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Comment by thesuperbigfrog | Hacker News Reader

"Sony's desire to impede such growth has prevented Microsoft from expanding Game Pass. To stop content creators from adding to Game Pass and other rival subscription services, Sony pays for 'blocking rights.'"

"These kinds of platform agreements are common in the games industry, and in documents made public as part of the Epic vs. Apple lawsuit last year, PlayStation was even mentioned as blocking the appearance of third-party games on Game Pass."

How are "blocking rights" legal?

Don't they violate anti-trust / competition laws?

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Yes, they do violate antitrust. But there are two problems with enforcement:

1. The arrangement in question relates to trade of copyrighted works; which means that any antitrust lawsuit has to jump over the hurdle of not restraining the copyright monopoly. Separability of copyright and exclusive licensing are also considered to be well-established components of the copyright monopoly.

2. The consumer welfare standard is so high a bar to antitrust enforcement that a lot of clearly illegal behavior is never prosecuted.

That last one deserves more explanation. In the 1980s a bunch of federal judges decided to repeal US antitrust law from the bench. They argued - with scant evidence - that antitrust action had to prove that consumers were harmed by monopolistic action. This is the exact same argument Apple and console vendors use to justify locking down their products; that it actually benefits consumers to have to buy their software from sources authorized by the hardware manufacturer.

In practice, there is no monopoly that does not improve consumer welfare. Monopolies are the most stable business arrangement and can bully the rest of the economy into doing what the customer wants. The whole point of antitrust is that we don't want to live under privately-owned government, not that avocados could be 2 cents cheaper.

Are they really a violation of antitrust? They're not really different from exclusive supplier relationships or exclusivity deals in other industries.

As you point out, it's pretty accepted in the copyright industry to have exclusivity deals. If I want to get Katy Perry's album, then I buy the Capitol records one, I can't get it from Sony. Or I can only stream on services where that artist is available, so if it's not on Tidal, then tough luck for users of that service.

Music is a little different because you don’t need proprietary hardware in order to listen to music. Everything plays an MP3. A CD is a CD and all CD players play CD’s.

With console video games, you can’t just pop the game disc into any disc tray that plays games. You can’t run your downloaded Xbox game on the PlayStation. The thing you licensed (since we don’t own them technically) is tied to proprietary hardware.

Imagine if you had to own a Mac in order to listen to your music you bought on iTunes/Apple Music

Microsoft tried that with Zune.[1] It was unpopular.

[1] https://support.microsoft.com/en-us/topic/support-for-rights...

Man I remember that. Great device if you wanted to tinker, terrible music store.

Both of those formats require(d) licensing didn't they?

Not from the consumer, just the manufacturers. As a consumer you bought a piece of hardware that could read the format and it worked across-the-board. With Xbox, PlayStation, and Nintendo, you buy the game and not only is it linked to the format, but it’s actually linked to their proprietary hardware. You can’t buy an Xbox game, which is exactly the same as the PlayStation version, and play it on the PlayStation. But I can buy a song online on my Mac and play it on VLC on a Windows machine.

Imagine if any music I buy on bandcamp could only be played via a bandcamp app or software on bandcamp’s proprietary hardware.

Exclusivity and Blocking is not the same. Paying you to put the content only on my platform isn’t nearly as anti trust as paying you to not put your content on a specific platform

Surely they aren't foolish enough to explicitly say in the contract they can't bring the game to Microsoft's platforms? It would just say "no alternate platforms allowed between the dates of ..." or similar?

That would be an exclusivity clause.

Excluding only one is a more minor restrain of trade than excluding all others? I can't agree, though I admit that excluding one looks nastier if only 'cause it's novel. Logically and economically, re competition, blocking seems less nasty, even if targeted.

But that doesn't mean the courts will side with me and not you. Strict logical coherence isn't always adhered to. It's even been called "the hobgoblin of little minds" - so perhaps Emerson would take your side on this.

Imagine you own a mattress store. There is another rival mattress store in your city, and you both compete for customers.

You don't make the mattresses yourselves, you purchase from a manufacturer and sell in your storefront. There are only a few different mattress manufacturers.

Your rival, instead of adjusting prices or organizing better marketing, simply plays the manufacturers not to sell to your store for six months.

Unless you can rapidly find a brand new source of mattresses or have a very healthy rainy day fund, you will likely go under fairly quickly after selling your remaining stock.

This leaves only one store in town, and they can set the price to whatever they want. Now that they are the only established incumbent they can easily recreate this scenario with any new mattress stores that want to open in your city.

Now the people of your city have only one store for mattresses, and have to pay whatever is asked for. This is not because the business did anything especially well to win more customers, or because you did anything wrong. They simply destroyed the competition through anti-competitive behavior and have negatively affected everyone else in your area.

This is why it is illegal.

We agree on all this. But my point is, to make the whole world trek to just your store is not better for competition than to make just those in your city come to your store, logically.

As well, although this may not contradict what you intended to say: patents, for example, precisely grant "the right to exclude." Exclusive territories are a frequent way to do this. So in that case, it isn't necessarily illegal.

This breaks down for music because of mandatory licensing

Or buying Activision/Blizzard or Bethesda. Game pass is bad news for the industry at large. The price floor will drop and quality will suffer.

Sure, its great for 'consumers', but it won't be long term. Will Xbox require mandatory three year game pass or onstar when you buy it? Would that be an antitrust violation?

I wonder if it is good for consumers though. Everyone I know that has it seems to just dabble puddle deep in game after game now and lose interest. Each person has a very expensive Xbox that they don’t play now. Maybe there is something to purchasing a game that makes you assign it worth. For me, the joy of games is getting deep into them, learning everything about them and finishing them. I have 500 hours in Elden Ring haha. I wonder if the fact that a game is almost free makes people subconsciously think it is worthless.

It's the paradox of choice. The more options you have, the less satisfied you are with any of them, or overall in general.

> Yes, they do violate antitrust.

This is incorrect. They may violate anti-trust but usually don't.

exclusive contracts between manufacturers and suppliers, or between manufacturers and dealers, are generally lawful because they improve competition among the brands of different manufacturers

https://www.ftc.gov/advice-guidance/competition-guidance/gui...

> In practice, there is no monopoly that does not improve consumer welfare.

What? How do monopolies help the consumer?

by acting as a collective mechanism to pursue interests of individual consumers. Trivial example, Apple shutting down Facebook's ad tracking, which is almost certainly an interest of Apple users they could not individually pursue.

In fact the government is nothing else but a very large version of this, a big monopolist who solves a collective action problem.

But a monopolist could do anything they want, and often do, that is not in the benefit of the consumer. For example, Standard Oil. Or Microsoft bundling a browser and killing Netscape. Or even Apple, that now is looking into running their own ad business after killing their competitors. Some of these may look good for consumers in the short term, but make no mistake, monopolies are not good for consumers.

they can't do anything they want because they still face the risk of replacement. Monopolistic competition is the dominant form of activity in innovative economies, temporarily outsized profits scale enable innovation and long term planning. (which benefits consumers)

MySpace in 2007 had 80% of social network traffic, turns out it could not do what it wanted. Advanced tech economies generally consist of monopolists replacing each other, not bazaar economies.

> they can't do anything they want because they still face the risk of replacement

Not necessarily, especially if the switching cost is too high. For example, if Microsoft does something monopolistic, which they had done, people aren't going to switch to Linux. Therefore the government had to step in.

> they can't do anything they want because they still face the risk of replacement

Less risk than if they weren't monopolies, which is the entire point.

MySpace isn't a good example because it was early in a growing and changing space. Better example are Windows, duopoly of iOS and Android.

It may still be possible to beat a monopoly by being extremely good and aggressive right on time when your competitor is napping. e.g. Firefox and Chrome vs IE. If IE team hadn't been dismantled and added tabs and other UI features, worked on performance and security improvement, we may have been using IE 25.

Except there is no guarantee they use that collective power for the customer's benefit. See: basically any actual monopoly (Apply isn't), including power and internet monopolies.

Aaaaand that's the reason why monopoly law actually exists. There's no democratic control over corporations so they should not wield power like governments do.

Shareholder democracy does not count.

I would cede "there is no monopoly that can't be argued to improve consumer welfare in some way (even if it's actually terrible for consumers)"

I gonna disagree with everybody, by agreeing with everybody: Rockefeller's Standard Oil benefited consumers by providing much safer oil at a higher price; the previous race to the bottom delivered low prices - too low, only highly volatile fuel with an unpredictable mix could be produced for such low prices. But Standard Oil also harmed consumers with high prices, particularly over time, compared to government oversight; say by regulation or cerification of refinerys. So it was broken up, eventually.

IANAL: Love the comment, 'twas the (US) judges with the butterknife in the belfry that done the deed, it really was. And yes, in the Apple ebookprice case it was firmly established that publishers with legit monopoly (copyright) rights could, nonetheless, not collude (cooperate) with a vendor re their individual rights, through a third party. I presume this also applies to collusion with each other, too.

So, as a copyright holder you have the "right to exclude" granted by law - but not to coordinate with other rights holders to distort the market when exercising that right.

"Blocking rights" or "negative options" would therefore seem to be illegal, in line with this decision. [Edit: no wait; there's no coordinate between more than two parties here, as there was with Apple negotiating with all copyright holders at once to coordinate a higher price. Changed my mind]

The judicial idea that suddenly took hold forty years ago (after the xerox prosecution that killed xerox dead in the seventies) that consumers have to be harmed immediately not merely by reducing competition which would harm them in time, was very "motivated thinking" in my view. Japan was soaring, so suddenly our monopolists might be thugs but they were our thugs.

BTW, the historical rubric for such law is "restraint of trade." This was common law in Britain and its colonies long before the Sherman Act (which reduced the penalies for it and at least reduced the chance of tort remedies. Sherman's brother - a general - was also a civic railway executive.)

So, this is a fair take, but also, the actual statute that drives antitrust law right now is still insane, and that has enabled lots of unnecessary judge-made interpretation.

The sherman act starts by saying "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. "

Couple things:

1. Because it's a federal statute, it has to be within congress's powers, which is why it only applies to interstate trade/commerce, rather than purely intrastate.

2. All contracts are a restraint of trade of some form. So this was a bad codification of common law.

This immediately led to judges adding words (IE finding only contracts that "unduly" restrain trade are void).

It has only gotten worse in the past century.

So when you say "in the 80's they decided to repeal it from the bench", this is right, but it would also be fair to say "judges were forced to try to interpret this thing for a century because it was badly written, and some eventually decided the earlier interpretations were wrong".

Congress could have fixed all this at any point.

> All contracts are a restraint of trade of some form.

I don't follow... how is this true? "I will give you X and you will give me Y" is a contract right? What is it restraining either party from doing?

Giving X to someone else who offers me more for it.

That seems... wrong? Say Google offers you 2 TB of storage space for 1 year for $100. You're saying that's preventing you from simultaneously paying Microsoft $100 for > 2 TB of storage storage? Or that that's preventing Google from giving someone else 2 TB of storage space for > $100? What exactly prevents both parties from doing this with multiple counterparties?

If you have lots of X, sure. But instead of something incredibly fungible like storage space, suppose I had instead agreed to sell you the Empire State building.

I thought the claim was "all contracts are a restraint", not "there exists a contract that is a restraint"?

If I buy all of object X, no object X can be sold in Montana.

In the videogames industry, it’s fundamentally the same category of competition (or stifling thereof) as an acquisition.

When Sony or Microsoft acquire game studios or publishers, both the goal and method is the same - giving their platform an advantage by paying a lump sum for control over the target platforms and storefronts of one or more games.

So it’s presumably also a case-by-case thing, like other big acquisitions / cumulative patterns of acquisitions.

So far, the industry seems to be “healthy enough” in spite of these sorts of deals. The big storefront/console competitors that are attacking each other are all huge and evenly matched, so none of them can exert this sort of control over anywhere near a majority of the market.

>How are "blocking rights" legal? Don't they violate anti-trust / competition laws?

Unfortunately it doesn't seem like it. It's not uncommon in the pharmaceutical industry either: When a drug patent expires the company will sometimes pay generic manufacturers to not manufacture the drug for a period of time.

> When a drug patent expires the company will sometimes pay generic manufacturers to not manufacture the drug for a period of time.

Which seems like a clear and direct consumer harm. So isn't that illegal, even under the strictest definition?

Welcome to reality: many corporations break a lot of laws, few are prosecuted.

Actually lots are prosecuted: https://www.ftc.gov/news-events/press-releases/terms/935?pag...

Yes, they often are found illegal by courts:

>Since 2001, the FTC has filed a number of lawsuits to stop these deals, and it supports legislation to end such “pay-for-delay” settlements.[1]

The FTC lists 4 cases since 2019, but there seems to have been a bunch more prior to 2019 that only have press releases[2]

[1] https://www.ftc.gov/news-events/topics/competition-enforceme...

[2] https://www.ftc.gov/news-events/press-releases/terms/935

> Don't they violate anti-trust / competition laws?

You can't say "yes" or "no" to this question.

Exclusive deals do not automatically violate anti-trust / competition laws. If one of the companies involved has been found to have a monopoly then it is more likely they will.

From the Justice Dept on the Sherman Act:

Exclusive dealing is frequently pro-competitive, as when it enables manufacturers and retailers to overcome free-rider issues misaligning the incentives for these vertically-related firms to satisfy the demands of consumers most efficiently. For example, a manufacturer may be unwilling to train its distributors optimally if distributors can take that training and use it to sell products of the manufacturer's rivals. Other benefits can occur as well, as when an exclusivity arrangement assures a customer of a steady stream of a necessary input.

But exclusive dealing also can be anticompetitive in some circumstances. For example, exclusive dealing may allow one manufacturer, in effect, to monopolize efficient distribution services and thereby prevent its rivals from competing effectively.

https://www.justice.gov/archives/atr/competition-and-monopol...

The FTC says this:

As discussed in the Fact Sheets on Dealings in the Supply Chain, exclusive contracts between manufacturers and suppliers, or between manufacturers and dealers, are generally lawful because they improve competition among the brands of different manufacturers (interbrand competition). However, when the firm using exclusive contracts is a monopolist, the focus shifts to whether those contracts impede efforts of new firms to break into the market or of smaller existing firms to expand their presence. The monopolist might try to impede the entry or expansion of new competitors because that competition would erode its market position. The antitrust laws condemn certain actions of a monopolist that keep rivals out of the market or prevent new products from reaching consumers.

Sony has never been found to have a monopoly on gaming (and no a "monopoly on Playstation gaming is not the same thing").

Monopolist does not mean actual monopoly though. Also from the FTC:

Courts do not require a literal monopoly before applying rules for single firm conduct; that term is used as shorthand for a firm with significant and durable market power — that is, the long term ability to raise price or exclude competitors. That is how that term is used here: a "monopolist" is a firm with significant and durable market power.

https://www.ftc.gov/advice-guidance/competition-guidance/gui...

Indeed, the relevant term-in-law is "market power."

Yes, this is true.

I this Microsoft is going to struggle to persuade courts that Sony has the market power to exclude them from the computer gaming market though.

I don't think it is per se. Exclusive dealing is a common practice in many sectors.

Circumstances can make it illegal, however.

Amazon does it for their K&P / Kindle Unlimited offering to authors. If you want your book to be available in this program (and you do want it because it accounts for a huge chunk of your income on Amazon, depending on genre) you need to agree to not have your book be available anywhere else. Not on Apple, not in Barnes and Noble, nowhere.

I think the exclusivity only applies to the eBook versions. I know Will Wight is able to sell hardcover copies of his books on Kickstarter, but mentioned he couldn't give eBook versions because of his Kindle Unlimited deal.

This is strictly illegal, but as in so many other cases in which Amazon has used its market power to that extend market power (that's the illegal part); they've never been prosecuted. Merely preventing authors from offering their ebooks at a low price (but still far higher than the cost of delivery) is strictly illegal (given that the kindle has immense ebook market power.) But Amazon does it. Welcome to Bezos-World.

Assuming Sony is paying the publisher some fairly negotiated compensation for what they’d have otherwise project earning from GamePass presence, what’s the anti-competitive element?

Just that the game is available through some channels and not others? Because that’s normal in retail. There are exclusivity deals everywhere.

Or is there some reason to believe Sony is somehow pressuring publishers to take an unfair deal? It’s possible, but I haven’t read about that yet.

I don't see a problem with Sony (or MS/Nintendo/Apple/etc) paying game developers to keep their games exclusive to a platform. Game creators make decisions on where to put their games and how to monetize.

Epic Games is notorious for giving "free games" where consumers get the game for free, but EG is paying the publisher/developer behind the scenes. So the game creators are getting paid.

Probably, but do laws actually matter in white-collar America? As long as the right groups get the right cut, the system will continue.

Yes, laws do matter. Were it otherwise civil courts would have lots of free time. The legal system isn't known for being the corruption oasis that movies make it out to be.

> Were it otherwise civil courts would have lots of free time.

Laws don't have to matter for you to waste a court's time. In fact dragging out court cases is a common legal tactic.

> The legal system isn't known for being the corruption oasis that movies make it out to be.

Your experience differs from mine. It also differs from most lawyers I know. Lawyers aren't famous for drinking heavily because they think they're making the world a better place.

Why do you think the court system works? What country do you live in?

> How are "blocking rights" legal?

Probably aren't. Gamedev is the wild west of software.

Not really. Contracts and agreements are a big thing for valuable IPs.

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