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Facebook Credits may break U.S. antitrust laws
Facebook Credits may break U.S. antitrust laws
February 28, 2012 | By Eric Caoili




Facebook's mandated Facebook Credits system may be irritating to game developers now stuck with only one option, and third-party currency companies now struggling to stay afloat, but according to at least two law firms, they may also break U.S. antitrust laws.

The investigation comes as Facebook prepares to launch its $5 billion IPO this spring, and several weeks after the social network's Credits system came under fire from some developers for causing lowered conversion rates (from free to paying users) and average revenues per user than expected.

Social game developers could previously use third-party virtual currencies in their titles, but last July Facebook began requiring developers to offer Credits for buying in-game goods -- the company takes a 30 percent cut on all user purchases of Credits, similar to Apple's arrangement with developers on its App Store.

Attorneys Derek Newman and Brian Strange say that making Credits mandatory is likely a violation of antitrust laws that forbid companies from tying two products in that manner. Companies cannot force customers to purchase a product they do not want in order to receive an unrelated item they actually want.

On the "Stop Facebook Credits" site that Newman and Strange have set up, the lawyers accuse Facebook of using its market dominance to leave developers no choice but to use Credits, and of blocking virtual currency competitors, some of which charge developers a much lower processing fee than Facebook's 30 percent.

And because Facebook prohibits developers on its service from charging lower prices for virtual goods on non-Facebook sites -- even if those other platforms have lower fees -- the attorneys claim that the social network has made fewer options and discounts available to users both on and off its site.

"Virtual-currency companies, game developers, and the entire social gaming community are paying higher prices and receiving fewer services," said Strange. The two lawyers are urging consumers to ask judges to punish Facebook for instituting credits and to make the site allow for virtual currency competitors again.

Both Strange and Newman have taken part in high-profile class action cases, with the former serving as lead counsel in suits that have received a total of more than $300 million in settlements since 2000. Newman specializes in Internet law, and was lead counsel for Smiley vs. ICANN, which resulted in a multi-million dollar settlement.


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Comments


Bart Stewart
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If this suit is successful, would it encourage a suit against "Microsoft points" and similar schemes, which are used as a sort of internal currency for obtaining access to platform-exclusive content?

How far down would this rabbit-hole go?

Tom Baird
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I think an argument could be made that the currency is a part of the platform. If you don't want to use Facebook's credits, don't use their platform, same as with any other platform. It doesn't seem reasonable to ask this of Valve or Apple(otherwise why would they provide store fronts at all if it provides them with no benefit), and I don't see why Facebook should be different. They aren't a charity, hosting your games free of charge.

Eric Geer
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I never really understood the point of points with arbitrary point schemes. It just makes things more confusing to the consumer--just give the points dollar amounts vice versa. 15 bucks for 15 points.

I think the only place that point systems can be helpful to a company or its consumers is if they(the company) want to provide a sale or something like, get 20 points for $10.

(Whoever thought you could get point into a sentence 3x)

Tom Baird
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@Eric,
From my understanding the benefit is on the side of the company, rather than consumer.
It becomes harder to translate the actual cost of something, and your brain will make rounding errors and spend more on points than they would have allotted if it were in actual cash values.

Using Microsoft points as an example, if I get 800 points for $10, and a game is 1400 points, it's just painful enough that your brain won't convert to cash automatically, and your estimated cost is skewed.

http://www.gamasutra.com/view/news/34589/Analysis_The_Psychology_
Of_Microsoft_Points.php explains a bit, as well as covers the reason they are sold in big blocks that do not divide well into the actual cost of the goods you buy on the service.

All in all many points systems (and particularly MS points) is to confuse the consumer and promote them spending more than they wanted to, and provides no actual benefit to the consumer. I place them in sleazy psychological marketting tricks.

Rey Samonte
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@Eric...Like Tom mentioned, it's to get people to buy more points. For example, if I want to buy an app for 80 points, I have to purchase at least 100 MS points. After I buy the app for 80 points, I'm left with 20 points which i cannot do anything with....unless I buy more points so I can purchase another app and gives me the illusion that I'm not letting those 20 points that I paid for go to waste.

Eric Geer
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Good to know that MS is still the good old M$. Thanks for the clarification. And thank god I don't own a 360.

Tom Baird
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In Canada they sell cards in 1400 and 2800 variations. I believe online purchasing is similar, though 500, 1000 variations still promoting a constant trailing leftover. With many purchases costing 1200, and some at 800 it's just a mess to bring your total to 0, or close to it.

Lars Doucet
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@Tom Baird:

"They aren't a charity, hosting your games free of charge."

You're right, they're not hosting my game AT ALL. Last facebook game company I worked for rolled their own hosting solution, I'm not sure if Facebook offers game hosting services, but for the most part people pay to set it up themselves through the Amazon cloud or whatever.

This is one qualitative difference between Facebook and XBLA/AppStore/etc - Facebook is providing access to the game and API doodads, but isn't handling the actual serving up of the files themselves.

Whether that constitutes enough of a difference for the legal questions is another matter, but it's a decently big difference in my mind. Facebook is more like a "place to find things" rather than a bonafide storefront service. I don't see how that entitles them to insist on one payment system.

To compare with something like Kongregate, which also uses an exclusive payment system, Kong at least give you free hosting, which Facebook does not.

Joe McGinn
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I read a rumour (unconfirmed) that Microsoft is abandoning MS Points by the end of the year. Surely Apple has proven it's better just to use real currency? If you want to be successful in the information age, do things that make the customer's experience better.

Nooh Ha
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@Eric. Why use points rather than dollars?
Let me guess, you must be American! A proxy currency such as MSPs allow a single pricing structure that works across all currencies/countries the service provider is targeting. For some that can mean 100+ variations. Having a dollar-based virtual currency would undoubtedly help American gamers but would effectively be another proxy currency for everyone else in the world who would still have to work out what that $ value meant in their currency on the day of purchase and then go through a currency conversion process (with the usual FX charges from the card companies) to get their $-based MS wallet filled. In addition it would kill the critical pre-paid card market outside of the US. The alternative of pricing everything in local currency would be a logistical nightmare not just for MS but for US pubs and devs who could be badly hit by FX fluctuations when they convert that local currency back into $.
So, why use a universal points system? Because it is simpler, cheaper and more efficient.

Eric Geer
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@Nooh Ha

Yes I am American..but I guess I stumbled in describing my issue. My issue is 1:1 ratio with dollars or other currency rather than 800 points..which mean...well I don't know what the heck that means.

PSN and Nintendo eStore doesn't seem to have an issue in using real currency, why should it be an issue with M$? As for Wii points..at least they make sense---500 points = $5, 1000 points = $10 , 2000 = $20----800MS points = $10..... It doesn't make any sense.

That is what I was driving at---no need to be condescending to Americans.

Nooh Ha
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@Eric No condescension intended, just a reasoned guess based on your comments and my attempt to point out the many flaws of a single currency-linked price structure whether USD or other. You argue that Nintendo point pricing make sense and MSP pricing does not. Well, the opposite is true for Brits for whom 800 points is roughly 8 and 1000 NPs is around 7. What translates easily for one currency invariably does not for others.

@Joe, you are quite correct that it is absolutely possible to do this. It is just extremely challenging and one that arguably only Apple in this space has done properly (but is not without its problems). My argument was that, for MS, shifting from a universal global currency to one that supports the dozen or more local currencies XBL would need to address would be a significant challenge.

Bart Stewart
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Joe, I wasn't suggesting that there could be a class action suit against *all* internal currency systems as one. (And I'm not expressing a for or against opinion on this.)

My question is whether the Facebook suit, if successful, would open the floodgates to similar individual suits against anyone with even a facially similar internal currency system. Microsoft was just the obvious example.

Sorry if my wording was ambiguous.

Bart Stewart
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I would say that Microsoft has a monopoly position on the apps that are allowed to be purchased and run on its proprietary environment, just as Facebook has.

If it's an anti-trust problem for Facebook to require developers to use Facebook's content access system, is that also an anti-trust problem for other content gatekeepers, even if it only winds up encouraging more speculative litigation?

Joe McGinn
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Facebook has a defacto monopoly in social networks. Microsoft is no where close to that position in gaming, they are one of many competing platforms.

Apple would be at threat, but Android probably saved them from that.

Harlan Sumgui
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The problem comes from the fact that facebook DEMANDS that wherever else devs might sell their products, facebook will always have the lowest price, regardless of what it costs a developer elsewhere. I hope you can see how this is different than what MS does vis a vie it's marketplace.

It's the same shit Amazon pulls, and the US govt has to crackdown on this garbage or there will only be one major online bookseller, one major online social gaming platform, etc...and where there is no competition, everyone except the shareholders suffer.

Ian Uniacke
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This is ridiculous. What exactly constitutes Facebook as having a monopoly? The only thing facebook has a monopoly on is facebook which is legally redundant. There's nothing stopping you from linking to your web based flash game in facebook. FB doesn't have a monopoly on web gaming so I don't see how that even makes any sense at all. (apologies for saying FB so much in the one post ;)

Jeffrey Crenshaw
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Good. Frankly, I never thought Microsoft points should be legal either; there is too much power to manipulate the new market this creates (obviously you end up with situations where you have points left-over that can't be converted back to cash, but what's to keep MS from artificially devaluing their currency after they have your real money?). I'm sure it's regulated by some laws that I am not aware of, but it's still very shady.

@Ian "What exactly constitutes Facebook as having a monopoly?"

This is explained in the article and on the site it links to (http://www.stopfacebookcredits.com/index.html).

Another good read (only tangentially related): http://www.lostgarden.com/2011/03/gdc-2011-game-of-platform-power
.html

Ian Uniacke
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Thanks Jeffrey. Although after having read it my point still stands. It's wrong to suggest that they are forbidding competitiveness of ebusiness companies using their monopoly imo because they don't control the entire internet and therefore don't have a monopoly on ebusiness or games. It's the same as a store chain saying "we don't accept Diners Club".

Jeffrey Crenshaw
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Perhaps it's not illegal; I'm not sure where this case will go. Personally I feel that platform holders benefit far more than they put into society - being able to profit from consumers (iPad sales, or in Facebook's case advertising revenue) and then after becoming incredibly rich from doing this, they can use their power to gain even more wealth off the work of others (arbitrary 30% taxes on developers in both platforms). So yeah, I agree fully with Newman and Strange about the effects this has on developers and consumers in the long run and feel that it is incredibly unethical. I hope that it is also illegal as that will make fighting this easier, but ianal so who knows :).

I think a closer store chain analogy would be a store saying they only accept a card that they produce, which wouldn't necessarily be bad unless that store chain was effectively the only chain that provided a certain market need (which can be argued is the case with Facebook). An even better analogy would be a mall chain that forces all stores that want to set up shop in it to use their card, and then because these stores don't have a choice taking 30% of profits "just because". And imagine if this mall chain became large (by selling customer information to advertisers that customers were not aware was being sold) such that no other malls could compete; from this perspective, it is clear that taking away Facebook's "rights" to their own currency is the lesser evil.

Well, I am certainly interested in following this case. I believe something needs to be done as it is only natural for monopolies to occur in a purely competitive economy (if you play games, imagine playing a game that lasts forever where wealth carries over from year to year and said wealth can be used to lock others out of business and gain more wealth; from a game design point of view, it's obviously unbalanced), at which point the company reaches an escape velocity where they can easily funnel more wealth to themselves without contributing to society (I say that the value the 30% is coming from is created by devs, and the value that facebook provides by giving devs access to customers is a bit devious as the only reason they have this large a share of the customers of the market is because of the unethical [exploitative of privacy] and cutthroat manner in which they spread).

Well, we'll see where this goes.

Harlan Sumgui
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it's not really like a mall, it is more like if 1 company owns 90% of the retail grocery space in a country (we'll call that company ZuckYouDry).

So, ZuckYouDry has 90% of the space, this means every company that wants to sell groceries in that country has to deal with ZuckYouDry. Then one day Zuck turns around and says to every supplier 'we will be taking 30% extra on every sale, and you cannot sell your products anywhere else in the country for lower than we do or we ban your products.'

So the suppliers have to raise the prices to the other retail spaces in the country that ZuckYouDry doesn't own and who don't take an extra 30%, because the suppliers have to make sure ZuckYouDry stores all have the lowest prices.

Josh Levitan
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The main portion of this lawsuit has no legal basis whatsoever. Facebook lets you make apps on their platform, including games. This is a free service. They don't charge you to use their APIs, or to access their viral and re-engagement channels. You can do this 100% for free.

If you want to sell things in your apps, like having microtransaction supported games, you need to use Facebook Credits on the Facebook platform, for which they take 30% of the gross revenue. This is an identical cut to what Apple takes for selling an app in the App Store or using microtransactions in your iOS games.

As another commenter mentioned, there's nothing stopping you from linking to your own Web-based version of the game from the Facebook version. And, if you make HTML5 games that work on mobile, Apple has their own restrictions; if your game runs inside the Facebook native app on iOS, for example, you can't have a button to buy Facebook Credits in that version of the game (Apple won't let you use an alternate currency/payment provider other than selling directly through the App Store/iTunes).

I think the main problem people have is that Facebook used to not handle payment at all, and folks got used to an entirely "free" service where their margins were higher due to rolling their own payment solutions. But Facebook wised up and started charging folks the same cut Apple does, and developers got upset about it.

Nobody's forcing you to make games on Facebook. There are plenty of other channels for distribution of your games -- your own Web portal, Kongregate, the Apple App Store, the Android Market, Google+, Steam, Xbox Live, etc.

Richard Bard
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All this talk about an antitrust concerning the credits....

What about the use of facebook itself?

What about the companies that are trying to force customers to sign up for facebook in order to be eligible for a discount, or worse to even use their products or be a customer at all?

Today I attempted to download a partition recovery software title...and they were offering it free and yet I could only have it if I logged in using a facebook account.

Now to me that is NOT free. In order to have the product, I must trade something of value to me for said product, and that means there is a price..which is NOT free.

The above is not an isolated incident. Blogtalkradio no longer allows their customers to comment on music without their faceboook, you can not have a spotify account (even paid one) without facebook. There are plenty more similar to the above.

What's even more ironic, those that now say I shouldn't feel this way are the same ones that screamed Microsoft was being so bad when they came out with Passport.


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