Full Steam Ahead – Clamping down on Geo-Blocking for Video Games
The EU General Court (Court) has held that the Steam online gaming platform for PC video games, operated by Valve Corporation (Valve), along with five PC video game publishers, infringed EU competition law through geo-blocking with the intention of limiting cross-border sales in Valve Corporation v Commission (Case T-172/21).
What is geo-blocking?
There are two ways of geo-blocking:
- Activation restrictions whereby a game can only be activated in an authorised territory, however once activated, it can be played outside the relevant territory.
- The alternative method is a run-time restriction in which the game can only be played for a certain time in the authorised territory.
The issue of geo-blocking came to light on the back of information received by the European Commission in 2013, prompting it to initiate an investigation. The Commission initiated proceedings, and after its investigation, in November 2020, formal statements were submitted by five publishers acknowledging the infringement and their respective liabilities. The Commission concluded that geo-blocking of specific PC video games on the Steam platform, based on the geographical location of users, infringed EU competition law, specifically Article 101 TFEU and Article 53 of the EEA Agreement.
The Commission observed that Valve had participated in several anti-competitive agreements or concerted practices with the intention of restricting cross-border sales, specifically in relation to PC video games that were compatible with the platform. The restrictions occurred because:
- Valve and the five publishers restricted passive sales by preventing publishers’ distributors from responding to unsolicited requests from distributors or users located outside the territory of certain EEA countries, and
- Valve and the five publishers put in place agreements or concerted practices implementing geographical restrictions through the geo-blocking of Steam keys, to prevent passive sales of the video games at issue within the EEA.
The substantive issue stemmed from the intention of preventing video games from being purchased by users in countries where the games were more expensive than in countries where they were being sold at a lower cost. The Court found the objective behind this geo-blocking was not to protect the copyright of the video games. Instead, it was to protect the publishers’ royalties and ultimately safeguard Valve and its profits.
Grounds for appeal presented by Valve
Valve appealed against the Commission’s finding, seeking to annul the decision on two grounds:
- there were errors of law and errors in the assessment of the facts concerning Steam and the five publishers entering into an agreement or concerted practice.
- there were errors of law and errors in the assessment of the facts in the finding that Valve’s conduct was a “restriction of competition by object”.
The Court ruling
In rejecting Valve’s arguments, the Court commented on the relationship between competition law within the EU and copyright, noting that “…copyright is intended only to ensure for the right-holders concerned protection of the right to exploit commercially the marketing or the making available of the protected subject matter, by the grant of licences in return for payment of remuneration”. However, the Court observed that copyright does not guarantee “the opportunity to demand the highest possible remuneration or to engage in conduct such as to lead to artificial price differences between the partitioned national markets”.
The Court ultimately held that “artificial price differences” and the “partitioning of the internal market” were incompatible with the functioning of the internal market and therefore prohibited. It also noted that it is not the existence of an exclusive distribution or licence agreement that is harmful to competition, but rather the contractual obligations or measures that prevent passive sales and result in the segmentation of the internal market.
Exclusive territorial licences are not prohibited in the European market. However, if additional terms in such licences make the sale or use of a product (such as the video games at issue here) outside the territory of certain EEA countries impossible, this will be a restriction to the internal market and therefore a breach of EU competition law.
In the present case, Valve’s conduct was not aimed at protecting the publishers’ copyright, but rather at eliminating parallel imports to create market fragmentation and benefit from the higher prices. Businesses should, therefore, be careful with the two key interlinked concepts at play – IP protection and EU competition rules.
Contributed by Karolina Rozhnova and Hannah Garvey