On April 3, 2023, the Department of Justice (the “DOJ”) filed a civil complaint against Activision Blizzard Inc. (“Activision”) alleging that the “competitive balance tax” constituted an unreasonable restraint of trade under Section 1 of the Sherman Act,^[1] and entered into a proposed consent decree (a binding settlement) that, if approved by a court, would bar the gaming company from imposing a “tax” against its esports leagues that exceed spending limits on player compensation.

In its complaint, the DOJ alleged that Activision would fine an esports team one dollar for every dollar that a team spent over the total player compensation threshold. The tax, in essence, “minimized the risk that one team would substantially outbid another for a player” which harmed both the highest paid players and overall team wages.^[2] DOJ noted that players in other professional sports leagues have agreed to a salary cap as part of a collective bargaining agreement, but Activision’s esports players never negotiated or bargained for the “competitive balance tax”.

The proposed consent decree would prohibit Activision from imposing any rule that limits player compensation and requires Activision to certify that it has ended all “competitive balance taxes” in its esports leagues, to implement revised antitrust compliance and whistleblower protection policies, and to provide notice and explanation of the final judgment to its esports leagues. The proposed consent decree cannot go into effect until the end of two-month comment period and approval by the U.S. District Court for the District of Columbia.

In announcing the settlement, Assistant Attorney General Jonathan Kanter stated that “[v]ideo games and esports are among the most popular and fastest growing forms of entertainment in the world today, and professional esports players—like all workers—deserve the benefits of competition for their services. Activision’s conduct prevented that from happening. Today’s lawsuit makes clear that the Antitrust Division remains committed to protecting workers across all types of industries from anticompetitive conduct.”^[3]

In addition to the DOJ’s civil lawsuit and settlement with Activision, the Federal Trade Commission (the “FTC”) is currently challenging Microsoft’s acquisition of Activision. 

The DOJ’s action against Activision is the latest example of the federal agencies’ focus on labor and compensation issues in antitrust enforcement. The DOJ has brought a number of criminal cases for alleged employee no-poach agreements, and the FTC is currently seeking to ban employee non-compete agreements. 

FOOTNOTES

^[1] Complaint, United States v. Activision Blizzard, Inc., No. 1:23-cv-00895 (D.D.C. Apr. 3, 2023).

^[2] Id.

^[3] Press Release, U.S. Dep’t of Just., Justice Department Files Lawsuit and Proposed Consent Decree to Prohibit Activision Blizzard from Suppressing Esports Player Compensation (Apr. 3, 2023).