Gaming no longer exists within the confines of your home and in 2023, it will be more interactive than ever. Today, technology allows us to play games across platforms, devices, and connections to enable a fully immersive video game experience. But the innovation that encouraged this evolution has created conflicts with regard to industry competition, intellectual property, and more, prompting us to wonder what’s next when it comes to impending disputes.
An Industry Insider’s Perspective
To take a look at what’s to come in 2023, we asked WIT IP Panel member and leading video gaming expert Josh Grant to discuss how he sees the legal landscape shifting with regard to virtual reality (VR), in-game purchases, industry competition, and more. Here’s what he had to say:
WIT: Last year, we saw a lot of conflict around antitrust, IP, and things of that sort. Do you think that those types of disputes are going to continue at a high level?
Grant: There are some unresolved questions out there regarding what’s next. Certainly, the antitrust, anti-competitive issues surrounding the UK and the EU as well as the FTC’s injection into Activision and Microsoft’s transactions are probably foremost in everyone’s mind. However, there’s also been several continuing issues around deceptive marketing practices to consumers, particularly teens and kids, around these ‘gotcha’ monetization practices. They induce people to spend money in-game, which then provides them some sort of benefit. It’s been theorized that that’s akin to gambling. And, there have been several issues both here in the U.S. and abroad around deceptive marketing practices and what constitutes gambling for the in-game pricing mechanics.
I think another issue that we will continue to see this year is gaming companies reacting either to macro conditions or to changes in launch performance by doing corporate realignment and restructuring. That, of course, could lead to greater consolidation. Like in any competitive market, companies move to consolidate and try to gain efficiencies through reducing overhead, including employees. You’ve seen a number of companies, including most recently Take-Two, publish their quarterly earnings and announce 50 million dollars a year in annual cuts. We’ve seen that from pretty much all the big players, although most of them have announced reductions in staffing.
WIT: How do you think the current economy is playing a role in this realignment?
Grant: It’s interesting because in a time where overall macroeconomic trends are continuing downward, historically, it has led to an increase in the consumption of video games as a form of entertainment. But while we are seeing this downward trend, at the same time, we’re seeing companies like Microsoft and Meta make massive investments in other markets while laying off significant chunks of their workforce.
Typically, growth in a particular gaming market can slow down in ‘boom economies’ because people have more discretionary income. They travel more; they buy cars; and they shop at retail. As things cool in the macroeconomic market, people pull back and look for cheaper forms of entertainment. And if you already have a gaming console, or you have a phone, from a dollar value per hour of entertainment standpoint, gaming ranks at the top of the list. There is a counter-cyclical macroeconomic influence on the gaming market.
However, in my experience, the current economy has not been the major driver of consolidation for layoffs or changes in corporate overhead. It typically relates more to an individual publisher or developer’s performance of where they are in their slate. In other words, how recent launches have performed relative to expectations. Then you might see layoffs at the publisher level or significant changes at a particular development studio.
WIT: With these layoffs, where do you see these gaming employees headed in terms of industries?
Grant: Oftentimes in the video game space, when a publisher, developer, or console manufacturer has laid off their workforce, they’ve gone into broader technology verticals. For many people on the technical side of the games industry, the way games are developed, published, and operated is run as a service. And so, a developer in the game space could very easily move over into the broader tech space. What’s interesting now, of course, is that many of those big tech companies that used to be ‘always hiring’ with great benefits and flexible schedules may be shrinking, leaving fewer opportunities for these workers in the future.
WIT: Do you think that you’ll see any other major entities or startups in the gaming industry become involved in litigation, or will the landscape remain pretty much the same with big names like Microsoft, Sony, Activision, etc. dominating the courts?
Grant: I think it will continue to remain relatively similar because that’s where the dollars are. There are two things that make it difficult for startup companies to pursue litigation as a form of remedy. One: financial resources. It’s very much a David versus Goliath situation, and I’ve been involved in litigation that has been characterized similarly and you can always be outspent.
The second thing is that when it comes to commercial agreements for startup companies, or even established developers, more and more agreements are becoming standardized- it’s sort of a take-it-or-leave-it situation. So, if I’m a developer and I have an issue with Google, the language is pretty tight in the contracts and there is less room for startups to maneuver. By having these contracts, which I think are an issue in and of itself because it’s very difficult to argue on the merits that there are two equal parties negotiating, the developer must take whatever they can get if they’re distributing their product on major platforms. And because of consolidation at the platform and distribution level, there’s really one or two channels to market. So, not only do you have a take-it-or-leave-it contract, but you don’t have a lot of other viable options. This is one of those things that I think is most concerning for the overall health of the industry- that it’s such a David versus Goliath setup.
That being said, I do believe most operators and industry participants believe they have an affirmative obligation to uphold the terms and conditions set forth in contracts to which they are a party- and I would wholeheartedly agree. Thus, it becomes harder to argue post-signing that one party should be able to ignore a contract or pick and choose which sections they uphold, even if there was a power disparity or lack of viable alternatives prior to signing.
I’ve been involved in litigation covering a similar issue with a developer and the storefront operator/distribution partner in the past and in that case, my opinion was in favor of the operator/distributor and their ability to enforce the conditions set forth in the developer agreement. However, with fewer and fewer routes to market and greater consolidation of publishers, I can empathize with independent developers that face legitimate structural bias issues in the gaming industry as it relates to pricing, merchandising, distribution, and other policies affecting a game’s performance in the market, irrespective of the specifics of the game itself.
WIT: When it comes to IP in video gaming, do you think disputes around infringement will increase on account of increased technological capabilities?
Licensed IP has been a major driving force at retail on pretty much every gaming platform. In the U.S., Hollywood, agencies, and video game publishers have largely figured out how to work together to their benefit, utilizing brand-name commercial talent. And one of the reasons for that is the co-promotion and co-marketing that an actor or a film can bring to drive additional sales. It’s usually in both parties’ interest to respect the IP and enter into an agreement for a boost in recognition, as well as full marketing and promotion.
One important issue we’ve seen for several years is game companies ripping off IP from other game companies- such as likenesses of characters showing up in substantially similar or competitive copyrights. Oftentimes, the major infringers are from companies that are based outside of the United States. They have a distribution agreement with some channel partners- Apple, Google, Microsoft, or Sony- but the actual infringing party is based overseas. The party whose copyright was taken without permission then files suit and goes to the channel partners, but their options are very limited because there’s no jurisdiction. Historically, we have had a difficult time going out to those overseas markets and being heard. That does seem to be a continued dislocation in the market.
WIT: Something we have been seeing a lot lately has been the introduction of gaming systems in advanced vehicles. Do you think that this will eventually become a market requirement, or will it end up as more of a novelty?
Grant: Yeah, I mean to me, it seems to be very much a novelty. One of the trends that we’ve seen in video games more broadly over the last few years is a move away from incremental investment in single-purpose devices. More people play games on their phones than on all other consoles combined. And because everyone has a phone, they don’t need to make an additional hardware purchase. I have kids, and I spend a lot of time driving them to and from school and activities and everybody has a phone or an iPad. People will have those devices with them, with almost limitless content available to them both free and paid for. For me, it’s hard to see the cost-benefit at the retail level and a consumer being willing to pay more for an EV-based infotainment system (even though personally I would love to turn my truck into a personalized version of the Millennium Falcon ride at Disneyland).
I think there are two elements that I could see being a value add that consumers might pay for—one would be wireless connectivity that does support streaming or gaming, and the other being perhaps seatback displays, though the latter may have had their peak run prior to the proliferation of current generation iPads and tablets.
The more I consider the macroeconomic outlook in the US, the less and less viable this seems in the near term. I could envision a collaboration between major industry participants that manufacture consoles and peripherals striking deals for enhanced gaming systems in advance vehicles, however, the question remains for me; would these be “opt-in” add-ons for consumers on an a la carte basis, or would the OEMs subsidize the costs? Neither option seems like the best use of capital, time, or resources in today’s climate.
The Essential Role of Experts
2023 will see a host of legal issues in the video gaming industry and having an experienced gaming expert on your side when preparing for complex disputes is essential in creating a successful litigation strategy.
When it comes to intellectual property, Grant explained that licensed IP has been a major driving force at retail on pretty much every platform. Many Hollywood agencies and gaming publishers have learned how to work together in order to comarket their products and boost sales for cobranded releases. But when it comes to agreements between gaming companies, they’re not as symbiotic. One thing that will continue to be an issue is IP infringement by competing gaming companies, especially when it comes to violations by those overseas. A technical expert witness can assess the IP associated with game design, code, software, or hardware to highlight any similarities or differences and protect against infringement.
Antitrust disputes will also continue hitting the courts on account of ongoing consolidation in the industry from major players. Those in this space should consult with experienced experts who understand the challenges associated with market monopolies to evaluate potential issues and to help counsel develop a well-informed litigation strategy. Additionally, industry insiders can provide real, practical insight into the gaming industry, and how the various players relate to each other when considering market share and the competitive landscape.
At WIT, we have teams of gaming industry experts that are prepared to handle all aspects of gaming litigation and include gaming industry pioneers, experienced technical experts, and subject area specialists. Want to learn more about what’s to come in 2023 for the gaming industry and VR space? Reach out for gaming experts who are uniquely qualified to inform your litigation strategy.