By Brianna Rodriguez, GW Law, 2L
(The following appeared in Esports and the Law, a newsletter produced by Hackney Publications.)
In April of 2021, Wolfire Games, the developer of the action video game Overgrowth, filed an antitrust lawsuit against Valve Corporation, the owner of Steam, a digital distribution platform. A few months later, in November 2021, the court awarded Valve Corp the win, by dismissing the action, but permitting Wolfire to file an amended complaint within 30 days of the order.
The decision brings some light into the how courts might apply antitrust laws to the gaming space, as the industry grows.
Facts
This case involved an antitrust Consolidated Amended Class Action Complaint (“CAC”) from Wolfire Games, LLC, a desktop computer game publisher[1], against Valve Corporation, the owner of Steam Games, the desktop gaming platform (“Steam Platform”) and the desktop gaming store (“Steam Store”). Wolfire Games claimed that Valve Corp. created a monopoly that forced desktop game publishers to sell their games through the Steam Store. In order for game publishers to have their games available at the Steam Store, game publishers must pay a supracompetitive fee, according to the Complaint. Wolfire Games considers this fee as one they are forced to pay since they view Valve Corp as a monopoly of computer games.
Another issue at hand is how the games are purchased. Specifically, games bought at the Steam Store are generally only usable on the Steam Platform. This is typical for a gaming platform, as gaming platforms traditionally function uniquely to their designated games. For instance, a video game bought in the Steam Store is only compatible on the Steam Platform[2]. An exception to this is the Steam Key feature, where a user buys a game from another online retail store and is given a code to redeem the game on the Steam Platform.
The Steam Platform is popular with consumers due to its user-friendly functions. On the Steam Platform, all games purchased at the Steam Store are stored in a library, where the Platform can update the games’ software as needed. Moreover, Valve Corp. created a social media function where users can chat with their friends and keep track of their gaming milestones. Wolfire Games uses the Platform’s insularity and argues that this is evidence of Valve Corp.’s monopoly, which harmed competitors like Wolfire Games through “price controls…and coercion.” Moreover, Wolfire Games alleged that Valve Corp’s actions forced “fewer, lower quality games as well as other ancillary anti-competitive effects.” Lastly, the plaintiff claimed that a lack of policing “consumers’ inappropriate behavior” was another non-price antitrust injury.
With this evidence, the CAC claims the following violations: Section 2 of the Sherman Act for monopolizing the desktop video game market; Section 1 of the Sherman Act for unreasonable restraint of trade; and unfair and deceptive acts and practices via the Washington Consumer Protection Act (“CPA”).
Valve Corp. filed a motion to dismiss the complaint under Rule 12(b)(6), claiming that Wolfire Games failed to establish the second element of the antitrust injury test in the CAC.
Are the Steam Store and the Steam Platform Separate Markets?
The first step for the court was to determine the “relevant market” that Valve Corp. occupied to determine the legitimacy of Wolfire Games’s antitrust claim. The relevant market in question involves the Steam Store and the Steam Platform. Under the CAC’s “causes of action based on tying claims,”the two entities must “operate in separate markets: a PC desktop platform market and a PC desktop game transaction market”[3] in order for their claim to be successful. However, while the CAC offered the idea that both products are in separate markets, the CAC offered a second theory that the Steam Store and the Steam Platform “operate as a single product in an integrated game transaction platform market.” If the court concluded that the Steam Store and Steam Platform were a single product, the CAC’s “causes of action based on tying claims” would fail. Thus, Valve Corp’s argument to dismiss the claim would prevail.
To determine this conclusion, Wolfire Games argued the Jefferson Parish consumer demand standard: If there is consumer demand for each product, independent of one another, then each product holds a separate market.[4] Here, Wolfire Games used the consumer demand standard to show that the Steam Store and the Steam Platform were and remain in separate consumer markets. Conversely, Valve Corp. argued the Rick-Mik’s essential ingredient standard.[5] Specifically, that “the consumer demand test d[oes] not apply when the allegedly tied product ‘is an essential ingredient of the overall ‘method of business’ with customers.’” In essence, the Steam Store and the Steam Platform are intertwined and essential for the company’s business model.
The court did not select a specific test to apply to the facts of this matter. Instead, the court concluded that the Steam Store and the Steam Platform were in a single market because it was not common for games to be transferrable from one platform to another. Furthermore, the Steam Platform’s mode of revenue was through “platform-compatible games and in-app purchases,” which meant the Steam Platform and the Steam Store were intertwined and did not exist in separate markets.
Although the court concluded that both products were “a single product within the integrated game platform and transaction market,” this case provided a look into how courts, in future matters, may apply antitrust laws in the unique infrastructure involving video games and platforms.
The Elements of an Antitrust Claim
Four elements must be met in an antitrust claim: “(1) unlawful conduct, (2) causing an injury to the plaintiff, (3) that flows from that which makes the conduct unlawful, and (4) that is of the type the antitrust laws were intended to prevent. Valve Corp.’s motion to dismiss under Rule 12(b)(6) claims the second element has not been met. Wolfire Games argues that they have been injured due to (1) the aforementioned supracompetitive fees and (2) due to Valve Corp.’s actions that stifle competition and harm the quality of the video game market.
The Supracompetitive Fee
The court is not convinced by the CAC’s claim that the supracompetitive fee harm game publishers. To explain, the court makes comparisons with this case and Sommers v. Apple. First, the 30% supracompetitive fee has been constant since Steam’s genesis in 2001. The supracompetitive fee did not begin once Steam grew into the popularity it has now. This parallels Apple’s music download fee, which also remained constant. Contrariwise, the Steam Store now offers volume discounts for game publishers. Wolfire Games claims the court does not consider the “market reality” of this new consumer market, but the court concludes that the “market reality” is that the Steam Platform’s supracompetitive fee aligns with what is typical in the market, as “othe[r] who charge less [for a supracompetitive fee] have failed, even though they had significant resources at their disposal.” Additionally, games may be bought elsewhere and activated for the Steam Platform via a Steam Key, at no additional cost to the publisher. Thus, the supracompetitive fee does not disproportionately affect game publishers, let alone Wolfire Games itself.
Valve Corp.’s Alleged Coercive Practices
In their allegation for antitrust injury, Wolfire Games claims that the Steam Store and the Steam Platform has created fewer and lower quality published desktop video games. The court disagrees with this assertion. According to the CAC, there has been an increase in published games in the market as well as for the Steam Platform. Additionally, Wolfire Games fails to establish a specific injury on the plaintiff itself.
Cybersecurity Claims as Antitrust Injury?
Wolfire Games’s last claim regards the Steam Platform’s lack of policing Steam users’ online behavioral conduct. Wolfire Games claim that this failure to police is an antitrust harm. The court dismisses this claim as the plaintiff fails to give a foundation for the third and fourth elements of an antitrust claim: (3) how the conduct is unlawful; (4) this conduct is the type of conduct that antitrust laws are meant to prevent specific harm this action does and how it affects Wolfire Games, specifically. The court dismisses the claim.
Conclusion
The defendant’s motion to dismiss is granted in part and denied in part. Overall, there are not sufficient facts in the CAC to support Wolfire Games’s antitrust injury claim. While all causes of action in the CAC are dismissed, Wolfire Games may be able to file a second amended complaint.
[1] Wolfire Games, LLC v. Valve Corp., No. C21-0563-JCC, 2021 WL 4952220 (W.D. Wash. Oct. 25, 2021)
[4] Jefferson Parish Hosp. Dist. v. Hyde, 466 U.S. 2 (1984)
