Gaming and esports download: issue 3

ESIC reports findings into competitive cheating

On 28 September 2020 the esports Integrity Commission (ESIC) announced its initial findings in its investigation into historical cheating in competitive Counter-Strike: Global Offensive (CS:GO) leagues. CS:GO is a first-person shooter with over 20 years of competitive history.

The cheat at the centre of the cheating investigation allowed a team’s coach to spectate the game from anywhere on the map without anyone being aware, giving them insight on the opposing team’s location and strategy. The coach would relay this information to their team, giving them an unfair advantage. CS:GO’s developer, Valve, has reported that the exploit has now been fixed.

ESIC has issued sanctions against 37 individual coaches found to have used the cheat, imposing bans across four tiers ranging from 5 to 36 months according to the severity of the offence. The ban only applies to ESIC’s member tournaments, although they have requested that non-members also honour the ban.

The ESIC only imposed sanctions on the individual coaches, and not the teams because it “could not ascertain, with any reasonable certainty, whether the teams related to the offending parties were complicit in the exploitation of the Spectator Bug.” By comparison, ESL, the organiser of tournaments in which the cheat was used, has retroactively disqualified teams from the tournaments in question and required them to forfeit associated tour points and prize money.

ESIC will issue a further, and likely final, report at the end of October. Watch this space for further updates and more detailed analysis.

Gaming companies levelling up – Two M&A deals in the gaming space

On 21 September 2020, Microsoft Corporation announced that it would acquire ZeniMax Media Inc for $7.5bn. ZeniMax is the parent company and publisher for multiple developers including large franchises like Elder Scrolls, Fallout, and Doom. Microsoft has been acquiring developers to build out its Xbox Game Pass service, and this is its largest acquisition so far. The Game Pass service is billed as a Netflix for gaming where users pay a monthly subscription to gain access to hundreds of games. Microsoft’s pivot to this new model will be interesting to watch as new gaming consoles are released in the next few weeks. Microsoft’s main competitor, Sony’s Playstation, (also releasing a new console in the coming weeks) offers a similar service but the company is focusing on the traditional model of selling games individually.

Earlier, on 13 September 2020, US company Nvidia Corporation announced it would acquire the UK company ARM Holdings for $40bn. Nvidia designs graphics processing units (GPU) (a specialised “brain” of computers) that are primarily used in gaming computers but have also become vital components for AI and deep learning programmes. Nvidia has recently diversified, entering the gaming market with its Shield products which allows users to stream games. ARM is a semiconductor and software design company, currently owned by SoftBank. It primarily designs central processing units (CPUs), (the all-purpose “brain” of computers). The deal has been criticised by some who worry about the effect on jobs in the UK and how it will affect ARM’s business model. Arm licenses its chip designs to many firms across the world including to many of Nvidia’s competitors.

Apple terms under antitrust investigation

Since our last issue, the European Commission has announced an investigation into whether the tech giant’s rules on the distribution of apps through the App Store violate the EU competition laws. It stems from complaints filed by Spotify and an e-book/audiobook distributor about the negative impact the rules have on competition in the music streaming and e-books/audiobooks sectors.

The Commission is reviewing two restrictions imposed by Apple: the mandatory use of Apple’s own in-app purchase (IAP) system for the distribution of paid digital content and the prevention of the provision of information to Apple device users about alternative purchasing options outside apps. Apple currently charges developers 30% commission on all subscription fees paid through its IAP system and the Commission will assess whether these practices ultimately harm consumers by limiting their choice and preventing them from benefiting from lower prices.

In its press release, the Commission observed that Apple seemed to have obtained a “gatekeeper” role in app distribution to iPhone and iPad users and committed to ensuring that the App Store rules do not distort competition in markets where Apple Music and Apple Books apps compete with other developers’ apps.

Although this this investigation is focussed on the distribution of music and books, its outcome will undoubtedly have a significant impact on the gaming sector where some mobile games developers have been very vocal about the 30% cut Apple takes from their in-game transactions. We will monitor its development with interest.

Epic Games sues Apple and Google over anti-competitive practices

Only a few weeks after the European Commission’s above announcement, the topic of Apple’s terms hit the spotlight again. Epic Games introduced an update to the mobile version of Fortnite allowing players to buy in-game currency at a lower rate directly from the developer. Apple removed the game from the App Store on the grounds that Epic was violating App Store rules by bypassing Apple’s IAP system. Epic responded by filing a US lawsuit against Apple accusing it of controlling markets, blocking competition and stifling innovation. Epic alleges that by requiring the use of its own payment system, Apple abuses its monopoly power over the iOS devices.

Apple also notified Epic of its intention to revoke its developer accounts, which would leave other developers that use Epic’s Unreal Engine to create their apps without access to new updates, potentially forcing them to move to the competitors’ engines. Epic successfully obtained a temporary restraining order (backed by Microsoft filing a statement of support) to prevent Apple’s move in respect of Unreal, but not Fortnite. The court’s decision was motivated by the need to protect third parties using Unreal to develop their games.

In September, the dispute escalated with Apple filing a counterclaim for damages suffered as a result of Epic’s breach of contract. In its pleadings, Apple had stated that Epic Games had earned over $600m from its App Store.

Epic is also taking legal action against Google after it followed Apple’s lead and removed Fortnite from the Google Play Store. The situation is slightly less dire for Fortnite-playing Android users, though, as they can still to download the game from Epic’s own launcher app and the Samsung Galaxy app store.

Although the lawsuits have been filed in the US, the ensuing decisions will most likely have an impact on the shape of the whole app distribution landscape given the global presence of Apple and Google. Look out for further updates.

Should loot boxes be regulated under gambling laws?

We have written previously on loot boxes which have been the focus of regulators in recent times. In an interesting update, this summer the EU and the House of Lords in the UK have taken contrasting stances on the regulation of loot boxes under gambling law.

Position published by the EU Internal Market and Consumer Protection Committee

The EU Internal Market and Consumer Protection committee report (Report) states that loot boxes should be considered from a wider consumer protection perspective rather than classing them as a form of gambling. Otherwise, focusing narrowly on whether loot boxes satisfy national gambling criteria may lead to a fragmented market for video games in the EU. For example, Belgium, the Netherlands and Slovakia have concluded that loot boxes do qualify as gambling under their national regulations. In practice this has meant that consumers in Belgium and the Netherlands do not have access to the same version of games as in other EU Member States.

The Report suggests that loot boxes should instead be tackled by consumer protection laws that focus on addressing “problematic game designs”. It will be interesting to see how this tension between maintaining a “Single Market” and the desire of regulators to deal with loot boxes (particularly in popular video games) develops.

Position from the House of Lords Select Committee

The House of Lords Select Committee on the Social and Economic Impact of the Gambling Industry took a different view, recommending that “video gaming or other products that contain gambling-like elements, which would not currently fall within the definition of gambling, should be brought within the remit of the Gambling Act”.

The UK Gambling Commission had previously considered in its Social Gaming paper of 2015, the potential that games that look like gambling, may nevertheless not fall within the ambit of UK gambling legislation on a narrow legal perspective because the prize was not money or money’s worth. On this basis, the House of Lords committee observed that children and young people need to be protected from gambling and gambling-like products and recommended that the definition of gambling be expanded to include things such as loot boxes with gambling-like elements.