Does the acquisition of an exclusive license help or hurt innovation in videogames? The issue of innovation in the John Madden Football lawsuit is a key theme for both parties. The plaintiffs argue that EA’s acquisition of the exclusive license eliminates competition and consequently stifles innovation. EA, on the other hand, argues that since it entered into an exclusive license with the NFL, it increased its expenditures on research and development on the Madden Football franchise. According to EA, this investment has not only increased the actual and perceived quality of the franchise, but it also has yielded a more innovative product. I think that the truth lies somewhere in between these two positions. More specifically, I believe that while competition in the marketplace leads to more innovative videogames, this phenomenon is extremely hard to quantify, especially for purposes of assessing damages. In other words, I believe that the plaintiffs will have a difficult time demonstrating that consumers have been harmed by a lack of innovation in the marketplace for NFL-licensed videogames.
The plaintiffs contend that in the absence of competition, innovation is sacrificed. I think that this position has common sense appeal to it. In general, a monopolist has little incentive to invest in innovation because, for all intents and purposes, it has a captive market. But I also believe that this argument is impractical for purposes of showing damages. As a litigator, I’m concerned about quantifying damages. Litigants need to demonstrate to the court that their theory of damages is not speculative. The notion that consumers have been harmed by the lack of innovation in the marketplace is not an easy concept to quantify, as innovation lies in the eye of the beholder. For this reason, I agree with EA that the plaintiffs’ argument that consumers have been harmed in the form of a lack of innovation in the marketplace is too subjective to support a claim for damages.
But what about the notion that the acquisition of an exclusive license will promote game quality and innovation? Here, EA notes that Madden Football must maintain a minimum aggregate critic review score as a condition of EA’s license from the NFL, which presumably guarantees a threshold degree of game quality. Further, EA argues that its significant investment in research and development in the Madden Football franchise yields higher quality and more innovative games as a result of its exclusive license with the NFL. I have two observations about this argument.
First, there is no guarantee that an investment in research and development will yield higher quality or more innovative games. In fact, sometimes the opposite is true. For example, EA introduced “QB Vision Control” in Madden ’06. EA touted that this new feature was a step forward in the evolution of football videogames because it increased the realism of the game. Here’s how the feature worked: A cone would emanate from the quarterback during passing plays. The cone represents the quarterback’s field of vision, and the size of the cone depends upon the quarterback’s awareness. In order to make accurate passes, the quarterback must throw to receivers that are within the cone. Otherwise, the quarterback would throw either inaccurate passes or interceptions. In my opinion, this feature was a step backwards for the franchise because it rendered gameplay clunky. It overly complicated the game’s passing mechanics. So while “QB Vision Control” may have made the game more realistic, it did not improve upon the core gameplay in an appreciable way. In fact, its inclusion made the game unnecessarily frustrating.
Second, I believe that competition in the marketplace provides a meaningful and significant motivation for game producers to manufacture a more innovative product. As a preliminary matter, I think of innovation in sports videogames as significant improvements to the following features: (a) graphics, (b) sound, (c) gameplay, (d) extra features, and (e) replayability. Notably, these are substantially the same factors that game critics analyze when they review videogames. While, in my opinion, Madden Football has achieved modest advancements in these categories since EA acquired the exclusive NFL license, other professional sports videogames that are not subject to exclusive license arrangements have far surpassed Madden Football in terms of innovation. For example, Visual Concepts’ NBA 2K11 is widely considered one of the best games of 2010. I believe that NBA 2K11 is a superior sports videogame because it represents an improvement over last year’s entry in the NBA 2K franchise in almost every way. In fact, I consider this game one of the best sports simulation videogames ever because it features: (1) superior graphics and character animations; (2) realistic and up-to-date commentary from the virtual sportscasters; (3) a dynamic online system that updates player stats and roster moves on what appear to be a daily basis; (4) tight online play; and (5) meaningful extras, such as the inclusion of Michael Jordan and Michael Jordan’s famous games. Unlike Madden Football, Virtual Concepts’ NBA 2K franchise faces competition in the market for NBA-licensed basketball videogames, including from EA in the form of the NBA Elite 11 (which is EA’s NBA basketball simulation that has not yet been released) and NBA Jam (which features more of an arcade-style NBA experience). I seriously doubt that Visual Concepts would have manufactured such a superior game in the absence of any meaningful competition.