In the aftermath of the EU Commission’s E-Commerce Report the EU Commission commenced an antitrust investigation under the EU competition rules into geo-blocking practices of Valve, the owner of a PC online gaming platform “Steam” and five video games publishers: Bandai Namco, Capcom, Focus Home, Koch Media and ZeniMax (“the Publishers”). The Commission published its decision on 20th January 2021 and found Valve and the Publishers were guilty of serious breaches of Article 101(1) TFEU and has fined them a total of €7.8 million.
A key findings of the E- Commerce Report was the increase in the number of restrictions which manufacturers were putting in place to divide up markets within the EU (usually on the basis of national boundaries). These restrictions included restrictions such as not delivering outside a certain territory or redirecting orders to a customer’s own country or refusing to take payment on credit cards outside the territory in which the website was based. These were so called geo-blocking practices. Where manufacturers took these steps on their own, their conduct fell outside the scope of Article 101(1) TFEU. The EU Commission could not use the competition rules unless the manufacturers concerned were in a position of dominance. Therefore, the EU Commission introduced the Geo-Blocking Regulation, Regulation 2018/302 on unjustified geo-blocking which became applicable throughout the EU on and after 3 December 2018 to stamp out this conduct which was a direct challenge to the achievement of the EU Single Market.
The Valve case had very different facts and was part of a coordinated pattern of behaviour between two or more undertakings to partition the single market through geo-blocking restrictions. In this case there was a network of agreements between the owner of a gaming platform, Valve, and the Publishers which could be investigated under Article 101(1) TFEU. The Commission took early steps to start this investigation in the aftermath of its E Commerce Inquiry.
The Commission opened formal antitrust proceedings into the bilateral agreements concluded between Valve Corporation and the five PC video game publishers on 2 February 2017 and subsequently sent Statement of Objections to Valve and the Publishers on “geo-blocking” of PC video games.
Steam is one of the world's largest online PC video gaming platforms offering more than 35,000 games worldwide. It allows users, upon authentication, to directly download or stream PC video games. It also permits users who buy PC video games outside the Steam platform such as through brick-and-mortar shops (e.g. on DVDs) or digitally through downloads from third-party websites, to activate and play video games on Steam.
Valve provides to video game publishers the technical means to activate and play games on Steam, including those games bought outside Steam, through authority codes called “Steam activation keys”. Publishers include those keys in their PC video games for user authentication/activation. The PC video games are then sold by third party distributors across the EEA. Valve also offers to the publishers a territory control function, which enables the setting up of geographical restrictions upon activation. The combination of Steam activation keys with the territory control function enables the publishers to enforce the “geo-blocking” of PC video games based on the geographical location of the user.
Through a series of agreements between Valve and the Publishers they put in place the following:
The geo-blocking practices affected a wide range of PC video games (approximately 100) of different genres, including sports, simulation and action games. They prevented consumers from activating and playing PC video games sold by the publishers' distributors either on physical media, such as DVDs, or through downloads. This was a restriction on passive sales and a serious infringement of the EU competition rules.
As a result, the Commission concluded that by bilaterally agreeing to geo-block certain PC video games from outside a specific territory, Valve and each publisher had partitioned the EEA market. It is noteworthy that the Publishers used the geoblocked Steam activation keys to stop games sold in Eastern Europe where the games normally retail at far lower prices being used in other EU countries where the price was traditionally higher. Essentially this conduct stopped parallel trading of the games within the EEA market.
The Valve case reinforces the importance of companies doing business in the EU to ensure that their practices and conduct does not partition or place artificial obstacles on trade in the EU/EEA Single Market. Such infringing conduct can be easily implemented in the ecommerce/online sector. Companies should re-examine their policies in light of this case to enforce they are compliant with competition law.
The Valve case is of particular interest because it relates to the audio visual sector which has given rise in the past to difficult questions of the interrelationship between intellectual property rights and free movement of goods/competition. This case shows that the EU Commission will apply the competition rules in full to this sector particularly where the copyright works at issue are consumer based and tradeable on line or on media through bricks & mortar shops.