Class-Action Lawyer Says Supreme Court Ruling Helps Case Against EA Sports

Illustration for article titled Class-Action Lawyer Says Supreme Court Ruling Helps Case Against EA Sports

It will take months to sort out how a Supreme Court decision yesterday might affect exclusive licenses sports leagues grant to game makers. But the lawyer suing EA Sports alleging Madden is an illegal monopoly believes it helps his case.

Some believe that the Supreme Court's 9-0 ruling that the National Football League, for purposes of negotiating licenses, isn't a single entity but instead 32 separate ones, is narrow enough that it covers only the apparel business (the plaintiff in the case once held a license to make NFL caps.) After all, it makes little sense for 32 teams to have to individually negotiate their appearances in a video game, where the inclusion of an entire league is integral to the product's value.

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Stuart Paynter, the lead attorney in Pecover vs. Electronic Arts, thinks it's important not to lose sight of the difference between group licensing and an exclusive license. "There are efficiencies in group licenses," he said. "There are a lot of transactional costs to signing a license with each team, and this applies in the apparel context as well. Where we can run into trouble under this new opinion is where someone's offering an exclusive license."

Paynter is not an impartial analyst, of course. He's representing the class of consumers suing Electronic Arts over its practice of securing exclusive licenses in its sports games, which Paynter alleges was a response to 2K Sports developing lower-priced competing products in the mid-2000s. Paynter also is co-counsel in former Nebraska and Arizona State quarterback Sam Keller's lawsuit against EA, alleging his likeness was used without his permission in EA's NCAA Football series while he was in college. Neither have yet gone to trial.

But he contends that American Needle vs. NFL is very relevant to Madden - especially given how often that case's lower court rulings were cited by EA in its filings in the Pecover matter. The Supreme Court's decision overturned that ruling and sent the case back to be heard by a federal district court.

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"A reversal of that decision kills Electronic Arts' main legal defense," Paynter said. "It has factual defenses that it may still bring up in trial to a jury." But should Electronic Arts need to appeal an unfavorable decision, it has lost a good chunk of its original argument, Paynter reasoned.

Interestingly, though, he pointed out one possible silver lining for Electronic Arts with yesterday's ruling - although its hard to imagine the company using it.

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"EA could have an antitrust claim against the NFL," Paynter said. "EA kind of publicly stated that the NFL was the one that insisted on an exclusive license to make one video game. And if so, EA could have a potential damages claim against the NFL, based on the difference between the huge licensing deal it signed, and the (less expensive) one it would have had if the NFL's teams hadn't gotten together and decided to agree to an exclusive group license."

But it would seem that EA's claim of the NFL seeking a single licensee is helpful mostly in an argumentative sense, hardly something worth rupturing a very strong, 20-year publishing relationship with the league. EA also negotiated an exclusive license with the NFL Players' Association.

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While a ruling that has the force of invalidating such exclusive group licenses would not by itself create competition, Paynter believes it would put the NFL in a mood to solicit other publishers to develop competing games. Electronic Arts would almost certainly negotiate a cheaper deal if it couldn't secure a guaranteed, legally binding exclusive license. The NFL would seek to make up the lost revenue by selling another, possibly to Take Two Interactive, whose NFL 2K5 was the last licensed football video game on a console other than Madden.

"Obviously EA would not be willing to pay as much, so economically it would not make sense for the NFL to have one license," Paynter said. "It'd be a business decision for Take Two at that point."

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DISCUSSION

No, no, no. First, this ruling was against NFL PROPERTIES. This is a different entity than the NFL proper. The court's opinion reflected this, discussion the "necessity of cooperation" to bring the product to market. Every part of the court's opinion was about the cooperation with regard to merchandising. Even the somewhat-related field of games is different, because there are other players involved and different legal questions.

Then, even though the NFLP lost the single-entity question, all it means is that the NFLP doesn't "just win" — summary judgment. The law allows cooperation between competitors in certain cases, such as where there would be no product absent cooperation, and uses a fairly lenient "rule of reason" test in that case. The Supreme Court flat-out told the trial court to apply that test. Not only that, it took the time to highlight several factors — including those from the NCAA case — which would tip the scales the NFLP's way.

So, in summary, this ruling has little application to other, facially similar cases (like Madden), and while Am Needle won, the court provided the trial court a clear road map to rule against them on remand.

And just because I've noticed this before, never, ever just have one attorney's opinion form the basis for an article, no matter how sexy the copy may be. Especially if it's a prospective Plaintiff's attorney. Or a law professor. Make that double for law professors.