Facebook Sued as Social Game Monopolist

WILMINGTON, Del. (CN) - Facebook monopolizes the virtual-currency and payment-processing markets by forcing social-game developers to use its service, Kickflip claims in a federal antitrust complaint.

Kickflip dba Gambit claims that it "was a leading virtual-currency and payment-processing provider to software developers that published games on Facebook and other social networks" until Facebook "destroyed" its business.

Virtual-currency and payment-processing providers work with software developers on "virtual goods," which players use to enhance games.

The goods may include items such as points, tokens used to upgrade virtual communities or buy virtual clothing, or avatars.

Many developers offer their games for free at first to attract users.

"Social-game developers attract massive audiences for their games by offering free gameplay," the complaint states. "Once a player is engaged, the developer can offer in-game enhancements in exchange for virtual currency, which the player must earn or purchase."

Kickflip is a Delaware corporation based in Austin, Texas.

"Until Facebook violated antitrust laws, game developers turned to a vibrant and competitive market of virtual currency and payment-processing service providers," the complaint states. "They competed vigorously on service and price. And they were all successful in meeting consumer needs and generating significant revenue."

In mid-2009, there were at least 20 virtual-currency service providers available to social-game developers, Kickflip says.

That year, "Facebook began offering its own virtual-currency services to compete with Gambit and its rivals. But Facebook charged a 30 percent fee - significantly more than the market rate - yet provided only a narrow range of services. Unsurprisingly, Facebook's virtual-currency services never gained significant market share when competing on the merits," according to the complaint.

So Facebook prohibited social-game developers from using its network unless they agreed to use its virtual-currency services exclusively, and it "blacklisted" Gambit, Kickflip says.

"Facebook exploited its dominance in the separate market for social-game networks to force its virtual-currency competitors to the sidelines. First, Facebook blacklisted Gambit under the false pretext of maintaining the integrity of its social network. Facebook's next step was to prohibit social-game developers from accessing Facebook's social-game network unless they agreed to only use Facebook's virtual-currency services," the complaint states. "Facebook began forcing developers to switch to its services exclusively in 2009 and 2010, thereby systematically excluding alternative virtual-currency services providers like Gambit.

"Consequently, Facebook leveraged its dominance in the social-game marketplace to control and dominate the separate market for virtual-currency services.

"As the result of Facebook's actions, Gambit's business was destroyed."

Gambit's competitors include Super Rewards, Offerpal, TrialPay and Sometrics. The complaint does not describe their current status.

"Facebook set out systematically to destroy competition in the market for virtual-currency services. Facebook succeeded. And Gambit, Gambit's game-developer customers, and ultimately consumers, were harmed as a result," Gambit says.

"While Facebook has a right to control access to and police the contents of its website, it has no right to control the third parties with whom the developers that access its platform contract."

Kickflip seeks an injunction, damages and treble damages for tortious interference, illegal tying, monopolization, and attempted monopolization.

Its lead counsel is Mary Matterer, with Morris & James, of Wilmington.

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