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NetEase slaps Blizzard Entertainment with lawsuit after World of Warcraft creator suspended Chinese services

NetEase, China's second-largest video gaming company, has slapped World of Warcraft creator Blizzard Entertainment with a lawsuit in a Shanghai court to demand 300 million yuan (US$45 million) in compensation, plunging the end of their 14-year business partnership on the mainland last January into controversy.

The lawsuit was filed by NetEase affiliate Shanghai EaseNet Network Technology after a dispute arose from the US video game publisher's move to suspend services for its popular online games in mainland China from January 23, according to a source close to the Chinese firm on Tuesday, without providing details.

The sum that NetEase has demanded from Blizzard Entertainment covers the refunds to local players, which the Chinese company has paid in full, related to the discontinued US-developed titles - including Overwatch, Hearthstone, StarCraft and Diablo III - as well as payments related to unsold gaming-related merchandise and certain undeveloped games, according to a report on Monday by The Paper, a mainland digital newspaper.

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Blizzard Entertainment has refused to bear responsibility for those refunds made by Hangzhou-based NetEase to mainland Chinese gamers, the Paper said, citing people familiar with the matter.

US video game publisher Blizzard Entertainment suspended its online gaming services in mainland China on January 23. Photo: Shutterstock alt=US video game publisher Blizzard Entertainment suspended its online gaming services in mainland China on January 23. Photo: Shutterstock>

A representative from Santa Monica, California-based video game holding company Activision Blizzard, which owns Blizzard Entertainment, said in a statement to the South China Morning Post on Tuesday that the company holds that it is not at fault in this dispute with NetEase.

"We haven't received the lawsuit yet, but we are confident we aren't in breach of any licensing agreements," the statement said. "The terms [that] NetEase appears to be complaining about reflect standard industry practice and have been mutually beneficial for years."

"While this persistent campaign by one former partner is disappointing and puzzling, it's important to note that we have enjoyed nearly two decades of positive experiences operating in China, and remain committed to serving players and protecting their interests," the US firm said.

NetEase did not immediately respond to a request for comment on Tuesday.

The Shanghai lawsuit marks an escalation in the dispute between NetEase and Blizzard Entertainment on the treatment of local players of US-developed games since the end of 2022.

Founded in 2008, Shanghai EaseNet Network had been directly responsible for overseeing parent NetEase's licensing deal with Blizzard Entertainment.

Under China's tough video gaming regulations, foreign titles can only be published on the mainland via local distributors. Blizzard Entertainment has yet to announce the latest progress on its negotiations for a new Chinese distributor.

A week before their agreement was to expire, Blizzard Entertainment's China office said NetEase rejected the US firm's proposal to extend their cooperation by six months.

NetEase responded by describing the offer as unfair, as Blizzard Entertainment also negotiated at the same time with other companies for a three-year licensing deal on the mainland.

The NetEase lawsuit has come at a time when Blizzard Entertainment is "in a critical period" in light of the acquisition of parent Activision Blizzard by Microsoft Corp, according to Zhang Shule, an analyst at CBJ Think Tank.

The litigation could turn into a "slap on the face" for Activision Blizzard, Zhang said.

Microsoft's proposed US$69 billion acquisition would create the world's third-biggest video gaming company. The deal is currently facing regulatory scrutiny around the world.

In a separate lawsuit, NetEase has filed a complaint against Blizzard Entertainment and The9 - the Chinese operator of World of Warcraft before NetEase struck a licensing deal in 2009 - for rights infringement, according to information on Chinese business registry site Tianyancha.

The case is expected to hold its second hearing on Wednesday at a court in Hefei, capital of eastern Anhui province.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2023. South China Morning Post Publishers Ltd. All rights reserved.