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When is it a win to pay $27 million in a settlement?

7/25/2012 COMMENTS (0)

This sounds like a brainteaser. In an antitrust class action settlement last week, Electronic Arts agreed to pay $27 million and gave up the right to certain exclusive licenses. Yet its settlement with game players can still be called a win. How can this be?

Back in June 2008, gamesters represented by Hagens Berman Sobol Shapiro sued EA in federal court in California, claiming that the company's exclusive licenses with the National Football League and the National Collegiate Athletic Association, among others, gave EA an illegal monopoly in the market for interactive football videogames. EA, as you well know if you've spent 10 minutes watching football of the televised variety, distributes the wildly popular Madden NFL and NCAA Football videogames. On Friday, the company's lawyers at Latham & Watkins submitted a proposed settlement agreement to U.S. District Judge Claudia Wilken of Oakland, California. EA agreed to cough up $27 million to the class and said it would not enter another exclusive trademark license agreement with the NCAA's trademark and licensing arm when its current agreement runs out in 2014. EA also said it wouldn't sign an exclusive licensing deal with an indoor league, the Arena Football League, for the next five years.

You'll notice, however, that EA did not agree to any restrictions on its licensing arrangements with the NFL. That's where the game maker's fortunes truly lie: The Madden games, on average, outsell the NCAA games by three to one, according to Jesse Divnich of the videogame research and consulting firm EEDAR.

And that's why the two sports law experts we consulted said that the settlement is a victory for EA. Michael McCann, a law professor who runs the Sports Law Institute at Vermont Law School, said the deal may have little impact on football videogame competition in the long run, since it's difficult for new publishers to enter the videogame arena. EA's powerful name recognition for the Madden games won't be touched in any way by the class action settlement, and until at least 2014 EA will remain the unqualified leader in NCAA football videogames as well. Plus, McCann said, any other company that wants to develop an NCAA game will have to worry about ongoing federal court litigation involving whether the game maker is improperly profiting from using the likenesses of NCAA athletes. (In pending cases at the 9th and 3rd circuit courts of appeal, EA is represented by Davis Wright Tremaine.)

Daniel Lazaroff, a professor at Loyola Law School and the director of its sports law institute, said he'll be interested to see if any class members raise objections to the settlement at an upcoming fairness hearing. Class members will receive at most $6.79 per game purchased in damages. (Certain NFL Madden games are included in the titles eligible for cash payment.)

As usually happens, the proposed settlement also addresses attorneys' fees. EA said it will not object to Hagens Berman's request for up to 30 percent of the final settlement amount and costs of up to $2 million.

The plaintiffs' attorney, Shana Scarlett at Hagens Berman, did not respond to a request for comment. Timothy O'Mara, who represented EA for Latham, also did not get back to us.

(Reporting by Erin Geiger Smith)

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