Activision filed a lawsuit filed by the Justice Department accusing the company of imposing rules that illegally hindered competition for players in two of its esports leagues and suppressed wages.
In a complaint filed on April 3, the Justice Department pointed to the so-called competitive balance tax at Actvision Duty And Overexpected competitions. The rule, which the leagues’ independent teams must adhere to, imposes a tax on teams if their total player salaries exceed a certain threshold.
Under a proposed deal, Activision will be barred from creating rules that in any way limit player wages or penalize a team for exceeding the player salary cap. The company said in October 2021 it would stop enforcing the tax because of the Justice Department’s investigation, according to the complaint filed in federal court in Washington, D.C.
The lawsuit is the latest in a series of enforcement actions brought by the agency over labor-related antitrust violations. A federal judge in November blocked Paramount Global from selling its Simon & Schuster publishing company to Penguin Random House, arguing that the merger could harm employees by giving the newly merged entity undue leverage over how much authors are paid for their work . The order was issued after the Justice Department obtained a guilty plea from a healthcare personnel services company accused of illegally agreeing to hire competitor nurses.
“Professional esports players, like all employees, earn the benefits of competition for their services. Activision’s conduct prevented that,” said Deputy Attorney General Jonathan Kanter of the Justice Department’s antitrust division. “Today’s lawsuit makes it clear that the Antitrust Division remains committed to protecting workers in all types of industries from anti-competitive behavior.”
In a statement, an Activision spokesperson claimed the tax is “lawful” and “has not adversely affected player salaries.”
Actvision’s tax worked like luxury tax rules in other sports leagues. Under the rule, teams were fined if their total player compensation exceeded a threshold set each year by Activision. The fines would then be redistributed to non-offending teams.
The Justice Department said team-recognized player contracts would have been higher without the tax. For example, if a team wanted to pay a large salary to one player, it would have to pay less to other players on the team to avoid the tax.
“The tax minimized the risk that one team would significantly outbid another for a player,” Micah Stein wrote in the Sherman Act violation suit. “The tax not only hurt the highest paid players, but it also depressed the wages of all players on a team.”
While players in other professional sports leagues have agreed to salary caps as part of collective bargaining agreements, the agency stressed that the esports players are not unionized and have never negotiated the rules. There are exceptions in antitrust laws for agreements that limit players’ salaries and entitlements if they come about through the collective bargaining process, said Katie Van Dyck, an attorney for the American Economic Liberties Project.
The settlement was announced as Microsoft and Activision filed a lawsuit brought by the Federal Trade Commission challenging the $69 billion merger. In a changing regulatory environment where alleged harm to employees may be considered when assessing the deal, Microsoft has pledged to remain neutral about union efforts to address labor-related concerns. In January, it voluntarily recognized a trade union of quality assurance workers at ZeniMax Studios. The union campaign was led by the Communication Workers of America, which supports the merger.
Van Dyck notes that Microsoft’s neutrality agreement is not binding. “These are promises that don’t have a court order,” she says. “Short-term promises are not always the best thing to rely on in these types of mergers.”
Jonathan Kanter, assistant attorney general for antitrust, has said federal regulators will move to blocking mergers they believe violate antitrust laws rather than seeking complex settlements that “suffer from significant flaws” and “too often defeat the purpose to miss”.
Activision has a long history of alleged labor violations. The company was accused in April of spying on and intimidating workers to join a union. It continues to fight a lawsuit from a California civil rights organization over sexual harassment claims following a settlement in an identical case from the U.S. Equal Employment Opportunity Commission.