The recent dismissal of an antitrust case against Sony regarding the sale of digital video games on the company’s PlayStation Store could shed light on the viability of claims for refusal to trade against platform technology companies.
Summary of the allegations
Sony Interactive Entertainment LLC (“Sony”) manufactures, markets and markets the popular video game system PlayStation. In addition to the game console, the company also operates the PlayStation Store, an online store where users can purchase PlayStation games for digital download.
In 2021, a group of plaintiffs who had purchased digital PlayStation games sued Sony in California’s Northern District. The proposed class asserted federal monopolization (Sherman Act, Section 2) and related state claims based on Sony’s decision to change its distribution practices for digital games on the PlayStation Store.
The plaintiffs allege that before 2019, PlayStation users could purchase PlayStation digital games directly from Sony (via the PlayStation Store) or from game developers (via other online and brick-and-mortar retailers). Unlike Sony’s sales of digital games on the PlayStation Store, game developers sold “download codes” for their games that users could then exchange for digital copies of the game on the PlayStation Store. The prices of games purchased with these download codes may differ from the prices of games sold on PlayStation Store.
Sony is said to have stopped allowing retailers to sell PlayStation games through these digital download codes in April 2019. By doing so, the plaintiffs allege, Sony established the PlayStation Store as the sole source from which consumers could purchase digital PlayStation games. Furthermore, according to Sony’s new distribution practice, Sony has itself priced all digital games for PlayStation, reportedly “establishing”[ing] monopoly on the sale of digital PlayStation games” and allow Sony to charge allegedly over-competitive prices. Notably, plaintiffs did not (and could not) claim that Sony had a monopoly on gaming platforms, as it clearly faces competition from Several well-known platforms Instead, the plaintiffs based their claim on a “platform” monopoly theory, according to which Sony allegedly has a monopoly on users “locked up” in the Sony platform.
Allegations of refusal to act dismissed
Sony decided to dismiss the complaints, challenging the plaintiffs’ “platform” monopolization theory and attempts to impose an antitrust obligation on Sony to deal with its competitors (in this case, rival game developers). Sony argued that the decision to change its distribution practices and stop offering digital download codes did not amount to exclusionary behavior under Section 2.
On July 15, Judge Richard Seeborg dismissed the plaintiffs’ claims unabated.1 Citing Supreme Court rulings in Trinko and Aspen Skiing, he noted that courts generally do not require companies like Sony to do business with other entities.2 Such refusals to do business, Judge Seeborg explained, can give rise to potential liability under Section 2, (1) only in limited circumstances where there is a unilateral termination of a voluntary and profitable way of trading; (2) where there is a willingness to sacrificing short-term benefits to achieve higher long-term profits by foreclosure of competition; and (3) the refusal to trade includes products that: already sold in a retail market to other customers.3
The court ruled that plaintiffs failed the first step of the three-part test. According to the court, “plaintiffs have made persuasive statements that Sony has voluntarily terminated a profitable practice,” but “do not provide sufficient factual details.”
The plaintiffs had attempted to circumvent the first requirement under Aspen Skiing, arguing that the Supreme Court ruling in Trinko gave the plaintiffs the right to assume that Sony’s business practice was profitable. Judge Seeborg rejected plaintiffs’ attempt at a shortcut. “While it appears almost certain that Sony obtained some revenue from download codes, and plaintiffs do not need to prove at this stage that the practice was profitable,” the court explained, “at a minimum, plaintiffs must describe the process through which Sony made money from the exercise. .”4
The court concluded that plaintiffs also failed the next two steps of the test because those allegations were based on the same unsupported assumption that Sony ended a profitable way of dealing with the digital download codes.
Game Over or one life left?
As antitrust prosecutors continue to challenge the business conduct of alleged “platform” tech companies, the PlayStation Store case is worth watching.
The decision is a victory for defendants and platforms – an example of how difficult it can be to claim a refusal to deal case under Aspen Skiing. Nevertheless, plaintiffs and critics of technology platform firms can argue that the ruling merely requires plaintiffs to present additional facts about the likely profitability of past trading trajectories to support their theory.
In light of the court’s ruling that “[i]f Sony sold download codes to third-party retailers, who then sold those retailers to consumers, it appears that the practice could be analogous to the situation in Aspen Skiing,” the plaintiffs’ lawyers could attempt to substantiate their claims about the first part of the Aspen Ski test in an amended complaint.
Assuming they do, it will be interesting to see how the court analyzes Aspen Skiing’s three-part test for a subsequent rejection request. How robust will the district judge demand that the facts about the profitability be in the plea stage before plaintiffs have been able to make any discovery? If the court finds that the plaintiffs have sufficiently argued for a profitable course of action, what about the next two steps under Aspen Skiing? Plaintiffs can’t just claim they’re profitable – it’s plausible that they’ll have to argue that short-term benefits are sacrificed and they’re likely to be recouped later through higher prices.
If these hypothetical amended complaints were again dismissed, such a dismissal could exacerbate the narrow circumstances under which a platform company’s refusal to act could be considered potentially anti-competitive, highlighting once again the unique circumstances at issue in Aspen Skiing and the limitations of that precedent. On the other hand, if these hypothetical modified complaints survive a subsequent rejection, such a development could encourage claimants to challenge similar behavior from other technology platforms, especially those with popular applications and game stores.
1 Caccuri v. Sony Interactive Ent. LLC, No. 21-cv-03361-RS, 2022 USA Dist. LEXIS 125848, at *16 (ND Cal. July 15, 2022).
2 ID. (“[A]In general, the Sherman Act “limits the long-recognized right of [a] merchant or manufacturer who has a wholly private business is free to exercise his own independent judgment as to the parties with whom he will do business.”) (quoting Verizon Commc’ns Inc. v. L. Offs. or Curtis V Trinko, LLP 540 US 398, 408, 124 S. Ct. 872, 157 L. Ed. 2d 823 (2004)).
3 ID. (citing Skiing Co. v. Aspen Highlands Skiing Corp., 472 US 585 (1985); MetroNet Servs. Corp. v. Qwest Corp., 383 F.3d 1124, 1132-33 (9th Cir. 2004)).
4 ID. at 15.
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