By Alexander MacDonald, Instacart
Last week, the Department of Justice announced a consent decree with embattled videogame publisher Activision-Blizzard. The decree accused Activision of violating antitrust law by using a “competitive-balance tax” in its esports leagues. At first glance, the decree looks like the result of a routine antitrust-enforcement action: the Department charged the company with price fixing, and the company agreed to settle. But on closer inspection, the decree reveals itself as yet another effort by the administration to boost organized labor. The decree all but invites—some would say pressures¾the company to recognize a union.
According to the DOJ’s complaint, Activision applied the tax in two esports leagues. The leagues consisted of teams competing in two popular Activision games, League of Legends and Overwatch. While Activision established the leagues and coordinated matches, the teams were independently owned and operated. They competed not only in the matches, but also for talent.
As its name suggests, the tax was meant to keep the teams competitive. A team’s main advantage comes from its players: the team with the best players naturally has the best chance of winning. But if teams can pay unlimited salaries, one or two might outbid the others and accumulate all the talent. Those teams would dominate the league, leading to lopsided matches and a boring product.
As a result, Activision tried to offset the teams’ incentive to spend big. It set a uniform salary level and required any team spending more than that level to pay a dollar-for-dollar tax. It then distributed the tax revenue to the other the teams. In other words, it allowed wealthy teams to keep paying big salaries. But if they did, it required them to pay an equal amount to their more frugal peers.
In its complaint, the DOJ labeled the tax anticompetitive. It argued that the tax encouraged teams to pay small salaries, which depressed total player earnings. And because it applied uniformly across the leagues, it worked like an agreement to fix salaries. In other words, it was a “naked” restraint on competition¾the kind of restraint that automatically fails under federal antitrust law.
Activision denied that characterization. It maintained that the tax was pro-competitive and lawful. But even so, in the decree, it acknowledged that it had already discontinued the tax voluntarily. It also promised not to use a similar tax in the future.
Had the decree stopped there, it would have been noteworthy. It would have been yet more evidence of how the Biden administration is using competition law to regulate labor markets. But there’s more to the story. The decree not only shows that the DOJ wants to boost competition for players. It also shows how the administration is trying to push companies into recognizing unions.
First, in the complaint, the Department admits that Activision’s tax looks like a salary cap. Salary caps are used¾lawfully¾by many professional sports leagues. But the Department distinguishes those caps by pointing out that they were negotiated with labor unions. And because they were negotiated with unions, they qualify for the “nonstatutory exemption.”
The nonstatutory exemption is a doctrine the Supreme Court invented in the 1960s. It allows unions to negotiate contracts that would otherwise violate antitrust law. In effect, it’s a judicial effort to harmonize labor law and antitrust law. It recognizes that many union contracts are anticompetitive—but it allows them to exist anyway.
Here, Activision didn’t bargain for the tax. Instead, it adopted the tax unilaterally. And because no union blessed the tax, it couldn’t qualify for the exemption. As the DOJ put it in the complaint, “While players in other professional sports leagues have agreed to salary restrictions as part of collective bargaining agreements, the players in Activision’s esports leagues are not members of a union and never negotiated or bargained for [the tax].”
The implication was clear: drop the tax or get a union. But in case anyone missed the point, the decree put it even more directly. On one hand, the decree barred Activision from adopting a tax on its own. But on the other, it explicitly carved out any tax covered by the nonstatutory exemption. That is, it said Activision could have a tax. But first, the company had to recognize and bargain with a union.
Activision was an obvious target for this kind of pro-union pressure. The company was already under siege. The National Labor Relations Board has charged it with at least three unfair labor practices. Two groups of its workers have already unionized. Unions are trying to organize other Activision workers. And now, the Department is putting its own thumb on the scale.
