On January 20, 2021, the Commission imposed fines totaling €7.8 million on Valve, the owner of the video gaming platform Steam, and five PC video game publishers[1] for breaching Article 101 TFEU. The Commission found that the companies prevented gamers from activating certain PC video games purchased from sellers in eight Central and Eastern European Member States, where prices are generally lower than in other Member States (so-called “geo-blocking”).[2] This decision is a reminder of the Commission’s strict stance on cross-border sales restrictions.

The unlawful practices

Steam is an online PC video gaming platform that allows consumers to directly download or stream video games. Gamers can also purchase video games elsewhere than through the Steam platform (e.g., brick-and-mortar stores or third-party website downloads), which they can then play on Steam by using so-called activation keys.[3] Valve supplied such keys to the five video game publishers for use in their video games. At the publishers’ request, Valve set up geographic restrictions to prevent consumers located outside the eight designated Central and Eastern European Member States[4] from activating the games purchased in these lower-price markets (in brick-and-mortar or online stores) and playing the games on Steam from another Member State. In return for the geo- blocked activation keys, the game publishers granted Valve a non-exclusive license to distribute their games globally through the Steam platform.

The Commission found that Valve and the five game publishers engaged in two types of practices that restricted cross-border (passive) sales in violation of Article 101 TFEU:

  • Bilateral agreements and/or concerted practices between Valve and each of the five game publishers implemented by blocked activation keys, which prevented users from playing video games outside the eight designated countries; and
  • Bilateral licensing and distribution agreements between four out of the five game publishers and some of their distributors (other than Valve), which contained clauses restricting the distributors from selling select video games on the basis of consumers’ location.

Source: European Commission Press Release

These geo-blocking practices affected around 100 video games, which Valve claims is just about 3% of all games available on Steam. The Commission, however, concluded that the restrictions prevented consumers from buying cheaper games from brick-and-mortar stores and third-party websites located in other Member States, thereby denying consumers the benefits of the EU’s Digital Single Market to shop around for the lowest prices.

The video game publishers each received a fine reduction of 10-15% for their cooperation with the investigation under the Commission’s now well-established practice of rewarding cooperation in non-cartel cases. Valve, by contrast, was not granted a fine reduction because it refused to acknowledge the infringement—indicating that it may appeal the Commission’s decision. This outcome reflects the Commission’s continued willingness to provide fine reductions for cooperation in non-cartel cases when “companies are willing to acknowledge their liability for an infringement (including the facts and their legal qualification).”[5]

Interplay with copyright

Copyright law is, at least for the time being, inherently territorial in nature as companies are required to obtain licenses on a country- by-country basis to lawfully market copyright- protected content. As a result, copyright law confers a form of territorial exclusivity for license holders which sits uneasily with EU competition rules. Indeed, firms often attempt to justify cross- border sales restrictions by invoking intellectual property rights. In the present case, the game publishers may have sought to rely on their copyright over the video games to justify the geo-blocking practices.

Video Games signals the Commission’s strict approach to resolving the tension between copyright and competition—specifically that copyright holders may not use their rights to restrict passive sales and, in the Commission’s view, artificially partition the EU’s Single Market. The approach in Video Games seems consistent with the Commission’s preliminary conclusions in Pay-TV that cross-border passive sales restrictions in licensing agreements between a TV broadcaster and several Hollywood film studios conferred absolute territorial protection to the licensees, and thus amounted to a by-object restriction.[6] A similarly tough stance was also taken by the Court of Justice in Premier League, a case that involved licensing agreements restricting cross-border provision of broadcasting services. The Court of Justice held that agreements aimed at “partitioning national markets according to national borders or make the interpenetration of national markets more difficult” infringe Article 101(1) TFEU by object.[7]

As the Video Games press release does not provide any details of the Commission’s legal analysis, it remains to be seen how the Commission tackles copyright-based justifications for cross-border passive sales restrictions, especially since Valve has argued that the elimination of geo-blocking will ultimately harm consumers by prompting publishers to increase prices in “less affluent regions” to thwart price arbitrage.[8] In practice, Video Games, however, signals that, in the Commission’s view, any passive sales restrictions related to copyrighted content are likely to be considered a by-object restriction and unlikely to be exempted under Article 101(3) TFEU because practices conferring absolute territorial protection generally go beyond what is necessary to protect copyrights.[9]

Broader context

Video Games is the latest Commission decision stemming from the concerns identified in the Final Report on the e-commerce sector inquiry.[10] The e-commerce inquiry has already resulted in a number of infringement decisions, including Pioneer, Guess, Nike, Sanrio, and Meliá—all of which concerned practices restricting cross-border sales.[11]

The inquiry was also followed by the enactment of the Geo-Blocking Regulation in 2018, which prohibits geography-based restrictions that undermine online shopping and cross-border sales.[12] While the Geo-Blocking Regulation covers both offline and online sales of goods and services, it currently does not apply to audio-visual services (e.g., streaming and downloading of movies) and copyright-protected content that is supplied digitally (e.g., music and online games).[13] This, however, does not prevent the Commission from investigating geo-blocking practices relating to copyrighted content sold online through its antitrust powers. In that sense, Video Games complements the Geo-Blocking Regulation.

[1]      Brandai Namco, Capcom, Focus Home, Koch Media, and ZeniMax.

[2]      Commission Press Release IP/21/170, “Antitrust: Commission fines Valve and five publishers of PC video games € 7.8 million for ‘geo-blocking’ practices,” January 20, 2021 (“Video Games”), available at: www.ec.europa.eu/commission/presscorner/detail/en/IP_21_170. We reported on the Statement of Objections in our April 2019 EU Competition Law Newsletter.

[3]      An activation key is a unique code that permits a consumer to activate and play a video game on an online platform.

[4]      Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia.

[5]      See, Commission Fact Sheet, Cooperation – FAQ, available at: www.ec.europa.eu/competition/publications/data/factsheet_guess.pdf.

[6]      Cross-border access to pay-TV (Case COMP AT.40023), Commission decision of March 7, 2019, paras. 75–76. The Commission did not adopt an infringement decision in this case and the commitments offered by one of the film studios were subsequently annulled by the Court of Justice for breaching the principle of proportionality. See, our Alert Memorandum “ECJ Annuls Paramount Commitments On Cross-Border Pay-TV Restrictions,” published January 4, 2021.

[7]      Joined cases Football Association Premier League Ltd and Others v. QC Leisure and Others (Case C-403/08) and Karen Murphy v. Media Protection Services Ltd

(Case C-429/08) EU:C:2011:631, para. 139.

[8]      See, “Valve responds to European Commission’s demands regarding geo-locking,” April 5, 2019, available at: https://steamdb.info/blog/steam-geo- locking-europe/.

[9]      See, Groupe Canal + v. Commission (Case T-873/16) EU:T:2018:904, para. 68.

[10]    Report from the Commission to the Council and the European Parliament, Final Report on the E-commerce Sector Inquiry, COM/2017/0229 final of May 10, 2017, available at: www.eur-lex.europa.eu/legal-content/EN/ALL/?uri=COM:2017:0229:FIN.

[11]    See, our analysis of these cases in the December 2018, March 2019, July 2019, and February 2020 editions of our EU Competition Law Newsletter.

[12]    Regulation (EU) No. 2018/302 of the European Parliament and of the Council of February 28, 2018 on addressing unjustified geo-blocking and other forms of discrimination based on customers’ nationality, place of residence or place of establishment within the internal market and amending Regulations (EC) No. 2006/2004 and (EU) 2017/2394 and Directive 2009/22/EC, OJ 2018 L 60/1.

[13]    The Commission has recently announced its plans to potentially expand the scope of the Geo-Blocking Regulation to include copyright-protected content supplied digitally. See, “Commission publishes its short-term review of the Geo-blocking Regulation,” November 30, 2020, available at: www.ec.europa.eu/ digital-single-market/en/news/commission-publishes-its-short-term-review-geo-blocking-regulation.