Insights

On 27 September 2023, the General Court of the European Union affirmed the European Commission’s finding that the geo-blocking keys used on the Steam platforms breached Article 101 of the Treaty of Functioning of the European Union (“TFEU”).

Article 101 TFEU states that “all agreements between undertakings, decisions by associations of undertaking and concerted practices which may affect trade between Member States, and which have as their object of effect the prevention, restriction or distortion of competition within the internal market” shall be prohibited as incompatible with the internal market.

Valve Corporation (“Valve”), the applicant in this case, is the creator of the PC game store, Steam. The European Commission investigated the distribution agreements that Steam entered with game publishers; Bandai, Capcom, Focus Home, Koch Media and ZeniMax (“the five publishers”) which hindered the EU single market thereby breaching Article 101 TFEU.

Background of the case

Gaming publishers develop PC video games which are compatible with Steam and conclude distribution agreements with Valve. Valve grants the publishers a license to allow them to develop Steam video games and these can be purchased directly on the Steam platform in the Steam store. These PC games may also be purchased from third-party distributors, and in this instance, the user must activate the game on the Steam platform through an activation key to be able to play the game in the Steam environment.

The licence that Valve grants to the publishers also offers technical services and solutions. This service includes a territory control function (“geo-blocking” or “geographical blocking”) function. In this respect there are two types of restrictions. In the case of activation restrictions, the video game may only be activated through the Steam platform in the authorised territory. However, once this is activated, it is still possible to play outside the authorised territory. On the other hand, the second restriction is the run-time restriction, and a user may only play this video game in the authorised territory.

On 20 January 2021, the European Commission fined Valve and the five publishers of the PC video games €7.8 million for geo-blocking practices. The European Commissioner for Competition stated that such a practice “diminishes the European consumers of the benefits of the EU Digital Single Market and of the opportunity to shop around for the most suitable offer in the EU”.

The Commission found that there were ‘agreements’ or ‘concerted practices’ between Valve and each of the five publishers consisting of the implementation of geographical restrictions by means of the geo-blocking of Steam keys to prevent passive sales of the video games at issue within the European Economic Area (“EEA”). The contractual terms found within the distribution agreements made it possible to geo-block the Steam keys. Moreover, the Commission also found that the geo-blocking involved certain sets of regions within the EEA. To give one example, in Bandai’s case, the Commission found that the Steam keys had been geographically blocked for five video games for the Czech Republic, Hungary, Poland and Slovakia.

Analysis of the General Court on the contested decision

On its first plea of errors of law, Valve claimed the Commission broadened the scope of the concepts ‘agreement’ and ‘concerted practice’ within the meaning of Article 101 and argued incorrect assessment by the Commission of evidence concerning the applicant and each of the five publishers resulting in a ‘concurrence of wills’.

The General Court (“the Court”) noted the Commission’s finding that Valve had promoted the possibility of using the geographical blocking of Steam keys for the purpose of restricting parallel imports with the publishers and to geo-block those territories where the Steam video games were sold at a lower price which constituted a concurrence of wills between the applicant and each of the five publishers. Although Valve referred to itself as only a service provider in this instance, the Court confirmed that Valve proactively mentioned the possibility of using the geo-blocking of Steam keys. Valve was aware these keys were being used for the purpose of restricting the passive sales and parallel imports of the video games. Moreover, the Court went through the findings of the Commission between each game publisher and Valve and confirmed that the evidence gathered by the Commission constituted a precise body of evidence which established the requisite legal standard of the existence of an agreement or concerted practice between Valve and the publishers having as its object the restriction of parallel imports. The Court rejected the first plea.

The Court also denied the second plea in law, where Valve claimed that the Commission made errors of law by not taking into factor specific matters relating to the case such as copyright and intellectual property rights.

Valve argued that the existing case-law on parallel imports were not relevant in its case since the agreements between Valve and each of the five publishers related to an exclusive licence agreement. The Court did agree with this, however, it also clarified that it is not the existence of an exclusive licence agreement that was considered harmful to competition but rather the terms which prevented passive sales within the internal market. Moreover, it was clear that the geo-blocking was not used to protect the copyright of the publishers. The Court stated that an agreement involving intellectual property rights did not preclude the application of Article 101 TFEU. The decision of the Commission did not call into question the possibility for publishers to grant their distributors licences which are limited to the territory of certain EEA countries, the conduct in this case related to the measures adopted by Valve intending to ensure compliance by making territorial limitation by making any sale or any use of videogames outside the territory of certain EEA countries impossible.

Concluding remarks

Valve was not successful in any of its pleas and the action was dismissed entirely by the General Court.

Although regional locking is a common practice in the sale of a video game in certain markets, these geographical blocking keys prevents cross-border sales within the European Union.^[1] The General Court confirms that the agreements between Valve and each of the publishers constituted the existence of an agreement or concerted practice where its object was the restriction of parallel imports through the establishment of the geo-blocking keys thereby having anti-competitive effects.

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[1] https://www.vice.com/en/article/panj7v/the-eu-is-pissed-at-steam-for-region-locking-games

Disclaimer: Ganado Advocates is responsible for contributing this law report but was not in any way involved as legal advisor for the parties in the judgment being covered in this law report.

This article was first published in The Malta Independent on 18/10/2023.