EU Competition Valve Fine

The General Court of the European Union (“General Court”) has corroborated the European Commission’s (“Commission”) decision that the actions of Valve Corporation, in tandem with five major PC video game publishers, infringed European Union (“EU”) competition law. The violation revolves around the geo-blocking of activation keys on Valve’s well-known Steam platform, which unlawfully restricted cross-border sales of specific PC video games. In this legal insight, we will examine the case as well as the competition law rules it touches upon.

1. Background

Upon receiving intelligence regarding the geo-blocking of specific PC video games on Steam based on users’ geographical locations, the Commission launched an investigation. The probe, which covered incidents between 2010 and 2015, revealed that Valve, in collaboration with five game publishers – namely Bandai Namco, Capcom, Focus Home, Koch Media, and ZeniMax – implemented territorial control functionalities. This primarily impacted the Baltic countries and regions in central and Eastern Europe. The overarching intention appeared to be the prevention of game acquisitions at lower prices in certain territories by users or distributors in countries where the prices were significantly higher. On 20 January 2021, the Commission affirmed that these practices violated EU competition law by restricting cross-border sales through anti-competitive agreements or concerted practices.

Valve filed a case with the General Court of the European Union, aiming to overturn the decision as it pertained to them. However, the General Court corroborated the Commission’s decision and ruled against Valve’s appeal.

2. Valve’s Arguments

Valve’s and the publishers’ arguments may be summarized as follows:

• The proof of collusion is contestable; there was no “concurrence of wills” in the parties’ actions.
• Valve’s conduct was driven by the individual unilateral decisions of the publishers. Valve emphasized its role as merely an intermediary, while the publishers stressed that they acted independently in their pricing and distribution decisions.
• The Commission misinterpreted the concept of “restriction of competition by object” in the context of the parties’ actions.
• The Commission’s decision did not adequately analyze the economic and legal context of the geo-blocking of Steam activation keys.
• Valve positioned the Steam platform more as a copyrighted product than merely a service, hinting at its unique market position.
• Valve highlighted that it derived no economic benefit from the geo-blocking practices.
• Geo-blocking was limited in scope, impacting only a minority (3%) of games, and should be deemed negligible.
• Geo-blocking has pro-competitive effects, ensuring market accessibility and competitive prices across regions. Without geo-blocking, differential pricing strategies would fail, leading to an overall increase in prices. Therefore, the Commission did not adequately consider the pro-competitive effects highlighted during the administrative procedure.
• The copyright rule, which protects the sale of digital copies, was pointed out to justify the practices in question.

3. The Commission’s Counter Arguments Backed by The General Court

• The distinction between “restriction by object” and “restriction by effect” was clarified, with geo-blocking classified as a ‘restriction by object’. In other words, agreements that restrict competition by their very nature do not necessitate an investigation into their effects on competition.
• Both Valve and the publishers did indeed derive economic advantages from the geo-blocking practices. Nonetheless, economic gain is not a requisite for an infringement of Article 101 of Treaty on the Functioning of the European Union (“TFEU”).
• The extent of geo-blocking (even if small) does not negate its detrimental nature.
• Claims of pro-competitive effects must be substantiated, relevant, and specific to the concerned agreement. Mere unsubstantiated claims of pro-competitive effects are not sufficient to dismiss the characterization of ‘restriction by object’.
• Price reductions for consumers do not automatically imply a pro-competitive effect.
• The legal and economic contexts indeed support the Commission’s perspective that Valve’s actions were restrictions by object.
• Valve’s considerable role, considering its control over the Steam platform and its involvement in the alleged practices, goes beyond a mere “intermediary” status.
• Even though only 3% of games were affected by geo-blocking, the Court determined this impact was detrimental to the internal market.

4. The Implementation of Article 101 of TFEU to The Case

4.1. TFEU 101 In General

Article 101 of TFEU prohibits agreements, decisions, and concerted practices between businesses that could adversely affect trade between EU Member States or that prevent, restrict, or distort competition, whether by effect or by object, within the EU’s internal market. This encompasses actions such as fixing prices, controlling markets, dividing territories, applying dissimilar terms to equivalent transactions, or imposing unrelated conditions in contracts. Any agreements that violate this Article are rendered automatically void. Nevertheless, there is an exception: If such practices lead to substantial benefits like enhancing production efficiency, fostering technological or economic progress, or if they allow consumers to share in those benefits without eliminating competition for a substantial part of the products in question, they might be exempted from this prohibition.

4.2. Concerted Practices and the Concurrence of Wills

The essence of an agreement or concerted practice under Article 101 of TFEU is encapsulated by the concept of a “concurrence of wills” – a shared understanding or mutual intention between parties, even in the absence of a formal agreement. In examining the behavior between Valve and the publishers, the Commission argued that their conduct constituted such ‘agreements’ or ‘concerted practices’. Notably, even passive involvement, such as tacitly approving an unlawful act without objection, can be viewed as a breach of Article 101 of TFEU. In the Commission’s opinion, geo-blocking could not have been a unilateral decision; both Valve and the publishers were implicated. The evidence pointed to a joint intent between Valve and the publishers to enforce geographical restrictions using geo-blocked keys.

To ascertain a violation of Article 101 of TFEU, there must be compelling evidence of collusive action that hampers competition. Explicit agreements are not the sole indicators; actions reflecting a mutual intent to stifle competition are also incriminating. The Commission emphasized this shared intent, especially concerning the restriction of passive sales through geo-blocked keys. Truly unilateral actions, made autonomously, do not contravene Article 101(1) of TFEU. However, actions that might seem unilateral but bear the implicit agreement of others can be classified as violations. This underlines that the actual behaviors and mutual understandings of the parties, rather than merely formal agreements, play a crucial role in detecting anti-competitive conduct.

4.3. Restriction By Object and Geo-Blocking

The Commission and the General Court interpreted Valve’s geo-blocking of Steam keys as an inherent “restriction of competition by object” under Article 101 of TFEU. This concept suggests that certain behaviors, like geo-blocking, are intrinsically harmful to competition, thus eliminating the need to investigate their specific effects. Geo-blocking limits access based on a user’s geographical location within the European Economic Area (EEA), preventing consumers from accessing games sold at more favorable prices in another EEA country—a direct impediment to “parallel imports.” Such practices inherently challenge the EU’s foundational principle of a unified, integrated market.

The Commission relied on past rulings from the Court of Justice of the European Union (CJEU), which typically regard agreements that inhibit parallel trade based on geography as inherently harmful under Article 101 of TFEU. Agreements that artificially divide this market, particularly along national boundaries, contravene the Treaty’s objectives. It is important to distinguish between active sales (directly targeting customers in a specific region) and passive sales (responding to unsolicited requests regardless of origin). Geo-blocking impedes passive sales, preventing game sales to users reaching out from a different EEA country. Even though Valve argued that past parallel import rulings were mainly centered on supplier-distributor dynamics and might not be relevant in this context, the fundamental anti-competitive aspect—blocking parallel imports—remains consistent. The Commission’s evaluation determines that geo-blocking agreements inherently hamper competition, thereby shifting the burden onto Valve to demonstrate otherwise.

5. Relationship Between Copyright and EU Competition Law

During the proceedings, considerable emphasis was placed on the interplay between EU competition law and copyright. Valve, underscoring its rights under copyright law, defended its geo-blocking approach, contending that they were protecting the commercial interests of copyright holders by offering licenses in exchange for remuneration. The General Court, however, refuted this claim. They clarified that while copyright law does protect commercial interests and permits licensing against payment, it does not grant right holders the authority to maximize remuneration or artificially differentiate prices across national markets. Consequently, the Court deduced that Valve’s geo-blocking was not primarily a tool to protect copyrights. Rather, it was tactically implemented to thwart parallel imports with the goal of securing increased royalties and profit margins.

The debate highlighted the complexities of balancing intellectual property rights, particularly copyright, with EU competition regulations. While Article 101 of TFEU aims to prevent anti-competitive practices, Valve contended that their actions aligned with copyright protections, positing that their copyrighted platform inherently permitted certain restrictions, such as geo-blocking. However, both the Commission and the General Court challenged this perspective, underscoring that while copyright affords specific rights, it does not provide immunity from competition regulations. Consequently, invoking copyright as a defense for practices that hinder market access or skew competition is at odds with EU competition norms.

6. The Outcome

The General Court aligned with the Commission’s stance, classifying Valve’s geo-blocking practices as intrinsically anti-competitive under Article 101 of TFEU. Despite Valve’s claims concerning pro-competitive effects and the intricacies of copyright, their defenses were deemed inadequate to offset the anti-competitive essence of their activities. The ruling underscored the EU’s dedication to enforcing competition principles, even within digital domains. Following this judgment, while the five cooperating publishers were subjected to a reduced fine of €7.8 million in acknowledgment of their collaboration, Valve, having contested the charges, faced the full penalty of €1.6 million. It is worth noting that Valve had previously clarified that the constraints were not for games directly retailed on Steam but pertained to territorial locks on keys implemented at the request of the publishers. Addressing the EU’s concerns, Valve had largely deactivated such regional locks by 2015.

Sources:

Online video games: the General Court confirms that geo-blocking of activation keys for the Steam platform infringed EU competition law (europa.eu)

Valve fails to get out of paying its EU geo-blocking fine (engadget.com)

CURIA – Documents (europa.eu)