Commission Publishes The Infringement Decision In Video Games For Geo-Blocking

On August 23, 2022, the Commission published its full decision in Video Games, fining Valve (the owner of the online PC gaming platform Steam) and five PC video game publishers (Bandai Namco, Capcom, Focus Home, Koch Media, and ZeniMax) a total of €7.8 million for restricting cross-border sales of PC video games.[1] The Commission found that the agreement between Valve and the video game publishers, which prevented gamers from activating certain PC videogames purchased in eight Member States where prices are generally lower than in other Member States (so-called “geo-blocking”), breached Article 101 TFEU.

Background

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. 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[2] 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 Decision and Its Implications

The Commission 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, allowing them to shop around for the lowest prices. The decision is consistent with the Commission’s hardline stance against cross- border sales restrictions, deeming them ‘by object’ restrictions.

The decision is noteworthy for its treatment of copyright in competition law. It clarifies that, as a matter of principle, “an agreement is not exempted under EU competition law merely because it concerns an IP right.”[3] It reiterates the Court of Justice’s precedent on the treatment of IP rights in exclusive distribution relationships and holds that the same conclusions apply in non- exclusive distribution and licensing agreements. Accordingly, the decision finds that IP rights cannot be exercised to frustrate the very objective of the Treaty, i.e. the creation and protection of the internal market.

The decision is also of procedural interest as it marks the first hybrid-settlement in non-cartel proceedings.[4] Companies subject to vertical investigations face the same strategic questions as those involved in cartel cases, namely: (i) whether to cooperate and settle with the Commission or preserve their rights to appeal; and (ii) if they decide to settle, how swift their cooperation should be. In the present case, the publishers’ decision to settle after the Statement of Objections meant that they received relatively low discounts (10–15%) compared to Guess and Pioneer, who received fine reductions of 50% in other investigations for cooperating before the Statement of Objections stage.[5]

[1]      Commission Cases AT.40413 – Focus Home, AT.40414 – Koch Media, AT.40420 – ZeniMax, AT.40422 – Bandai Namco and AT.40424 – Capcom.
We reported on the Statement Objections and the Commission’s initial announcement of fines in our April 2019 and January 2021 EU Competition Law Newsletters respectively.

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

[3]      Commission Cases AT.40413 – Focus Home, AT.40414 – Koch Media, AT.40420 – ZeniMax, AT.40422 – Bandai Namco and AT.40424 – Capcom, August 24, 2022, paras. 293, 350 et seq.

[4]      Valve refused to cooperate with the Commission, leading to a separate infringement decision which Valve has since appealed. See Valve v. Commission (Case T-172/21).

[5]      Guess (Case COMP/AT.40428) and Pioneer (vertical restraints) (Case COMP/AT.40182).