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EA Sports: If It’s In the Game, It’s In the Courtroom[1]

By: Ben Bolas on August 27, 2013

 The mercy rule was not in effect in July 2013 as the losses piled up for sports video game developer, Electronic Arts (hereinafter EA).  Within approximately one week, a U.S. District Court entered an $11 million judgment against EA, the NCAA declined to renew its video game licensing agreement with EA, and six current college football players were added to the plaintiffs’ roster in the O’Bannon antitrust lawsuit – a lawsuit brought by college athletes against the NCAA, the Collegiate Licensing Co, and EA.[2]  In reality, it is far from game over for the dynastic sports video game company, but with such courtroom commotion one wonders whether EA is in the midst of a significant losing streak.

Robin Antonick won big against EA on July 23 when a verdict awarded him $11 million in damages from “derivative works” of the Madden football computer game he originally developed in 1988.[3]  In 2011, Antonick sued EA for unpaid royalties, claiming that the contract he signed with EA stipulated that he should be paid royalties for games he developed as well as any derivative works that followed thereafter.[4]  A jury in the U.S. District Court in the Northern District of California found that several video games between 1990 and 1996 were “virtually identical” to Antonick’s original development of the first Madden game in 1988.[5]  This holding allows for a future phase of litigation to take place to determine whether Antonick is owed more from EA for video games developed between 1997 and the present.[6]  If these more recent Madden games are also found to be derivative of Antonick’s original game, Antonick stands to gain millions more from EA.[7]  In this courtroom rematch, Antonick will seek a percentage of the approximately $3 billion in revenue generated by the Madden video games – in addition to some serious bragging rights.[8]

Days prior to being defeated by Antonick, the NCAA announced that it did not intend to renew its licensing agreement with EA in 2014, effectively pulling itself from the game.[9]  A spokesperson for the NCAA released a statement explaining, “given the current business climate and cost of litigation, we determined participating in this game is not in the best interests of the NCAA.”[10]  EA will continue to develop and publish college football video games, but it will no longer be able to use NCAA names and marks.[11]  Currently, each college or university represented in EA’s video games must decide whether to opt in or out of the video game through their licensing agent, the Collegiate Licensing Company.[12]  This process will not change going forward; the only change will be that EA must forfeit the video game’s usage of NCAA names and marks.[13]

Underlying the NCAA’s decision to be taken out of the game was the pending O’Bannon antitrust lawsuit, a lawsuit which has the potential to be a landmark case for college athletics.[14]  Former UCLA basketball player Ed O’Bannon filed the lawsuit in 2009, arguing that the NCAA illegally sold likenesses and images of college athletes to EA.[15]  While other college-athletes have also sued EA recently, the O’Bannon case seems to have the broadest implications because the O’Bannon plaintiffs seek to include other revenue generated from college athletics (such as television and memorabilia revenue) under the purview of their complaint.[16]  On July 22, six current college football players from major college athletic programs were added to an amended O’Bannon complaint, allowing the plaintiffs to consolidate and sharpen their complaints against the NCAA and EA.[17]  It should be noted that the implications of this lawsuit extend far beyond mere videogames.[18]  Set to go to trial in July 2014, this lawsuit could open the door allowing future college athletes to receive a share of the billions of dollars of revenue generated from college athletic programs and accounted for by the NCAA.[19]

EA’s opponents have established a recent history of bringing the heat against EA in the month of July and this year was no exception.  In July 2012 EA agreed to a $27 million settlement in a football game monopoly suit; in July 2013 EA was forced to pay $11 million in damages to Antonick; and in July 2014, if the O’Bannon case is not settled, EA will be a co-defendant with the NCAA and the Collegiate Licensing Company in one of EA’s most crucial matchups to date.[20]

July also brought some good news for EA, albeit somewhat limited and overshadowed.  While the NCAA will not renew its licensing agreement with EA, more than 150 colleges, conferences, and bowl games have agreed to extend their agreements with EA through 2017, allowing the company to continue to develop its college football video game amidst legal uncertainty.[21]  Additionally, EA recently released a strong first quarter earnings statement, which exceeded the expectations of market analysts.  If nothing else, EA’s first quarter performance is something to celebrate.[22]  However EA will likely avoid excessive celebration, as some analysts speculate that these short-term gains mask deeper problems faced by the video game company.[23]

With significant litigation forcing large amounts of EA revenue out of the pocket, EA will be scrambling to mitigate its losses.  EA has already felt the effects of a couple crucial monetary turnovers and their opponents will look to capitalize on the video game company’s mistakes with a game-changing victory next summer.

 

 

 


[1] See EA Sports, Wikipedia, http://en.wikipedia.org/wiki/EA_Sports (last visited July 27, 2013) (providing EA Sports’ widely used motto, “If it’s in the game, it’s in the game”).

[2] See Paul Tassi, EA Must Pay Original Madden Programmer $11M in Damages, Forbes (July 24, 2013 9:13 AM), http://www.forbes.com/sites/insertcoin/2013/07/24/ea-must-pay-original-madden-programmer-11m-in-damages/ (detailing results of “derivative works” suit brought by former Madden football video game programmer); Erik Kain, NCAA Will Not Renew Video Game Licensing Contract with EA, Forbes (July 17, 2013 4:26 PM), http://www.forbes.com/sites/erikkain/2013/07/17/ncaa-will-not-renew-video-game-licensing-contract-with-ea/ (announcing that NCAA will not renew its licensing agreement with EA); Tom Farrey, Six Current Players Join NCAA Lawsuit, ESPN (July 22, 2013 12:56 PM), http://espn.go.com/espn/otl/story/_/id/9491249/six-current-football-players-join-ed-obannon-ncaa-lawsuit (reporting that “six current college football players from major programs joined a federal antitrust lawsuit against the NCAA [and EA Sports] on [July 18], significantly raising the stakes in a court battle that challenges the economic model of big-time college sports”).

[3] See Tassi, supra note 2 (describing result of lawsuit brought by Robin Antonick); see generally Antonick v. Electronic Arts, No. C-11-01543, 2013, WL 4501324 (N.D. Ca. Sept. 27, 2011) (providing background and analysis of case and denying EA’s motion to dismiss).  “[Derivative works is a term commonly used in copyright law to mean] [o]f, relating to, or constituting a work that is taken from, translated from, adapted from, or in some way further develops a previous work.”  Black’s Law Dictionary (9th ed. 2009), available at WestLaw BLACKS (defining term “derivative”).

[4] See Tassi, supra note 2.

[5] See id.

[6] See id.

[7] See id.

[8] See id.  (“When you sign a contract like the one Antonick did, part of the deal is that if the game you create spawns a huge series of hits afterward, you get paid.”).  The court will now have to consider at what point, if any, in the video game series the Madden game stopped being based on the original game created by Antonick.  See id. (indicating  arguments likely to be addressed in next Antonick lawsuit).

[9] See Kain, supra note 2.

[10] NCAA Will Not Renew EA Sports Contract, NCAA, http://www.ncaa.org/wps/wcm/connect/public/ncaa/resources/latest+news/2013/july/ncaa+will+not+renew+ea+sports+contract (last visited July 27, 2013) (indicating in press release that “[t]he NCAA has made the decision not to enter a new contract for the license of its name and logo for the EA Sports NCAA Football video game”).

[11] See, Ralph D. Russo, NCAA Ending EA Sports Video Game Amid Lawsuit, Huffington Post (July 17, 2013 8:13 PM), http://www.huffingtonpost.com/2013/07/18/ncaa-ea-sports-logos-ending-deal_n_3617693.html? (explaining implications of NCAA decision to let licensing agreement with EA expire in June 2014).

[12] See Brent Schrotenboer, EA Sports Re-Ups on College Football After NCAA Snub, USA Today (July 19, 2013 8:30 PM), http://www.usatoday.com/story/sports/ncaaf/2013/07/19/ea-sports-college-football-contract-renewed/2570119/ (providing risks and rewards associated with each college or university’s decision to renew contract with EA).  “The rewards include royalties and publicity from the game.  The risk could include the ongoing liability, with possibly bigger questions looming over the next contract extension in 2017.”  Id.

[13] See Russo, supra note 10 (quoting Andrew Wilson, executive vice president of EA, “EA Sports will continue to develop and publish college football games, but [EA] will no longer include the NCAA names and marks”).

[14] See Matt Liebl, Lawyer Responds to NCAA’s Dropping of EA Sports: ‘Tied Directly to the Pressure Our Litigation Is Bringing’, Gamezone (July 20, 2013 4:00 PM), http://www.gamezone.com/news/2013/07/20/lawyer-responds-to-ncaa-s-dropping-of-ea-sports-tied-directly-to-the-pressure-our-litigation-is-bringing (indicating that “NCAA’s decision to end its long and hugely profitable relationship with EA is tied directly to the pressure our litigation is bringing the bear”).

[15] See Farrey, supra note 2 (discussing recent developments in O’Bannon case); see also Amber J. Slattery, O’Bannon Tackles NCAA by Bringing Rookies Into the Class Action Lineup, Moorad Sports L.J. Blog (Sept. 19, 2012), http://www.law.villanova.edu/sportslaw/?p=844 (providing earlier analysis of O’Bannon case and anticipating that O’Bannon would seek to include current student-athletes in class action case); see generally O’Bannon v. NCAA, No. C 09-1967, 2010 WL 445190 (N.D. Ca. Feb. 8, 2010) (providing O’Bannon complaint).

[16] See Greg Bishop, Lawsuit Named for O’Bannon Has Other Critical Participants, N.Y. Times (June 19, 2013), http://www.nytimes.com/2013/06/20/sports/lawsuit-named-for-obannon-has-other-critical-participants.html?pagewanted=all&_r=0 (comparing O’Bannon case to Heart case and explaining that “the O’Bannon case seemed to cast a wider net to include other revenue, including television”).  “In May, a federal appeals court ruled that Hart could sue Electronic Arts.  This reversed a lower-court decision that ruled video game manufacturers were protected by the First Amendment when they depicted college players. The appeals court ruled that E.A. had not transformed Hart’s likeness to a significant degree.”  Id.  See generally Hart v. EA, 717 F.3d 141 (3d Cir. 2013) (providing appellate court’s analysis and holding in Hart case).

[17] See Farrey, supra note 2.

[18] See Slattery, supra note 15 (“Commentator Warren K. Zola noted that we may be at what Malcolm Gladwell describes as a ‘tipping point’ in the history of college athletics, where the pendulum swings toward concern for the best interest of the student-athletes.  If Judge Cousins decides to include current NCAA athletes in the class action, expect the conversation to turn away from black-letter law and toward notions of fairness in the contemporary collegiate athlete system.”).

[19] See Farrey, supra note 2 (explaining implications of O’Bannon case); see also Martin Rickman, Pay-for-Play Questions Dominate College Football Media Days, SI.com (July 26, 2013), http://college-football.si.com/2013/07/26/media-days-obannon-division-iv/ (indicating O’Bannon lawsuit is set to go to trial in July of 2014).

[20] See Samit Sarkar, EA Sports Agrees to $27 Million Settlement in Football Game Monopoly Lawsuit, Polygon (July 23, 2012 9:56 AM), http://www.polygon.com/gaming/2012/7/23/3177295/ea-sports-monopoly-lawsuit-settlement (“EA Sports has reached a proposed settlement of $27 million with the plaintiffs in a class-action lawsuit that claimed the company’s exclusive licensing agreements ‘monopolized an alleged market for interactive football software,’ ending more than four years of litigation in the federal courts.  The agreement in Pecover v. Electronic Arts only concerns the publisher’s licenses for NCAA Football and Arena Football titles; it does not affect EA’s lucrative exclusive contract for Madden games.”); see Tassi, supra note 2 (discussing July 2013 Antonick case); see also Rickman, supra note 18 (discussing pending litigation of O’Bannon case in July 2014).

[21] See Schrotenboer, supra note 11.

[22] See Erik Kain, EA First Quarter Earnings Beat Expectations But Short Term Gains Mask Deeper Problems, Forbes (July 23, 2013 6:15 PM), http://www.forbes.com/sites/erikkain/2013/07/23/ea-first-quarter-earnings-beat-expectations-but-short-term-gains-mask-deeper-problems/ (discussing EA’s first quarter earnings for 2013).

[23] See id. (explaining that EA’s short-term earnings appear to be based on cost savings rather than sustainable growth and arguing that “static growth in the video game industry, especially during a time period defined [by] a console generation shift, simply doesn’t support EA’s price”).

 

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