Facebook only has 15 percent of virtual currency market for games, lawyer tells judge

19 March 2017 10:55am

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28 February 2017. By Leah Nylen.

Facebook controls only 15 percent of the market for virtual currency sold in games, its lawyers told a Delaware federal judge in an effort to forestall a trial in an antitrust case brought by former rival virtual-currency services provider Social Ranger.

Social Ranger is a successor company to Super Rewards, which sold virtual currency within online social games played on Facebook. Social Ranger sued the social network company for allegedly monopolizing the virtual currency services market after it introduced a policy in 2011 that required game developers to use only "Facebook Credits" for games running on the Facebook platform.

A key issue in the case before US District Judge Leonard Stark in Wilmington, Delaware, is whether the relevant market should consist of what Social Ranger dubbed "social network games" — Candy Crush, FarmVille and other games played solely through the Facebook platform — or it should be defined as online games more broadly, as Facebook contends, which would expand the market to include games available as apps on mobile devices.

Thomas Barnett, a lawyer for Facebook, told Stark that the company doesn't have market power in the market for in-game transactions in online games. It controls only 15 percent of the market, he said, and competes with the likes of Apple and Google, which control in-game transactions on iPhone and Android mobile devices, respectively.

"Developers demand virtual-currency services across platforms," Barnett said. "The relevant market has to include demand on these platforms."

Of the 20 most popular games on Facebook by revenue, 18 are also available as apps on Android and Apple devices, he said. For 15 of those 18 games, developers earn more money through mobile devices than through Facebook.

Barnett offered an exhibit showing the game Candy Crush on Facebook versus the mobile app, saying the structure, look and feel of the game are identical in both places. Many of the games also offer functionality that allows a user to play on Facebook, then pick up right where they left off when moving to the app, and vice-versa.

"Facebook is fighting to stay relevant here," he said. "It has a small share of what's going on."

Even if Stark accepts Social Ranger's market definition, Barnett said Facebook should still win because it has legitimate procompetitive business justifications for the change, namely that it was more efficient and secure for it to mandate a single virtual currency.

Social Ranger's attorney Derek Newman said the fact that Facebook now only controls 15 percent of in-game transactions is irrelevant. The complaint centers on conduct from 2007 to 2011, when mobile games were nascent and Facebook controlled 80 percent of the virtual-currency market.

Before its 2011 policy mandating the use of Facebook Credits, dozens of other companies offered virtual-currency services that offered more than just transaction processing, such as fraud management, analytics and rewards management for users, and generally only charged 10 to 20 percent, he said. In 2008, Facebook thought about requiring developers to use a currency developed by the social network, but rejected the idea for fear of losing developers to other social networks like MySpace and Bebo.

Only once it had cemented its place did it change the policy to effectively force developers to use its currency, for which it charged 30 percent, Newman said.

"Facebook was only able to gain a dominant market share in social network games by leveraging its dominance in social network," he said.

Newman also rejected the idea that social network games and mobile games are substitutes, saying the two forms require different languages of coding and rely on different business models and economics.

"From a developer standpoint, social network games are totally different from mobile," Newman said. "Mobile is not reasonably interchangeable with social."

While Facebook points to a few examples like Candy Crush and Words with Friends that have successfully moved cross-platform, hundreds of other social network games have failed to make that leap, he said. That's a legitimate fact question that should be presented to the jury.

Newman also rejected the idea that Facebook's procompetitive justification automatically wins out, saying the argument is pretextual and isn't backed up by the contemporaneous documents. The documents and e-mails at the time all focused on competition Facebook had with Social Ranger and the amount of money that could be made by eliminating the competition, he said.

They "don't have a single document to back up this," he said.

In rebuttal, Barnett returned to Facebook's 15 percent market share. While he acknowledged that in 2011, Facebook had a higher market share, the court needs to look at the competitive dynamics in the market, Barnett said. The fact that the market share has fallen indicates that its share wasn't stable or durable, which speaks to continued, vigorous competition.

Stark took the issue under consideration but didn't indicate when he might issue a ruling. A trial is scheduled to begin in June.

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