'm looking forward to a great discussion today on those topics.
Kick it over to you Thomas.
Yeah,
thanks a lot.
Brandon and Mary,
thanks a lot for organizing this podcast.
As you already mentioned.
I'm Thomas Pflock counselor for Wilson Sonsini in the Brussels office and it's a great pleasure doing this with you today.
(03:10):
So just like for Brandon,
electronic gaming is not just a topic that's relevant for me as a lawyer is also a topic that's close to my heart.
I've always loved gaming and I guess my parents were probably afraid I loved it a bit too much as a teenager,
but in a way this was probably also a generational question.
(03:32):
I mean it's it's it's not a coincidence that you will hear Brandon and me today, as besides this being antitrust lawyers, were part of a generation that grew up with gaming and maybe has a bit of a different starting point when it comes to questions related to the topic.
So what electronic gaming probably is just a side topic for many antitrust lawyers,
(03:57):
one industry of many that they're dealing with.
I think Brendan and I also,
um and also some of our antitrust partners that at Wilson Sonsini,
we're dealing with this topic for quite a while and it's a very happy coincidence for us that there are so many antitrust topics surrounding electronic gaming nowadays and I think there will be many more topics following.
(04:24):
I mean one topic that we're probably still gonna dive into that I think is a big thing is going to be the metaverse.
I think that's inextricably linked to gaming,
but as I said,
I think we're still gonna touch upon this later today.
Thank you, both.
And Thomas.
That's a great segue into our first question about we've discussed a few key topics on this podcast that some early-stage companies may be aware of already,
(04:52):
but antitrust is not usually an area that most early-stage companies are familiar with.
So I was hoping on a high level,
could you both run us through your practice and the types of issues you tackle?
Sure,
thanks, Mary.
So,
um this is Brendan again.
Yeah,
so as I mentioned,
I really do handle all areas of antitrust law.
You know,
I really pride myself on being able to just as easily help a company with a merger as defend a litigation as initiate a complaint to a regulatory agency if they are experiencing negative effects of anticompetitive harm.
(05:24):
Um you know,
I think just taking a step back and trying to lay the groundwork for what we're talking about today is,
you know,
people may not,
it's a word that's in the news a lot.
I'm sure people have heard it,
but maybe not know what antitrust is generally.
Um you know,
it used to be the case definitely when I started my career that,
you know,
basically anytime I was getting on the phone,
I had to start off by apologizing that I had to be there because when the antitrust attorney shows up,
(05:47):
it's just bad news.
but that's not really the case anymore.
Uh and it just is definitely much more day to day engaged with clients.
Um you know,
really it's matters of competition and competition is what companies do all day long.
Uh so,
you know,
the need for antitrust counseling has grown and pervaded all areas of companies.
So I like to think about antitrust in three different key areas:
(06:09):
So first is agreements between different players within an ecosystem.
So this can be horizontal agreements.
So horizontal agreements can be very,
very bad.
So that's price fixing,
that's the type of thing you can go to jail for,
don't price fix.
Uh It can be good.
Right?
It can be pro collaborative collaborative agreements between competitors to make something new.
Uh agreements can also be vertical in nature.
(06:31):
Um so either supply agreements or distribution agreements,
other terms between uh,
companies that interact in the same space,
even if they don't address the same customer base or supplier base.
The second main area is uh what you'll hear is unilateral conduct,
that just basically means what one firm can do.
And in the United States that means what monopolists can do. Monopolist is a legal term.
(06:55):
So there's certain things that need to be established for a monopolist to be considered monopolist.
But for the,
you know,
the simplicity of the conversation,
we were talking about how big firms can behave vis a vis others in their ecosystem,
competitors,
uh consumers, suppliers,
everything like that.
And the third area where possibly the audience is a little bit more aware of is M&A.
(07:17):
So um the antitrust agencies throughout the world make sure to protect competition by enforcing in the United States.
It's called the Clayton Act,
ensuring that the no harmful mergers get through.
They look at,
you know,
in simple terms,
they look at mergers that either substantially lessen competition um that can be either horizontal or vertical,
(07:40):
um kick it over to Thomas to explain the same concepts as they apply in Europe and abroad.
Yes.
Thanks Brendan,
Happy to.
And at this point I should probably also stopped briefly and explain why why I'm here on this podcast episode and why Europe and abroad are even relevant for our listeners,
(08:01):
because I think that most of them will probably be based in the U.S. their companies will be based there as well.
And at least some of them may ask themselves why they should care about antitrust outside the U.
S.
And first part of the answer is that antitrust authorities don't care so much where a company is based,
(08:22):
as long as the activities of a company have an impact on local competition within their jurisdiction.
And the second part of the answer while basic structures and and and and concept of competition law identical around the globe,
the application of antitrust is not,
(08:43):
and some companies have learned this the hard way regulators in different jurisdictions have different traditions,
different enforcement priorities.
And if you're having customers or suppliers outside the U.S.,
you definitely want to have an eye on these other jurisdictions.
And that's where our Brussels and London teams come in.
That's where I come in for this podcast.
(09:05):
So, to answer this question, where precisely, Mary, in our practice,
I'm also dealing with the types of issues that Brendan has just mentioned.
So I'm dealing with M.
And A.
Questions agreements between competitors,
agreements within supply relationships that may be anti competitive cartels but also unilateral conduct by dominant players that may foreclose competitors or exploit consumers.
(09:36):
And in many regards,
European authorities tend to be stricter than U.S. authorities, in other regards namely M&A.
The commission sometimes is also more lenient or at least more pragmatic and it's important for our clients that we can give them our European perspective on these questions because a green or orange flag in the U.S. might sometimes still be a red flag in the EU even more important,
(10:10):
even when the legal assessment is much the same as in the U.S.,
The way to present cases and arguments in Europe are often crucially different just sending a U.
S.
Memorandum to an EU authority will often not resonate with them in the right way.
Uh And and finally we have to keep in mind that in the EU.
(10:31):
We have a two level system,
so we have the EU on one level with the European Commission as an agency and we have national jurisdictions on the second level.
And the interplay between both of them can actually be quite complex,
but before I'm getting too much into the weeds here,
(10:51):
So Brendan anything to add from your side on the U.
S.
agencies.
So it used to be and it's still the case for the most part uh that there are really three ways where antitrust can uh come into your lives.
So the first is the federal agencies,
so the Federal Trade Commission and the Department of Justice share authority to enforce the federal antitrust laws.
(11:16):
Uh It's split up between them in a opaque and confusing and uh frankly unknown ways sometimes,
so by industry,
one agency tends to have more familiarity with a particular industry.
And so that agency tends to take on anything that comes up there,
but as industries converge and new ones emerge,
(11:39):
there's been more and more what are called you know,
turf wars between the two agencies as they try to figure out who reviews certain things.
And I think that's apparent,
even in the gaming space,
as you've seen both agencies take on different high profile deals.
Secondly,
is the State Attorneys General,
um you know,
they've always had the ability to enforce antitrust laws.
(12:01):
Historically,
they come and go,
but they're definitely in a waxing moment,
the state AGs are as aggressive and eager to enforce as ever.
Um and we actually spend,
uh,
you know,
a considerable amount of time interfacing with attorneys general from different states and different matters.
And the final area is private enforcement.
(12:22):
So there's a ton of private enforcement,
an entire cottage industry in the United States,
even in the gaming space there,
you know,
a couple very notable private cases going on right now.
Um just to lay that out there.
Thank you both.
And so from the sounds of it,
it really comes across that antitrust comes into play with larger players in the industry.
(12:42):
Does antitrust have any relevancy for earlier stage gaming companies.
Yeah,
so for sure,
trust comes in play for earlier stage companies and a variety of ways.
So,
you know,
the first is their,
their standard antitrust laws that even the smallest companies need to make sure that they are aware of and compliant with.
Um and,
you know,
a small,
(13:04):
early-stage company really doesn't have to worry too much with complying with Section Two of the Sherman Act,
which is monopolization,
but Section One of the Sherman Act that's contracts and conspiracies in restraint of trade obviously comes into play and I think the the number one thing to be aware of in this space is the renewed focus by the Department of Justice on hiring practices,
(13:25):
especially in Big Tech generally.
Um and we know from just observing the news just how aggressive the Department of Justice has been in pursuing employment cases.
These tend to manifest in two different ways.
The first is agreement between competitors on what wages they'll pay can be too particular,
(13:46):
people can be to certain positions can be too entire units,
but um any agreement between competitors on what they will pay is illegal.
And the Department of Justice actually,
recently,
although they lost have tried to prosecute these cases criminally. A second way that this manifest is "no-poach" agreements.
Um this is one that probably is a little bit more uh you know,
(14:10):
fitting to the conversation as it used to be,
you know,
20 years ago in Silicon Valley.
Uh not uncommon for companies to agree not to poach each other's uh employees because it just became an arms race.
and obviously in this space and gaming in particular,
like it all comes down to talent,
talent is the absolute most important thing,
(14:32):
the people developing,
designing the games,
executing,
negotiating the deals like these are how these,
you know,
great products get to market.
Um so I just wanna make sure people are aware of that.
so we all know there's different types of games such as mobile games,
console games and PC games are these regulated as one market or what do regulators consider when it comes to the gaming world?
(14:55):
So,
you know,
historically gaming has been defined by a pretty stark difference between being highly fractured at the development level and you know,
modestly concentrated at the distribution level.
And so what I mean there is that you have a lot of different game developers and a lot of people working on creating these games,
making sure that the art is good,
(15:17):
making sure that the features function as they're supposed to and that they're engaging to consumers.
But then when you actually wanna get that product into the hand of consumers,
there's been just a few different ways you can do it.
So obviously there's the big three consoles,
their PCs and then, now, mobile is obviously emerging.
You know,
what that's meant,
(15:38):
you know,
the way that's manifested is what has typically been a little bit of a siloed approach by the agencies of analyzing,
you know,
how particular people play particular games trying to figure out,
you know,
cross elasticity of demand between platforms or across games or genres within a certain platform.
They are now emerging towards a much more holistic review.
(16:02):
And this is something that's happening in real time and I think,
you know,
we're gonna talk a little bit about some of the high profile mergers that are in the news.
Um,
but the agencies are using these mergers as a way to better understand the industry and are starting to learn that,
the old ways of analyzing these deals may not be the most effective and I think as I say that I need to do a full disclosure that I do represent Bungie in its acquisition by Sony,
(16:28):
and Thomas,
if you added some more on the EU there.
Yeah,
sure.
Um,
before I get to the,
you know,
maybe let me make a more general point.
Um,
what difference does it make,
whether regulators consider gaming markets as broad or narrow?
The sometimes unfortunate truth is that regulators often leave open the exact definition of the market and then tend to go with what suits the best at the moment.
(16:58):
So in a merger situation where the regulator wants to argue that the two merging companies are competitors and close scrutiny is needed.
Maybe an in-depth investigation,
uh,
the authority may then want to define markets as being very broad to generate that overlap.
(17:20):
For example,
that there are wide overall markets for console or mobile games.
On the other hand,
if it's clear that two companies are both creating,
let's say,
AAA ego shooter games for the Xbox or something like that,
then,
(17:40):
um,
the authorities may argue that it cannot be excluded that the market is bad,
narrow,
AAA ego shooters on the Xbox,
which would then possibly create a higher market share of emerging entities that could make it easier to intervene or ask for commitments.
(18:01):
And I'm exaggerating slightly to make the point clear,
but something like this, often absent,
happens in praxis.
so there may often not be one market definition that allows you to give a straightforward reply to your question, Mary,
but last year's decision on Microsoft Dynamics did find that there's no clear support for segmenting different markets within mobile games,
(18:30):
console games and pc games.
So those are all great points.
And I think,
you know,
you can see the way that it's changing in the United States at least basically in real time.
So,
I mean,
there are a couple of high profile litigation in the United States,
there's obviously Epic-Apple.
So you basically have,
you know,
one platform litigating against the other platform for access to the consumer base and what the terms of that access will look like.
(18:57):
My firm is involved,
although I'm not personally,
my firm is involved in litigation in Washington and that is on behalf of the game developer,
but it's also in consolidate with the class of consumers against Valve and that is based on allegations that Valve imposes what's called most most favored nations terms for access to its platform,
(19:21):
which means that,
you know,
at the end of the day,
um developers cannot find it's impossible for them to price their products differently elsewhere
so they can't go to a different platform and try to compete by price without also having to reduce their price on Valve.
And the allegations there that's anti competitive at the same time,
you have a very high profile mergers and that are being investigated.
(19:43):
Um,
the Microsoft-Activision is obviously,
uh,
the elephant in the room that's being investigated globally.
Uh,
we also have Sony's acquisition of Bungie that's being investigated by the Federal Trade Commission,
um,
you know,
and it's in both of these,
it's wide ranging questions on all types of aspects of the company.
(20:05):
Um,
and it's really as much,
you know,
from my opinion anyway,
as much of a learning exercise as it is an actual genuine investigation,
um,
you know,
there's,
uh,
trying to figure out whether or not to look at each game by title,
or game by developer or game by genre,
or we focused on games that have micro transactions?
(20:25):
Are we focused on games that have a subscription model?
What's the important of ubiquity?
You know,
is it important for a game to be cross playable across different platforms?
Uh,
if all these are important,
how do we actually like weigh they're different importance as we evaluate overall competitive effects?
How do consumers respond?
How is the market going to respond as,
(20:45):
you know?
You know,
I think we can all agree that this is still an emerging market it's still a market where a lot of development is going to occur.
So what are the uh what are the effects,
what are the negative consequences of regulators getting involved in a market that is both functioning and growing at the same time?
(21:07):
You know,
there's uh it's probably reasonable to worry about the effects of especially at the distribution level of consolidation.
You know,
I've talked to some friends at the agencies about what types of things they're thinking about and one person made a really good comparison to me and you know,
(21:27):
that's something I've been thinking about for quite a bit.
because I asked them,
you know,
what else does this look like historically?
Like what are you like,
what are you comparing this to?
And his answer was the United States beer industry where I don't know for at least some people in the United States will know there's a wide variety of different beer manufacturers.
(21:48):
You know,
local small craft.
I.
P.
A different breweries throughout the entire country,
but when you go to your grocery store,
it can be hard to find them if you go to a restaurant.
There's only a couple of things on tap.
Why is that?
Well?
you know,
it's because the the large manufacturers,
you know the Anheuser Busch and Coors Miller of the world?
(22:09):
They own the trucks and they own the routes and they have the relationships with the grocery stores and the big chain restaurants and so they can kind of control access.
Um,
and the FTC,
my friends,
the FTC have said that that's the type of thing that they're worried about happening in gaming,
make sure that there's not this sudden bottleneck on distribution and availability.
(22:31):
The current FTC Chair, Lina Khan, has advocated for a more aggressive approach against big tech companies,
which I think you both reflected in your answers before.
So, with technology including gaming advancing at a rapid fire rate,
do you consider the regulatory agencies to have the right tools to be able to properly investigate these antitrust violations?
(22:52):
Um,
to answer your immediate question whether or not,
I think the agencies have the right tools to properly investigate.
I do.
The antitrust laws are written in a way to be flexible.
I mean,
these are passed in 1890 are still vibrant today.
You know,
they,
I kind of argue that an antitrust law in the United States is really the last true common law.
(23:14):
You know,
we have a very simple law that has evolved through uh,
court decisions and agency guidance over the years.
Um,
and that has allowed it to adapt to different markets and realities at the same time.
Um you know,
I think one can't help but notice in the United States the onslaught of new legislation that is coming in.
(23:35):
Um,
you know,
my,
my personal view on this is that it's,
not well tailored to address the issues that they think that they're addressing.
Uh,
the legislation is obviously just too captured as happens in Washington too often,
but it does show perhaps a concern that the antitrust laws aren't being used in the way that they want that,
(23:58):
you know,
some people want them to be used.
Also point out that aside from federal legislation,
you actually have state legislation now coming into play.
So even just yesterday,
uh,
and the New York house voted out,
uh anti-abuse of dominance law,
which would really be the most aggressive unilateral conduct law in the United States to get enacted.
Um,
(24:18):
and of course,
it was voted out of the house before in New York and it was never signed into law,
but it does show a little bit of a,
you know,
evolution in the zeitgeist of trying to make the laws more broad or easily applied.
How about Europe, Thomas?
Yes.
So the European regulator has probably given its own answer already to that question whether it thinks that it has the right tools,
(24:43):
it's now agree politically that there will be a new regulation coming called the Digital Markets Act (DMA),
and the Digital Markets Act (DMA) will designate large online platforms like Google, Apple, Amazon, Microsoft.
Obviously,
maybe maybe another 15 to 20 platforms as gatekeepers.
(25:06):
And these gatekeepers will face additional regulation on top of conventional antitrust law,
uh,
will be the content of the regulation.
It's, it's a very broad set of very,
very specific obligations.
Um,
I should maybe take out three of them that are probably most relevant for our listeners.
(25:27):
So first one is an obligation to provide interoperability.
Large platforms will have to make their platforms their A.
P.
I.
interoperable with other services.
Um that may mean that Meta have to have to open its Oculus,
A P.
I or um Apple.
(25:49):
It's A P I is for the for the Apple App store,
also for for gaming publishers and manufacturers to an additional degree.
A second.
D.
M.
A will address self referencing.
Can Apple self-preference?
its own music services or its own gaming services compared to competing at providers such as say Spotify or Epic.
(26:18):
This is one of the key questions in a whole series of pending lawsuits around the globe and and specifically also in the EU In the future,
there will be a clear prohibition for such self-preferencing,
whatever that means.
So,
uh will this solve the problem?
I think we'll face a lot of litigation around the question,
(26:41):
what does self-preferencing actually mean. Third important practical point for our listeners also want to mention that there will be an enhanced requirements on data access for business users.
So, right now it's often quite obscure for games
(27:01):
companies,
how their content is distributed on platforms like Meta, Facebook IOS app store.
Uh and even more important how their content is used by the players because sometimes also just the platforms have these information and we get questions from our clients quite regularly.
Uh they would like to get more insight into their data and the data of their users and I think that this is also a key topic in a key battlefield in the context of the metaverse.
(27:37):
Just to touch upon that topic briefly.
Uh in the metaverse,
let's say the manufacturer of a virtual reality has that they will collect tons of further data points that will be extremely relevant to the providers of the underlying games or immersive worlds or whatever.
(27:59):
that with this reality headset is used for. And all this being said,
I mean DMA will still take some time to take effect and we'll probably not see any cases before 2024,
but I should also mention that other jurisdictions,
for example,
Germany they already have similar rules in place for quite a bit.
(28:22):
And, so there is already leverage of companies want to bring cases to enforce,
for example,
their access to data. Thomas.
I think you raised a really good point and you know,
one that I know that my colleagues and I have been thinking about and you know,
we just don't know the answer and that is the interplay or the intersection of,
(28:43):
you know,
antitrust in gaming,
on the one hand and data concerns on the other.
you know,
I know for certain that the FTC is,
it's considering it uh,
you know,
considering data in a general sense,
uh,
when they look at these markets,
both in terms of mergers and,
potential conduct cases,
but to me,
it's not clear that,
(29:04):
there is a connection or what that connection would be.
And I'm curious if you have,
you know,
opinion from,
from Europe where there's a little bit more,
maybe of a developed consensus on the interplay between data and competition more generally.
Yeah,
glad you're raising that.
So,
data and competition is a huge topic in Europe,
(29:27):
at least since maybe 2019 where the German authorities started running a case against,
against Facebook.
Now,
now Meta on the use of user data and,
maybe the use without properly asking for consent by these users and without going into detail on this case,
(29:50):
I mean,
it has become pretty clear that data has a competitive dimension,
a very strong competitive dimension.
Those players who have access to data and don't have to share this access with other companies.
That can be pretty,
pretty strong factor in raising entry barriers for other players and making it more difficult to compete for other players and also in influencing downstream markets maybe,
(30:21):
and shaping them in a way that might not concur with the opinion of the regulator,
how it should be.
Thank you both.
So,
despite Lisa Khan's comments as she was FTC chair,
we know that Microsoft's deal with Bethesda was approved by the DOJ and the EU commission last year.
And this year Microsoft announced that it's planning to acquire Activision Blizzard for around $69 billion.
(30:46):
Should we expect the agencies to take a similar analysis as they did to the prior deal?
Hey,
thanks, Mary.
So I think,
you know,
this comparison in the United States just really emphasizes how much things have changed.
So the Bethesda acquisition,
I believe didn't get a second request,
but um,
I think it was,
it was clear within the first 30 days,
whereas we know that the,
(31:06):
uh,
the Activision acquisition is uh,
you know,
has got a second request.
Um,
and there's been a lot of press on it.
Uh,
you know,
I think it makes sense to take a second and dive into what's going on in that transaction because it really,
uh,
you know,
provides a great font for analyzing a lot of different themes that are important in the gaming space and I think going to become more important,
(31:27):
you know,
if I were,
if I were teaching an antitrust class,
I think I would just use this merger as the final exam question and say,
talk to me about everything.
Um,
you know,
when the,
when it was first announced,
the,
the focus of most of the reports was on,
you know,
basically console gaming,
whether or not,
you know,
basically Playstation would still have access to the marquis Activision titles.
(31:53):
And you know,
Microsoft,
you know,
very quickly promised that they would honor all of their commitments uh seemingly to,
you know,
put out that fire,
but there are a lot of other different um you know,
potential impacts on competition and I think those are starting to evolve and come out in the press and be discussed a little bit more uh you know,
so one is,
what is the impact on the over the top the stream gaming market,
(32:18):
Right?
So you have um you know,
Microsoft,
obviously through the Xbox,
you can stream and then Playstation 2 and on the computers,
uh it's not clear what the terms of access will look like they're um but more importantly I think,
and this is really where I believe the FTC is probing deeply,
what does this look like for Game Pass,
which is for anyone who doesn't know it's Microsoft's subscription service,
(32:41):
They frame it as the Netflix of gaming.
The ideas that you pay a monthly fee and you have access to a certain amount of games that are available on a library.
Um and you know,
there's some real concerns there that with the Game Pass basically functioning as a loss leader at Microsoft that they could get a bunch of great titles,
uh you know,
(33:02):
highly demanded content,
put it on there for what boils down to a very cheap price,
per play across all of them and make it impossible for other over the top to to compete with that or maybe end up in a uh subscription model war a little bit that's happened in the tv in the United States.
Uh,
(33:22):
and that really scares some people and I think it makes sense for the FTC to be probing that really intently.
And then finally there is,
what does this acquisition do for Microsoft's other businesses?
Right.
Uh it just acquired Nuance a couple of years ago,
which is voice recognition software.
It obviously has the business line.
Obviously Microsoft is uh,
(33:45):
you know,
the dominant provider of office services,
there's just a lot of businesses there and it's not clear what the interplay between these all will be whether or not this allows them to either create or fortify an advantage in separate markets or whether or not it's benign,
but these are all the types of things the FTC is looking at as they should.
and it really shows just how uh,
(34:07):
analysis into gaming and antitrust has become much more robust and much more detailed.
Yeah,
I,
I don't have much to add on the substance and the underlying issues that Brendan has just described so well.
So maybe let me say a few words on why I'm going to watch this case with particular interest.
I don't,
(34:29):
I don't always defend what the European commission is doing.
naturally I sometimes strongly disagree with them as you can imagine,
but one has to make them the compliment that they have often been quite pragmatic lately,
specifically in merger cases and we've seen this play out recently and cases like Amazon-MGM or Google-Fitbit,
(34:54):
in which cases were either cleared despite all the political buzz behind them cleared pretty pragmatically Google-FitBit.
The commissioners open to accepting pretty far reaching commitments on data storage and really try to enable the deal.
(35:14):
I have impression and I think this is an interesting sign because despite the view that sometimes out there that the commission is going hard after us companies,
I think they really want to be perceived as a regulator.
That also gets to practical solutions.
(35:35):
And I'm curious whether we're also going to see that in Microsoft-Activision of course,
getting through these practical solutions always means that you have to talk to the commission in a constructive way to get such results.
This is the way that that we prefer to operate. But back to the context.
(35:56):
And your question, Mary,
I'm particularly curious how the commission is going to deal with Microsoft-Activision in this context and whether this will get quick clearance or whether the commission will deep dive into the type of issues that Brendan has raised. Earlier this month.
It came out that the FTC actually closed its investigation into Sony's planned acquisition of Bungie was this deal being looked at the same way as the Microsoft-Activision deal.
(36:24):
Thanks, Mary,
I can speak to that a little bit.
So full disclosure,
we're Wilson Sonsini represented Bungie in the deal.
Um you know,
we were a little surprised when we got the second request.
We thought that the transaction,
you know,
just on its face was not one that would raise uh competition questions or any competitive concerns,
but we were able to work collaboratively with the FTC,
(36:46):
answer their questions really quickly,
get them to understand both Sony and Bungie's
motivations for doing the deal,
and we're actually able to get the deal closed much more quickly than really anyone anticipated and we're very pleased that the FTC was willing to work with us so cooperatively.
Um,
it is interesting to think about this transaction in terms of Microsoft Activision or,
(37:09):
you know,
even other potential large scale gaming deals that may be coming down the pipeline.
Um you know,
it's,
I think it's still public right now that the FTC is currently investigating,
has a second request out for that deal.
And a lot of other jurisdictions throughout the globe have announced their investigation into the deal,
(37:29):
Europe,
the European commission,
the CMA in the United Kingdom,
Brazil,
New Zealand,
the HPC in Australia.
So there's a lot of attention being paid to the Activision deal.
Uh and probably for good reason,
um it's a much different type of deal.
Uh you know,
whereas Bungie had,
you know,
for the most part,
a single game that was its franchise,
(37:51):
uh,
you know,
plenty of exciting things in the pipeline.
But you know,
for current competition today,
it's really just the one game and it's a game that is really premised upon opening up the funnel.
Uh,
driving as many players as possible,
driving something that's called in the industry, the ubiquity of gaming.
So really trying to get as many people as possible onto the platform and enjoying the game free to play at the beginning.
(38:14):
So really no,
no barriers for the,
for the player.
Um,
Activision,
on the other hand,
is a one of the leading publishers of games in the world,
many critical titles and is being bought by a company that has had a history of engaging in monopolistic or otherwise anti-competitive practices in the past.
(38:35):
And for that reason,
we're not very surprised to see that many agencies are taking a long look and really investigating,
not just what the Activision acquisition means with respect to,
the games in the catalog right now.
Or maybe Microsoft's,
you know,
immediate,
gaming options,
you know,
Xbox and even Game Pass,
but what this looks like moving forward and how this whole position marks off to participate and potentially even try to exert more influence in the gaming market moving forward a few weeks ago,
(39:06):
it came out that the FTC is seeking to block Meta's acquisition of Within Unlimited and it's popular,
virtual reality app,
Supernatural.
Can you discuss the concerns the FTC has and whether this is setting a new precedent for gaming in the virtual reality landscape or even merger enforcement in general?
Yeah,
Thanks.
Just a super interesting development in uh,
(39:27):
in the gaming space.
And really,
and,
and I trust merger enforcement uh,
generally,
um,
you know,
I think ever since then,
Lisa Khan came into power at the FTC,
there's been a lot of talk about a new wave of enforcement and a new uh new approach to antitrust.
I'd be more aggressive and focus on different tests and different features than uh,
(39:49):
than traditional.
It has been the focus,
but for the most part,
we really haven't seen too much in the way of of a different approach until this complaint landed or,
you know,
technically it's a motion for a T.
R.
O.
While the FTC continues to finish up,
the complaint will be filed,
an administrative court at the FTC.
Um,
but it's a super interesting,
(40:09):
they,
you know,
one of my big takeaways is that they are alleging two different types of horizontal harms.
Um,
One is a kind of traditional horizontal approach,
looking at basically apps, that can, VR apps that can be used for fitness,
uh saying that both Facebook or Meta and within compete in the space and there'll be a lessening of competition there.
(40:32):
Um,
That's a really difficult case for the FTC to make because there's just so many different players there.
Um,
And the second horizontal theory is definitely an interesting and a new one and that is that Meta is actually taking itself out of the market as a future potential competitor in this space by acquiring Within [Unlimited].
So,
the FTC is basically alleging that without this acquisition,
(40:54):
FTC would have actually developed a competing product and launched that and there would've been two options available to consumers rather than just Within moving over to Meta.
Um and that's really interesting because in,
you know,
the it's called uh Mason competition argument.
That's usually what happens is the the big company goes and requires a smaller one to prevent it from encroaching on its space,
(41:16):
not to have to prevent itself from having to develop the product.
But what I think is really interesting here is the allegations that are in the complaint to support the theories but aren't really tied directly to the theory.
So even though these are horizontal claims,
the FTC is really looking at much broader issues.
you know,
(41:37):
they are talking about the,
you know,
Meta's entire vertical stack within VR.
So it has the platform and the games that it develops and also the uh the,
you know,
the Oculus product,
um you know,
that looks a lot more like some of the more traditional tech cases that have been brought,
but not in this type of way.
The second one,
(41:59):
thing to point out is that the complaint does spend a good amount of time talking about Meta's past acquisitions.
Uh and while they're not actually trying to go and unwind any of those acquisitions,
it does kind of signal a little bit of a concern for a roll up theory.
Um you know,
in my final takeaway here is that the FTC pays a little bit more attention to the concept of the metaverse,
(42:22):
or you know,
the next generation gaming platform that you know,
that many people are working,
working on um has been kind of thought that the FTC wasn't taking it so seriously,
but this complaint shows that they are and that they are looking at not just future competition,
but you know,
entire future industries and markets.
Um and I think,
you know,
this is a shot across the bow for a lot of not just gaming companies,
(42:46):
but you know,
tech firms in general. Thomas,
you recently authored an article concerning whether antitrust were a built-in feature as we explore the metaverse. Is the metaverse something gaming companies are going to have to consider in this field.
Yeah,
thanks very,
I love the question.
I think there's different answers to that.
So,
(43:06):
my answer as a consumer is pretty clear.
I'd love to see the creativity we have in the gaming space becoming the foundation of the metaverse in which we're moving around whether the economics of the metaverse are going to be interesting for every gaming company,
something that is hard for me to tell.
But of course,
(43:27):
I think it's not a coincidence that gaming companies are the strongest players in the metaverse. The gaming world just has a 10 to 15 year head start to the rest of the industry when it comes to 3D engines and the processes behind creating immersive content. From a legal perspective.
(43:49):
Well,
the question we're dealing with right now is will the antitrust law for the metaverse
specifically internet through uh internet 3.0.
Um will this be any different than antitrust law in Internet 2.0.?
And I think the answer is probably similar to the answer to the old question whether Internet 2.0 would change antitrust law that we were facing some years ago.
(44:19):
The basic outline is the same.
The basic concepts of antitrust law is still the same.
But we have seen new rules emerge,
we have seen old rules having to be adapted to an interactive type of internet.
Internet 2.0 has not led to a decentralized Internet and has not removed the existence of large companies quite the opposite.
(44:44):
And I think that as the discussion on the matter was and Internet 3.0 emerges,
um there is more and more realization that they will not work in a completely decentralized way. The starts with obvious bottlenecks such as certain gateway devices that will be needed be it virtual reality,
(45:08):
hats be the handheld device with a simple screen interface,
aka, the cell phone,
uh and platforms linked to these devices will probably be used to access the um metaverse.
I recognize that uh many metaverse concepts commonly emphasized that the metaverse is device agnostic,
(45:34):
but companies will invest in developing the best devices out there and add other features to convince consumers to use them and no other device.
This may unlock network effects and the small handful of players,
or even single players could acquire market power or even become dominant.
(45:56):
And I would not exclude that the same could happen in many other metaverse contexts. and Blockchain and N.
F.
T-based transactions are a fantastic way to to decentralize the internet to provide ownership tools to people generating content.
But people are as I said,
(46:18):
starting to recognize that at least some processes need to be re-centralized to make them work in practice.
And this leads me to believe that the metaverse will not remove the relevance of antitrust law,
but in many regards we will see similar issues coming up
to what we're seeing now,
some issues will likely be even more pronounced and we will see if there's new rules coming towards us to deal with them.
(46:48):
For example,
I'm mindful of the data topic that we already addressed.
Think of the incredible amounts of additional and valuable data points generated in a metaverse.
I'm sure that access to this data will be a highly relevant antitrust topic of the metaverse era and there will be a lot of new topics on top of this from distribution,
(47:11):
antitrust law questions to addressing interoperability.
But before I'm getting carried away maybe Brendan,
do you have anything to add on this?
Yeah.
Thanks.
No,
I mean you're,
in my opinion,
you're one of the thought leaders on these questions and it's great to hear your thoughts.
I totally agree with everything you said.
(47:34):
I also I wonder what the kind of antitrust effects will be on the metaverse for those areas that people aren't always thinking about when they think of the metaverse you touched on interoperability.
I think that's a huge one.
And not just interoperability on the metaverse,
you know,
on the actual uh you know,
devices that people use in the software that they are engaging with. Look, the back end.
(47:57):
you know the data centers,
the interconnects,
the software stacks and network virtualization that need to occur for the metaverse to work really just requires an incredible amount of coordination and collaboration between different parts of the economy that, you know, historically have been hard to realize at least without you know certain prompts,
(48:21):
you know,
you go back to the smartphone wars and S.
C.
P.
S.
You know I think just this week we saw a Broadcom announced its intent to acquire VMWare which obviously has uh one of the market leaders in network fertilization.
Uh,
and I saw that deal.
And the first thing I thought as well,
that's a play for the metaverse.
They want to further embed themselves in the backbone of what they see the next stage of gaming to be,
(48:46):
um,
I could be totally wrong.
That that was just my,
you know,
gut instinct.
But,
um,
you know,
I think there's just so many,
this is such a huge market.
This isn't like a new product coming.
This is an enormous thing that will have consequences up and down consumers,
suppliers,
providers throughout.
Thank you both.
So,
(49:07):
as a closing thought,
I was hoping if you could leave the listeners with the biggest piece of advice you could give to founders concerning the antitrust,
space and gaming.
Sure,
Thanks, Mary, and thank you again for organizing this and for inviting me,
this has been a lot of fun.
Um,
for me,
the number one piece of advice is to always have antitrust in the back of your mind,
(49:27):
both as something that you need to be sure you're complying with because nobody wants to,
uh,
be getting phone calls from the government,
but also is something that is a tool that you have at your disposal if you know how to use it appropriately.
Um,
there's just a lot,
you know,
the current zeitgeist and antitrust cannot be overstated.
It's in the Wall Street Journal at least once a week in the front page,
(49:50):
there's a new,
an entire cottage industry of people reporting on thinking about antitrust.
Uh,
the agencies are growing,
they're getting more money.
There's just more activity, overall, in this space.
That provides opportunities.
If you think that you are being harmed,
you should consult an attorney. If you are just theorizing and thinking about your future and are worried about certain events that occur or bottlenecks or maybe there's some unknown M&A.
(50:20):
In the space,
you know,
under the radar,
M&A.
So,
you know,
it's one thing we didn't talk about here earlier,
but you know,
only certain deals are actually reportable to the federal government.
Smalling deals are not reportable,
but you may know about them and they may be negatively affecting you in a way that,
you know,
just the someone who isn't as engaged in the industry will not know about.
(50:40):
You should talk to your attorney because there's a lot that can be done. A lot of opportunity and it's an important part of every company's growth and success moving forward.
Yeah,
certainly 100% agree with Brendan.
I mean that small players have never had better leverage to use antitrust tools to help them if they're facing issues with large platforms and other players.
(51:07):
And what's the other biggest piece of advice?
I I think the other biggest piece of advice overlaps with what many colleagues and many other episodes of this great podcast have already said.
And again,
Thanks, Mary for organizing this podcast.
The messages reach out to us at an early-stage if you're emerging,
(51:31):
reach out early so we can prepare the process,
help you to get around the pitfalls if you're updating your distribution agreements.
Um if you have doubt whether complying with EU law,
when you go into European markets,
contact us early.
When you think that your sales people are discussing the wrong kinds of topics with their peers and other companies don't be shy,
(51:57):
reach out to us.
We'll be quick to tell you that there are no issues if there are none.
If a client or potential client wanted to get in touch with you guys,
what would the process be like for starters,
Thomas and I and the entire antitrust team work with our T T
G.
And corporate colleagues daily on these questions,
(52:18):
you know,
both in the gaming space and just more broadly and obviously you know,
one of the benefits of working with Wilson Sonsini is you get to learn from the experience of other companies,
right?
So it's pretty unlikely that you'll come up with a question or a situation that we haven't thought about in at least some type of context.
Um and in terms of getting in touch with us it's really as easy as reaching out to your contact odds are Thomas or I have spoken to them already and worked with them already.
(52:41):
If not it's very easy for us to get in touch. And if you aren't already working with Wilson Sonsini,
you can find us easily on the websites,
uh,
www.WSGR.com and I'm Brendan,
Coffman and Thomas,
can you tell us about Europe?
Yeah.
Thanks, Brendan.
Same is obviously true for for Europe,
Same home page.
And we're happy to cover all your questions related to Europe.
(53:05):
And when I say Europe,
I mean specifically the EU itself,
but also the main jurisdictions in the EU,
including Germany and France for example.
But we also have a great UK team that can also cover the questions that pop up with regard to Great Britain,
Awesome.
Well,
thank you both so much for your time today.
(53:26):
Really appreciate all of your commentary.
Wilson Sonsini advises a wide variety of clients in the gaming industry as you've just heard.
If you'd like more information about legal issues arising in the gaming space,
please check out our Electronic Gaming Groups newsletter.
If you have any questions,
please don't hesitate to reach out to any member of our Electronic Gaming Group.
Thanks for tuning in everyone.
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