On September 27, 2023, the EU General Court (GC) rejected an appeal by Valve Corporation (Valve) of a January 2021 decision by the European Commission (Commission), which found that Valve and five PC video game publishers had restricted competition under Article 101 TFEU by implementing a geo-blocking strategy for certain PC video games.
The game publishers cooperated with the Commission’s investigation and received reduced combined fines of €6.3 million. Valve was fined €1.6 million and challenged the Commission’s decision before the GC, which has now rejected Valve’s appeal.
Background
Valve operates an online gaming platform for PC video games called Steam. Publishers of PC video games strike agreements with Valve to distribute their video games on Steam. Steam offers technical services and solutions to the publishers and grants them the necessary licenses to develop Steam-compatible games. Players access games on Steam and play them in the Steam environment by purchasing licenses directly on the Steam store or from third-party distributors using an alphanumeric “Steam code” to unlock the games.
In addition to the key code system, Steam offered publishers two types of geo-blocking. Either a player had to activate a game inside an authorized territory but could play it equally outside the territory (“activation restrictions”), or the player had to unlock and play the game only inside the authorized territory (“run-time restrictions”). Five game publishers (Bandai Namco, Capcom, Focus Home, Koch Media, and ZeniMax) struck agreements with Valve to implement activation and occasionally run-time restrictions using geo-blocking covering different games, different countries in Eastern and Central Europe, and different time periods.
The GC’s Judgment
Valve as a Participant and Not a Mere Service Provider
The GC rejected Valve’s claims that it was merely acting as a “service provider” for the game publishers and not participating in an agreement or concerted practice with the game publishers to restrict competition. The GC confirmed that by providing the system of Steam codes to all types of distributors, Valve was an essential part of the economic relationship between players, publishers, and distributors. Moreover, Valve sold the games in its own store and was in potential competition with the third-party distributors.
Copyright Does Not Trump Antitrust
Importantly, the GC supported the Commission’s finding that Valve and the publishers had improperly used copyright protection to justify geo-blocking while its true purpose was to prevent “parallel” or “gray” imports. According to the Commission, since Valve received 30 percent of the sales proceeds of games on Steam, it had a vested interest in not letting this income be cannibalized by cheaper “imports” of game licenses from certain countries in Central and Eastern Europe. The GC stated that, in any case, the protection of the copyright of the game publishers would not allow the right holders to demand the highest possible profits or to partition up national markets. The GC considered the agreements between Valve and the publishers as a restriction of competition by object and rejected Valve’s claims that geo-blocking provided sufficient benefits to local consumers in Eastern Europe by enabling lower prices there compared with other parts of the EU to counter this assessment.
Wilson Sonsini Insights
This judgment continues a long line of case law according to which the existence of IP rights and their actual exercise are two separate issues. Copyright does not give its holder “carte blanche” to segment the EU’s internal market into separate national markets with a view to maximizing royalties. While it remains acceptable to grant licenses to distributors that are only valid in the territory of certain member states of the EU, adopting measures that restrict access to the protected items from outside the licensed territory may have an anti-competitive object and violate Article 101 TFEU.
It is important to recognize that while video game publishers benefit from an exception under the Geo-Blocking Regulation for audio-visual services (e.g., streaming services or downloadable games), this does not exempt geo-blocking strategies from the reach of antitrust rules. Game publishers should use this judgment as an opportunity to carefully evaluate existing or planned geo-blocking policies.
Please do not hesitate to contact Jindrich Kloub or any member of Wilson Sonsini's antitrust and competition practice. For more information about gaming companies generally, please contact any attorney in the firm’s electronic gaming practice and learn more about the practice by reading The Scramble.
