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Sony urges dismissal of gamers’ antitrust lawsuit

Gamers presented a classic antitrust theory where Sony refused to deal with retail competitors, preferring to give up short run profits to become the only place where consumers can buy digital copies of video games.

SAN FRANCISCO (CN) — A federal judge scrutinized claims that Sony was willing to sacrifice short-term gain when it stopped allowing other retailers to sell its digital PlayStation games in order to reap long-term profit as the sole supplier of digital games through its online store.

Until April 2019, gamers could buy download codes for digital PlayStation games from a number of places, including Best Buy, Walmart and Amazon.

Then Sony decided to cut out the middleman and establish itself as the only marketplace where video game publishers could sell digital copies of PlayStation games.

Xbox and Nintendo also operate digital storefronts, but continue to allow other online and brick and mortar retailers to sell their games.

In an antitrust lawsuit filed last year, a class of players claim Sony “specifically intended to and did eliminate price competition from other digital video game retailers,” restricting consumers to its Sony PlayStation Store where they paid a higher price for digital games than at outside retailers.

The lawsuit also contends that Sony “foreclosed price competition among video game publishers to a significant degree, because they can no longer execute a strategy of offering lower retail prices to gain a higher share of sales. Instead, Sony sets the price to maximize its own profits, and Sony’s interests in choosing a retail price strategy conflict with the interests of video game publishers.”

The complaint further highlights an anticompetitive price effect stemming from Sony’s distribution change, as digital games on the PlayStation Store are priced significantly higher than physical copies sold by Walmart and Best Buy.

“The only plausible explanation for the stark price differences is Sony’s monopoly power in the market for digital PlayStation games,” The lawsuit states. “As video game disks go the way of CDs and DVDs before them, Sony has positioned itself to gain an ever-increasing share of, and eventually, a monopoly in the market for all PlayStation games.”

At video hearing Thursday on Sony’s motion to dismiss, Chief U.S. District Judge Richard Seeborg’s main quibble seemed to be with the gamers’ assertion that Sony gave up a profitable, longstanding relationship in order to establish a monopoly over its games. The gamers present a classic refusal to deal they likened to Aspen Skiing Co. v. Aspen Highlands Skiing Corp., a U.S. Supreme Court case from 1985 where a ski resort’s decision to terminate a deal with its smaller rival without a legitimate business reason was found to be anti-competitive.

Representing the gamer class, attorney Michael Buchman with Motley Rice, said Sony admitted in a 2020 Securities and Exchange Commission filing that it lost money, an alleged short-term profit sacrifice that the gamers attribute to Sony’s plan to eliminate retail competition and recoup those profits by monopolizing the market.

But Seeborg said the claim could be undercut by evidence that Sony actually made more money from the distribution change.

Buchman said he disagreed. “The issue in this case, which cannot be decided on a motion to dismiss, is what was the motivation for this change in policy,” he said. “Nintendo and Microsoft continue to this day to sell through retailers. Sony is the only one of the three that has now excluded retailer sails of detail games. The question is why did they do this? Was the motivation for pro-competitive zeal versus anti-competitive intent?”

“But don't you have to allege that in more than a conclusory fashion at the outset of the case?” Seeborg asked. “Because otherwise anytime there is any change made in a distribution process, you say, 'oh we can immediately sue you for an antitrust violation.' Can't be that easy."

Buchman said, “We believe that the allegations in the complaint show the defendant had a motivation to eliminate all retail competition. There's no vestige of retail competition left . . . for the sole purpose of Sony achieving control of the sales through the PlayStation store at supracompetitive prices.”

He added, “Sony is wearing one hat as manufacturer and distributor but that is not what Sony's role is with all due respect, in this case. Sony is also a competitor and as a competitor, it is eliminating all competition by retailers.”

John Cove, a partner with Shearling and Sterling who represents Sony, said the new distribution policy was simply good business sense.

"Sony has no duty to perpetually offer third-party retailers these game download codes for use on the PlayStation Store and had every right to discontinue those sales consistent with its chosen business model,” he said. “Sony has eliminated the intermediary and has taken that revenue itself. Sony took the retailers share for itself that is a rational business purpose.”

Seeborg took the case under submission.

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