Valve finds itself in hot water yet again as they face another lawsuit, this time over alleged malpractice of “abusing market power” through the use of a “Most Favored Nation” (MFN) provision. MFN allows the massive distribution platform to control the price of a to-be-published game not only on Steam, but also on other distribution platforms.
Initially reported by The Hollywood Reporter last week, five gamers have filed a putative case against Valve Corporation in a California Federal Court on January 28, which was submitted under Vorys, Sater, Seymour and Pease LLP, an American law firm.
Gaming developers have also been listed as Defendants of the case. These include CD Projekt S.A.; Devolver Digital, Inc.; kChamp Games, Inc.; Rust, LLC; and Ubisoft Entertainment S.A.
The plaintiffs claim that Valve violated both Section 1 and Section 2 of the Sherman Act through the use of its Steam platform, wherein it has “monopolized the relevant market” and has used the questionable MFN clause to uphold this monopoly.
Comparatively, other major gaming distribution companies have different charges for developers and publishers. According to Techraptor, Valve takes the largest percentage cut at around 30% followed by Microsoft who takes around 15% and Epic Games taking a 12% cut. Under MFN, Valve can potentially set the price of a title for all three distributors.
This scenario was also explained by Tim Sweeney, CEO and founder of Epic Games, who also explained Steam’s problematic system in which they have veto powers whenever developers aim to sell their game at a more competitive price point.
You have to understand, 30% is an enormous markup.
When a grocery store sells an Amazon or iTunes or Steam card, their markup is maybe 10% to 15%. That’s for a physical retail store with shelves continually stocked by workers.
— Tim Sweeney (@TimSweeneyEpic) April 22, 2019
Going back, the plaintiffs further explained that enforcing the Steam MFN is “anti-competitive” as the MFN impacts consumers more by charging high prices and that the agreement between game developers and Valve through the MFN restrain trade and in this case “increased consumer prices,” thus violating Section 1 of the Sherman Act.
The Sherman Antitrust Act of 1890, or more commonly known as the Sherman Act, is a landmark US law that outlaws any form of combination that restricts trade and competition. The law highlights fair competition, ensuring there are no existing monopolies in the free market while giving consumers different options.
According to Investopedia, an important takeaway of the law is that it is not meant to quash monopolies that were “achieved by honest or organic means,” but to “target monopolies” that were a product of deliberate attempts to take over and dominate the market.
In the latter part of the document, the Plaintiffs requested that the Steam MFN should be declared “anticompetitive” and should be considered as “illegal monopolization and monopoly maintenance.” They have requested a “permanent injunctive” and equitable relief to eliminate the MFN’s anticompetitiveness in which the defendants should take affirmative action based on commission structures that are used by different gaming distribution platforms.
This is the second lawsuit that the gaming giant has faced for this week. It was only recently that Valve was hit with a different lawsuit for allegedly violating a patent in their discontinued Steam Controller designs. It was filed by Ironburg Inventions who serves as the intellectual property arm of SCUF.