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Activision has settled a lawsuit brought by the Department of Justice accusing the company of imposing rules that illegally stymied competition for players in two of its esports leagues and suppressed wages.
The Justice Department pointed in a complaint filed on April 3 to the so-called competitive balance tax in Activision’s Call of Duty and Overwatch leagues. The rule, which the leagues’ independently-owned teams have to abide by, imposes a tax on teams if their total salaries for players exceed a certain threshold.
Under a proposed deal, Activision will be barred from establishing any rule that would in any way restrict wages for players or penalize a team for going over the salary cap for players. The company in October 2021 said it would stop enforcing the tax due to the Justice Department’s investigation, according to the complaint filed in federal court in Washington, D.C.
The suit is the latest in a series of enforcement actions brought by the agency claiming labor-related antitrust violations. A federal judge in November blocked Paramount Global from selling its Simon & Schuster publishing unit to Penguin Random House, finding that the merger could harm workers by giving the newly merged entity outsized influence in how much authors are paid for their work. The order was issued after the Justice Department secured a guilty plea from a healthcare staffing provider accused of illegally agreeing not to hire nurses from competitors.
“Professional esports players—like all workers—deserve the benefits of competition for their services. Activision’s conduct prevented that from happening,” said Assistant Attorney General Jonathan Kanter of the Justice Department’s Antitrust Division. “Today’s lawsuit makes clear that the Antitrust Division remains committed to protecting workers across all types of industries from anticompetitive conduct.”
In a statement, an Activision spokesperson maintained that the tax is “lawful” and “did not have an adverse impact on player salaries.”
Activision’s tax operated like luxury tax rules in other sports leagues. Under the rule, teams were fined if their totally player compensation exceeded a threshold set by Activision each year. The fines would then be redistributed to non-offending teams.
The Justice Department said that teams recognized contracts for players would have been higher absent the tax. If a team wanted to pay a large salary to one player, for example, it would then have to pay less to other players on the team to avoid the tax.
“The Tax minimized the risk that one team would substantially outbid another for a player,” wrote Micah Stein in the complaint alleging a violation of the Sherman Act. “The Tax not only harmed the highest-paid players, but also depressed wages for all players on a team.”
While players in other pro sports leagues have agreed to salary restrictions as part of collective bargaining agreements, the agency stressed that the esports players aren’t members of a union and never negotiated for the rules. There are exemptions in antitrust laws for agreements that restrict player salaries and rights if they’re arrived at through the collective bargaining process, said Katie Van Dyck, a lawyer for the American Economic Liberties Project.
The settlement was announced as Microsoft and Activision fight a lawsuit brought by the Federal Trade Commission challenging the $69 billion merger. In a shifting regulatory environment where alleged harm to workers may be considered when reviewing the deal, Microsoft has pledged to remain neutral on unionization efforts to ease labor-related concerns. In January, it voluntarily recognized a union of quality assurance workers at ZeniMax Studios. The unionization campaign was spearheaded by the Communication Workers of America, which supports the merger.
Van Dyck notes that Microsoft’s neutrality agreement is nonbinding. “These are promises that don’t have any sort of court order over them,” she says. “Short term promises aren’t always the best thing to rely on in these types of mergers.”
Jonathan Kanter, assistant attorney general for antitrust, has said that federal regulators will move to block mergers they find to violate antitrust laws instead of seeking complex settlements that “suffer from significant deficiencies” and “too often miss the mark.”
Activision has a long history of alleged labor violations. The company was accused in April of spying on and intimidating workers who’re trying to unionize. It continues to fight a lawsuit from a California civil rights agency over sexual harassment claims after settling an identical case from the U.S. Equal Employment Opportunity Commission.
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