Manual Contract Review Too Hard? Too Bad, Judge Tells Sony.
When Microsoft asked for Sony's third party content agreements as part of the Activision merger fight, Sony said the contract review would cost too much.
Unless you’ve been living under a rock, or deliberately filtering out news about the ongoing battle for game-console supremacy, you would know that Microsoft (maker of the Xbox) is trying to buy Activision (maker of the blockbuster shoot-em-up game “Call of Duty”) for a price tag north of $60 billion. While this deal seemed like a nice idea to Microsoft and Activision, it was not so popular with regulators or rivals, like Sony (maker of the PlayStation). Sony, for its part, was worried that it might lose access to Call of Duty, which has been quite the PlayStation cash cow over the years.
Long story short, a series of legal battles have been playing out in the US, Europe, and the UK, as regulators argued the deal was anticompetitive, and tried to block it. Microsoft seems to have prevailed in the US and Europe, and the UK may not be far behind. Along the way, we got a glimpse into the dealmaking activities of some of the major players.
When Sony complained that Microsoft might make Call of Duty exclusive to the Xbox, Microsoft responded by asking Sony to pony up its own contracts with third-party game publishers, with a particular focus on which of the Sony deals were exclusive. Microsoft asked for about 11 years’ worth of these third-party content deals.
Not surprisingly, Sony was not at all keen to reveal this information. One of Sony’s arguments can be paraphrased as follows: “we can’t disclose those contracts because it’s too much hard work.” Specifically, Sony complained that:
- 11 years’ worth of deals would require it to check around 160,000 agreements.
- These agreements covered about 60,000 counterparties.
- Sony has no way of knowing which deals were with 3rd party content providers (no data on that, apparently)
- Sony had no easy way to assess which of the 160,000 contracts were relevant.
- Responding to the request would therefore require a manual review of everything.
- The cost burden of such a review would exceed $2m, perhaps by a wide margin.
The court was not swayed by the “too hard” excuse. It agreed with Microsoft that Sony’s exclusive game publisher deals were relevant to the dispute and should be disclosed. But it agreed to limit the scope of disclosure to the past 5 years, rather than the past 11 years. In the meantime, luckily for Sony, a 10-year Call of Duty licensing deal was struck, and the Microsoft-Activision merger has been cleared to proceed in the United States.
Of course, if anyone needs a better understanding of what’s buried inside their portfolio of 160,000 contracts, please reach out to us at Catylex. We’ll get you the answers you need, and it won’t cost millions of dollars.