Case Analysis: Gradually,Not Suddenly: Judge John C. Coughenour's Crucial Role in the Legal Standing of Esports

G.G. V. VALVE (2017)

Prior to enjoying licensed access to its Steam software platform, Valve requires subscribers to agree to its Steam Subscription Agreement (SSA). The SSA's § 11 features a binding and conspicuous arbitration agreement between the user and Steam, regardless out of which legal theory any actions might arise, excluding infringement or intellectual property claims, or claims of alleged unauthorized use, piracy, or theft. While the SSA does not enumerate unauthorized uses, § 4 explicitly prohibits subscribers from utilizing any sort of third-party software to modify or automate any Subscription Marketplace process.

Citing violations of the Washington Consumer Protection Act and the Washington Gambling Act of 1973, unjust enrichment, negligence, and declaratory relief, plaintiffs (including minors who signed the SSA and their parents who did not) alleged that defendant (Valve Corporation) supported illegal gambling by allowing licensees to link their individual Steam accounts to third-party websites, and by allowing those third-party sites to operate gambling transactions within defendant's Steam marketplace. Under the terms of SSA's § 11, Valve filed a motion to compel arbitration. Plaintiffs argue that the SSA does not bind them to arbitration because the agreement was unconscionable, that the agreement cannot be enforced against minor plaintiffs, and that the agreement does not apply to parent plaintiffs who did not sign the SSA.

U.S. District Judge John C. Coughenour granted Valve's motion to compel arbitration, citing the Federal Arbitration Act's standard requiring courts to compel arbitration if a valid agreement to arbitrate exists, and the dispute falls within the scope of that agreement. Specifically, Judge Coughenour found plaintiff's unconscionability argument unpersuasive, holding that the arbitration agreement was conspicuous and each party had an opportunity to understand the terms. Furthermore, under Washington law, for a contract with a minor to be invalid, the minor cannot continue to benefit from the contract after disaffirming the contract. And because plaintiffs continued to play games on Valve's servers, plaintiffs did not, by either law nor fact, disaffirm the SSA, validating the minor plaintiff's contract with defendant. Finally, while non-signatories are generally not bound by arbitration clauses, the parent plaintiffs did not allege any facts to establish personal claims, rendering them additionally bound to the SSA by virtue of their close personal relationship to the minor plaintiffs.

Having found the parties themselves bound to arbitration, the relevant dispute was whether the potential claims fit within the general scope of the SSA's § 11 arbitration agreement. Under § 4 of the SSA, unauthorized use of Valve's Steam platform is not an action within the scope of the compelled arbitration agreement. While Valve does not deny that third-party use of bots on the Steam platform qualifies as the type of unauthorized use exempt from § 11 arbitration, the court held that plaintiffs' claims of bot usage are complaints against such third parties, not Valve. While plaintiffs argue that their claims fall outside of the scope of the arbitration agreement, the court held that the arbitration exclusion only applies to unauthorized use by subscribers, not third-party users. Plaintiff's argument that they should not be compelled to arbitration, then, were not persuasive because unlike themselves and Valve, the unauthorized bot usage was an action undertaken by a third party, not subject to the SSA's § 11. Finally, and conclusively, the court cited Moses H. Cone Mem'l Hospital v. Mercury Constr. Corp's precedent that if the scope of the arbitrable issues are in doubt, the issues should be resolved in favor of arbitration.

Because no specific gaming-related issues were in dispute in G.G. v. Valve, it is perhaps unsurprising that Judge Coughenour treated the dispute as he would any run-of-the-mill arbitration dispute. Given the modern trend toward arbitration and other forms of alternative dispute resolution, it is additionally unsurprising that Judge Coughenour upheld Valve's motion to compel. For the esports world and those in the gaming industry who wish to see esports treated like any other legal party, the district court's otherwise unremarkable analysis was, counterintuitively, quite remarkable.

MCLEOD ET. AL V. VALVE (2016)

Unlike 2017's G.G. v. Valve, the factual analysis of 2016's McLeod et. al. v. Valve rested almost entirely on a gambling-related issue. However, similar to G.G., esports and egaming issues in McLeod appeared not to raise Judge Coughenour's eyebrows any more than the more mainstream horseracing at Emerald Downs.

More important to the gaming world than the jurisdictional problems in McLeod et. al. v. Valve, the U.S. District Court in Washington's Western District held that the plaintiffs failed to state a claim upon which relief could be granted when they alleged that Valve Corporation allowed an illegal gambling market to exist on its Steam platform. In addition to state common law and statutory claims, plaintiffs alleged that Valve violated the federal Racketeer Influenced and Corrupt Organizations Act (RICO) by allowing a third-party site, CSGO Lotto, to exist and to take money from teenage customers by promoting skins gambling. Additionally, plaintiffs alleged that the owner of CSGO Lotto, Trevor Martin, rigged the games played on his site, unfairly causing players to lose the value of their skins. The district court granted defendants' motion to dismiss, with prejudice.

First, the court held that, in their amended complaint, plaintiffs acknowledged that the allegedly unfair CSGO Lotto gambling involved putting skins into a pool, the winner of which was chosen at random. Additionally, because players were able to cash out the value of their skins without having to gamble them, plaintiffs were not forced to gamble their skins and, given the admitted randomness of the lotto winner, plaintiffs failed to demonstrate standing sufficient to satisfy RICO's fifth element requiring plaintiff to have suffered an injury to business or property. Furthermore, the court found that Mr. Martin's undisclosed ownership of the gambling site did not work to prove any fraudulent or dishonest conduct that could be interpreted as damaging to the plaintiffs. Having failed to assert relievable claims, and having failed to prove injury, Judge Coughenour granted Valve's motion to dismiss the complaints against them.

The court's procedural analysis is unsurprising—the plaintiffs did not even bother to provide a financial amount for damages sought, instead alleging that common sense rendered the damages over the $5 million threshold for class action certification. But, as in G.G. v. Valve, it is Judge Coughenour's to-the-point and conventional legal treatment of McLeod that should be applauded by the esports, online, and land-based gaming worlds. Judge Coughenour appeared to make no issue of skins gambling and even less of an issue of the existence of a third-party site hosting lotteries of valuable consideration. Rather, Judge Coughenour treated CSGO Lotto's lottery as indistinguishable from the Ninth Circuit's precedent that gambling losses are insufficient to satisfy RICO's injury element. Failing to demonstrate injury, plaintiffs consequently failed to prove standing. Unfortunately for plaintiffs, that failure cost them their case. Fortunately for esports and its gaming partners, that failure improved their own standing as an ever more legally justifiable endeavor.

Conclusion

Judge Coughenour's unremarkable treatments of both G.G. and McLeod are precisely what make the holdings so remarkable. For those interested in the validation and mainstreaming of esports, it is so far unlikely that it will be some monumental landmark case that acknowledges esports as a legitimate pastime. Rather, G.G. and McLeod present a legal creep, quietly normalizing a presumed legality of esports and esports wagering. Gradually, not suddenly, Judge Coughenour of Washington's Western District Court is laying the foundation for esports' own standing in the legal world.