Op-ed/Analysis: The Future of Parity Clauses in Video Games

The Future of Parity Clauses in Video Games

A parity clause is something that exists and has existed in contracts for a long time. One of the main goals of a parity clause in a video game contract is to ensure that a video game is as good on one company’s hardware (the gaming console) as on another company’s hardware.
 

 
Historically, some video game platforms have said that you can’t release on their platform if you’ve first released on another platform. In 2015, this was a huge issue in gaming, with Microsoft taking a controversial parity clause stand. This related to what was then the state-of-the-art gaming platform – Microsoft’s Xbox One. Microsoft’s Phil Spencer, the executive who was ultimately in charge of their gaming platform, defended the notion that developers of video games can only release their titles on Xbox One if they haven’t already been released on other video game consoles first. 

Everyone was fairly agitated about Microsoft’s position, yet Spencer defended the Microsoft stance, claiming that the policy existed for the benefit of Xbox One owners by encouraging (forcing?) game developers to make designing for the Xbox One their top priority. 
“I’ll be honest – the thing I worry about is I look at all the people who buy an Xbox and invest their time and money in Xbox One. Millions of people own Xbox One and I want these people to feel first class because they are,” Spencer had said.

Mark F. Casazza, a partner at the law firm Rudnick, Addonizio, Pappa & Casazza, P.C., argues that parity clauses do actually exist to engender trust between the parties to the contract.

“Any provision in a contract, such as a parity clause, designed to protect the consumer, is a good thing. In video games. If a parity clause ensures that consumers enjoy the experience they are expecting from the game, it helps consumers trust the maker of both the game and the console.”

Legality of parity clauses aside, the real issue here is that when an “indie,’ or independently-produced game, would launch, Microsoft wanted these games to launch first on Xbox rather than being an afterthought for Microsoft and the users of their gaming hardware. This wasn’t the first time the video gaming industry has parity clauses in the spotlight, and the events of last week have confirmed that it wouldn’t be the last. 

Today’s culprit in the public eye is Sony. The issue last week was a viral social media notion that Sony was forcing the developers of the wildly popular game, Resident Evil Village, to make their game, well, less good, on other consoles. With everyone on Twitter and Reddit playing private detective, the allegation was that Sony paid the maker of Resident Evil Village – Capcom – to make the game look less good and function less magnificently on any platform that wasn’t Sony’s PS5. 

Really superb reporting, such as this IGN piece, debunked the narrative, but what’s left is a fundamental triangle of mistrust between game aficionados, the developers who give them the content they want, and the hardware oligarchs who make it possible for these games to actually be played in your home. 

Erik Pavia really developed his love for video games and gamification when he was a student at Stanford Law School just a few years ago. Since then, Pavia has deep-dived into games and gamification as the founder and CEO of Pantheon. He agrees that standard terms like the parity clauses found in platform agreements are a good and a bad. 

“When enforced benevolently, these clauses ensure that consumers receive the product as-advertised. But when enforced malevolently, these standard terms can be prohibitively onerous to small developers.”

Pavia also points out that part of the problem is almost always a massive power imbalance between the parties involved in the contract. 

“As an indie developer or startup, you have no leverage to negotiate against the platforms operating in a competition-limited oligopoly, such as the console market or the smartphone market. You simply have to agree to the terms as offered. Unfortunately, platform holders will selectively enforce terms to their benefit. As a developer, you know that not all terms are enforced equally, and you have no choice but to simply hope that the platform doesn’t enforce the contract against you to protect their own first-party offerings or to hurt their competitors.”

Video games are a massive business. The reason this parity clause issue has been ongoing in the world of video games for the last decade is the amount of money some of these games can earn. Last week also marked the beginning of the Epic v. Apple trial, the subject matter of which is the video game Fortnite, which has ten billion dollars of revenue to date. This really frames the issue for those of us who tend not to follow what goes on in the video game world. There is massive money on the table and how each financial pie for each game release gets divided is something that all parties will continue to think and often fight about with every release to come.

About Aron Solomon

Aron Solomon is the Head of Digital Strategy for Esquire Digital and an adjunct professor of business management at the Desautels Faculty of Management at McGill University. Since earning his law degree, Solomon has spent the last two decades advising law firms and attorneys. He founded LegalX, the world’s first legal technology accelerator and was elected to Fastcase 50, recognizing the world’s leading legal innovators. His work has been featured in TechCrunch, Fortune, Yahoo!, ABA Journal, Law.com, The Boston Globe, The Hill, and many other popular publications.