On 20 December 2023, the Autorité de la concurrence of the French Republic published a decision imposing a joint and solidary fine amounting to €13,527,000 on four companies in the SONY group.
The technology giant’s sanctioned conduct has taken place in the market for input devices (peripherals) for the PlayStation4 (PS4) console. Specifically, in the market for controllers and control accessories (such as steering wheels, guitars, or joysticks). The relevant market definition provided by the French Authority is the upstream market for the supply of game controllers designed for the PS4 console in France.
In 2016, Subsonic, a manufacturer of console accessories and PS4-compatible controllers (see here), filed a complaint with the French competition authority, warning of possible practices by Sony that were incompatible with competition law and market rules.
Being the manufacturer of the PS4, and considering that the console purchase always includes at least one official controller (the DualShock 4 model), it is no surprise that the Japanese multinational has a dominant position. In many cases, the purchase of additional controllers only happens in the case of a breakdown or lack of provision for extra controllers. Therefore, Sony’s high market shares in controllers – also called gamepads – for its own consoles are normal.
The sanctioned conduct lasted between November 2015 and April 2020, during which time Sony had a market share ranging from 99.3 % to 77.6 %. In 2020, the conduct ceased when Sony introduced the successor to the PS4, the PlayStation 5, to the market.
Being dominant in a market is not against any rules, but it does require a special responsibility on the part of the dominant position holder not to abuse it. This is a breach of Article 102 of the Treaty on the Functioning of the European Union, as well as of French competition law (in this case, the code du commerce).
Before looking at the specific behaviours, it is worth briefly mentioning how the market for console controllers (whether PS4 or other console controllers) works.
The market for game controllers:
Except for other accessories such as steering wheels, pedals, etc., which are used for specific video games, the most common thing is to play the console with the default controllers. Playing with one controller or another is not indifferent; these vary in design, comfort, ergonomics, button sensitivity and a whole series of differentiating factors that make them different products.
In the case of the PS4, unofficial controllers tend to be cheaper (around €20-30 less). Some unofficial controllers may be better suited to certain types of games (e.g., shooters) or be more customisable (series or videogame-themed). They can sometimes be a more attractive option for more specialised gamers. However, as the market shares show, the sale of these controllers is more secondary.
Although not directly addressed in the French Authority’s decision, a common use for this type of controller is as a secondary or “guest” one, which is not used as much. For these, players often resort to cheaper options. In addition, some of these controllers are not wireless like the DualShock 4, but are wired, which further differentiates these products, and can make them less attractive.
In short, although they belong to the same market and are perfectly substitutable, the market for console controllers is dichotomous: there are the official controllers, and then there are the rest. The French competition authority has no impact on this point.
Turning now to controllers not produced by the console manufacturer, there are two types of controllers: those produced by external third parties, and controllers that Sony licenses under a partnership programme known as Official Licensed Product (OLP).
The main difference between them is that PLOs have the right to use the Sony logo on the casing of their products. From the consumer’s point of view, sometimes parents are unfamiliar with the world of video games, and buying a product that has Sony’s approval is a comfort and safety factor. This is why, for a peripheral manufacturer, getting this licence can boost sales. An example of a PLO is the controller marketed by the French company Nancon (see here), while other companies, such as Suza or Proxima Plus, are entirely unrelated.
The Authority sanctions two anti-competitive practices that were applied simultaneously:
- Technical countermeasures aimed at disconnecting controllers not produced or licensed by Sony from the PS4
- Opaque licensing policy in the PLO programme.
That is to say, it undermined the operation of any controller that was not its own or officially licensed and, simultaneously, made it more difficult to obtain such licences. In this way, it ensured that players would be inclined to buy either their own controllers or the few PLOs that were licensed.
The barriers imposed by Sony on companies interested in entering the OLP collaboration programme are mainly contractual. As the French regulator explains in its decision, the practices tend to artificially raise barriers to entry and prevent competitors from developing in the market despite their own merits.
Of greater interest are the technical countermeasures used to hinder the connection of controllers not produced or licensed by Sony.
Each proprietary or licensed controller has a unique identification code, while other controllers either do not have a code, or replicate it on a large scale. Sony’s manoeuvre was to take advantage of its regular software updates to programme the PS4’s configuration so that when it detected codes – or lack thereof – belonging to these controllers, the console would unlink them. Some manufacturers solved the problem by offering “patches” to their users. However, these solutions require time, communication with the company, and some console management.
Sony’s aim was clear: to give users the impression that non-official and non-OLP controllers (i.e. any controllers without the Sony logo) malfunction and that the disconnections are attributable to the manufacturers of these controllers and their quality. Either way, they diminish the user’s well-being and gaming experience.
Sony’s strategy goes further than that, and is designed to unseat its competitors completely. The encryption of the remotes is aimed at getting more companies to join the OLP programme, from which Sony logically makes a profit. However, Sony also made it difficult for some companies to join, so the purpose of the conduct was twofold: (i) to get some external manufacturers to license their products and (ii) to drive the rest out of the market.
There are also allegations of unfair competition. Subsonic also denounced a notice issued by Sony to its players, stating that only official products and PLOs would be compatible with the PS4 system.
Sony has already stated that it will appeal the sanction before the Cour de cassation, although, as is clear from the decision, Sony’s arguments are limited in scope. As far as encryption is concerned, the facts are not disputed, nor does Sony appear to deny the effect it has had on its competitors.
However, it justifies this behaviour in the protection of its intellectual and industrial property and the need to combat counterfeiting. Controllers have a large number of protected patents and designs. While protecting their industrial property – as it safeguards innovation – is a laudable objective, the proportionality of the measures undermines Sony’s reasoning.
In Germany, the courts recognised two patent infringements of Sony by Subsonic. The French competition authority argues that the measures taken would be equally disproportionate even if this were happening in France. Furthermore, the industrial property argument also has its flaws, since Sony also criticises products with lower performance that do not have patented technology, such as vibration systems (e.g. a hit with a car produces a vibration in the controller). In other words, they protect their technology from being replicated, and then do not agree to competitors offering simpler products.
One of Sony’s claims is that if several controllers share the same identification number, they can be considered legitimately counterfeit, although it does not provide any evidence. The reasoning is as follows: if the PS4 (a machine) cannot detect, based on its code, whether the controller has been manufactured by Sony or authorised by Sony, consumers cannot distinguish original controllers from those manufactured by a third party either.
The competition authority also rejects other reasonings put forward by Sony. One of the allegations is that the controller disconnections could also damage the image of PS4. In other words, Sony says that its measures damage its image and that it has made a detrimental decision to its interests.
It highlights, in turn, Sony’s argument that the legal avenues to fight against counterfeiting and practices against its industrial property are very long and complex, so they are forced to take technical countermeasures independently.
Although it is too early to predict how this case will end, Sony’s defence does not augur a court victory. Even if they are ordered to pay a “low” fine (considering Sony’s global turnover of more than 80 billion), it is necessary to analyse the overall effectiveness of Sony’s current business strategy:
Sony hardly markets its own PS4 controllers any more, as it is fully focused on the PS5, whose controllers are priced at over €70 per unit. The reputational damage caused to controller manufacturers persists today, and it is precisely now that these companies can gain more market share, as, given the lifespan of controllers, many PS4 gamers who bought the console 5 years ago or more may need to replace their controllers.
In the case of the PS5, there are hardly any controllers other than the official Sony controllers, and the few available are mainly PLOs. Whether this situation is due to an abuse of dominance remains to be determined, but it seems clear that, despite the fine, Sony’s position in the console peripherals market has been strengthened.
Written by Alejandro Martinez Luna