As the gaming industry continues to innovate and expand, the threat of litigation increases. To understand where conflicts may arise in 2024, we asked WIT’s gaming pioneer and expert Josh Grant for his thoughts on how he sees the landscape shifting with regard to industry competition and potential litigation risks.

WIT: In both 2022 and 2023, we saw a lot of conflict around antitrust, IP, and similar issues. Do you think that those types of disputes are going to continue at a high level this year?

Grant: I expect litigation trends around antitrust, IP/copyright, and consumer protection to accelerate in 2024 due to factors such as Epic’s win over Google, macroeconomic concerns driving economic pressure on all participants, and non-gaming companies challenging Apple’s platform fees. The proliferation of AI and the exposure of patents revealing how consumer data is used in gaming to affect user experience (so-called “Dark Pattern” investigations) will also contribute to this trend.

In 2023, antitrust legislation in gaming saw historic challenges to the hegemony of established platform gatekeepers. I’ll highlight a few key results and speculate as to the impact they might have on litigation in the future.

First, in Epic vs. Apple, while the verdict in this case mostly affirmed that Apple’s App Store policies did not violate antitrust laws, the court handed a major victory to Epic and the implication of this forced policy change meaningfully changed the landscape for all developers.  Apple successfully prevailed on all accounts except for the so-called “anti-steering” policy- a policy that prohibits iOS developers from offering alternate payment options and thereby forcing developers to use Apple’s payment platform and pay a 30% fee for doing so.  In this historic change to the mobile landscape, the legal finding rendered in Federal court now requires Apple to let developers create their own virtual payment gateways or leverage third-party platforms at a fraction of the cost charged by Apple, potentially reducing Apple’s dominance in in-game advertising and marketing on the iOS platform. Future conflicts may arise around subscription policies and practices, as well as from developers examining the success of Epic’s arguments against Google.

In Epic vs. Google, Epic won on every count, with the jury deeming Google Play and its billing system an illegal monopoly. The case exposed Google’s Project Hug and Project Banyan initiatives, which offered financial incentives to major developers, creating an unfair playing field. This has raised questions about Google’s practices and may lead to future disputes from developers excluded from these programs.

Lastly, the acquisition of Activision Blizzard by Microsoft has further consolidated the gaming industry, leaving only two independent, publicly-owned gaming companies in the US. The market is increasingly characterized by market dominance, with constrained channels to market and consolidation happening among developers/publishers. This trend, along with increasing development and marketing costs, suggests a future in gaming where consumers have fewer choices, and independent developers struggle to compete with behemoth publishers and distribution partners.

WIT: How do you think the current economy is playing a role in this shift?

Grant: There seems to be a significant disconnect in the gaming industry between the growth, profitability, market capitalization, and investment enjoyed by major players over the last several years and the widely distributed layoffs experienced by employees of the same companies since the start of 2023. This dichotomy exists in parallel with a record surge on the M&A front.

Many of these companies have made major transactions in speculative growth investments with the cash hauls from players and investors in the COVID boom; VR was the most widely touted shiny new object, and investments in this technology have yet to pay off. Blockchain, crypto and NFTs represent another area of massive investment with little to no return for investors and also an area seemingly replete with fraud; I’ve read some articles postulating that more than 70% of these investment platforms and start-ups were scams.  With more than $2B invested in this market segment and reportedly rampant scams and fraudulent schemes, this is another area where we might see increased litigation, assuming plaintiffs and courts can identify/establish a working jurisdiction.

Additionally, a series of matters alleging discrimination and sexism in the workplace, as well as numerous class action suits alleging deceptive marketing practices aimed at minors plague companies in the industry as well. 

When you look at the major entities dealing with the aforementioned issues, one could draw a circle around many household names into which several if not all the categories above fit. A partial list would look something like this (in no particular order): Riot, Epic, Unity, Meta, EA, Microsoft, and Activision/Blizzard (both before and following the acquisition).  

For example, Microsoft experienced double-digit gains in 2023 across content and services revenue (13%), operating income (23%) in the “More Personal Computing” division (which includes Xbox), and total company net income (27%). It announced earlier this year that they were enacting another 2,000 layoffs in the games division after its $80B acquisition of Activision, labeling employees as redundant despite telling the FTC that they were going to continue running them as separate businesses. This narrative fits generally well across a broad spectrum of the major players in the industry.  

If these trends continue, the industry could see at least two possible outcomes in the future: calls for additional unionization for creative workers in the industry and/or actions designed to bring additional measures of accountability to longstanding management teams, which have been the beneficiaries of investor and consumer investment in the gaming industry in this most recent cycle.

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: This is somewhat difficult to predict because, in media and entertainment, size really does matter and that is likely true for litigation as well given the friction imposed by the transaction costs involved in adjudicating a dispute in court. We can observe that as the industry grows at the macro-level in terms of engaged players and market size, market concentration is also increasing in virtually every aspect of the sector including content origination, content licensing, development, publishing, marketing, and distribution.  

As the gaming industry’s consolidation continues, those who remain are likely to attract increasing attention, especially from those representing entities that have exited the market or those upon whose efforts the winners have built their success.

So, if we take our perspective from those two vectors, it does seem likely that we’ll continue to see similar names dominating the courts.  However, it will be interesting to see what arises in the hangover of the blockchain, crypto, and NFT boom and bust cycle.

WIT: When it comes to IP in video gaming, do you think disputes around infringement will increase on account of growing technological capabilities?

Grant: I do on several fronts:

  • Copyright Law: People using AI tools like ChatGPT and 3rd party licensable engines to create games based on 3rd party IP will be an increasingly prevalent issue as the technology continues to evolve. For example, this would look like someone taking all the video that is available from streaming services and using a licensed version of Unreal or Unity to make a facsimile game based on established IP using AI-driven art and content.  In December 2022, an 11-year-old boy used ChatGPT to create a text-based “choose your own” adventure-style game based on the Harry Potter franchise.  The game was not particularly sophisticated in terms of art, special effects, physics, graphics, etc., but it did capture the attention of the world and became a hot topic of conversation within a week or so of launch.  As AI technology continues to evolve and if it were paired with licensable game engines and fed millions of gameplay videos from a AAA franchise, we could imagine a point in the near future where copycat games with a high degree of verisimilitude could be developed and distributed in a fraction of the time and cost of their legitimate lineage.  
  • AI Content Scraping: Protecting the IP of artists, creators, and media will be a major effort this year. Already, we have seen this issue in other forms of media and digital creative expression. For example, the song “Heart on My Sleeve,” seemingly performed by Canadian musicians Drake and The Weeknd, went viral on music streaming sites before it was removed. The creator of the song, identified by the screenname “ghostwriter977,” used artificial intelligence to generate the vocals and then mixed and mastered the vocals with other instrumental tracks. The result was a song that sounded like it was performed by Drake and The Weeknd in their distinct voices and styles, but the lyrics and the music were new, not copies of any preexisting works by the artists. All content creators and talent are likely to be concerned about their likeness or body of work being scraped and used without permission by AI and will want to be protected and compensated. I think it’s reasonable that this will play out similarly in the games industry as well.
  • AI Content Creation: We’re now seeing generative AI used to create art, game levels, dialogue, and more as mentioned previously. Will this have a substantial impact on how games are made, and will it add to the layoffs and ongoing downsizing in the industry? Will there be backlash from artists, writers, and designers? This is certainly an area to watch in 2024.

WIT: How do you think recent high-profile litigation in the gaming industry is going to change how other players interact with the market?

Grant: The outcomes in Epic vs. Google and Epic vs. Apple present a credible threat to the walled garden and anti-steering policies of major channel gatekeepers across the industry. I would expect additional antitrust complaints to be filed alleging monopolistic and anti-competitive practices in markets and channels that present similarly to those addressed in these cases. Additionally, open questions remain around subscription policies and practices, as well as digital download exclusives for the console platform.  

In Epic vs. Google, practices were disclosed that favored a privileged few developers through secret projects, creating an unfair playing field for most. It will be interesting to see how the market absorbs the discovery of these practices and what responses will emerge over time.

Want to learn more about what’s to come in the gaming industry? Reach out to learn more about our gaming expert team, created to address what we expect to be the key areas of litigation in the space as market players fight for industry dominance.

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