Geoblocking of videogames and competition law: General Court confirms that Steam and videogame publishers breached Article 101 TFEU

IPKat-approved game on Steam

For those interested in the interplay between IP rights's territorial character and free competition, the judgment issued by the General Court (GC) in Valve Corporation, T-172/21 earlier this week is a must-read. 

Not only did the Court tackle the vexed issue of the applicability of Article 101 TFEU in the copyright context, but also touched upon the relevance and treatment, under the latter, of technological protection measures (TPMs) and the doctrine of exhaustion.

Here's a quick summary of the ruling, which focuses on what I think are the most relevant aspects for copyright aficionados.

Background

Valve is the operator of well-known online gaming platform Steam.

The games available there are developed, first, by gaming publishers, who then conclude distribution agreements with Steam. In order to develop the games, Steam licenses its own technology to the publishers (‘Steamworks services’), who subsequently upload them on the platform while granting Steam non-exclusive licences.

The games are available for ‘sale’ directly on Steam or through third-party distributors. In the latter case, an activation key is provided by Steam as part of its Steamworks services. However, the interesting bit insofar these services are concerned is another feature, that is: a territory control function (geoblocking), which allows the user (a) only to activate the game in a certain territory or (b) only to activate and play the game in a certain territory.

This geoblocking functionality attracted the attention of the European Commission which, in 2017, launched an investigation. In 2021, the Commission decided that Valve, together with 5 publishers, had breached Article 101 TFEU and Article 53 of the EEA Agreement through anti-competitive agreements or concerted practices aimed at restricting cross-border sales of Steam videogames in the form of passive sales.

Importantly, the Commission found that the conduct at issue would be a restriction of competition by object, by that meaning a practice that, by its very nature, is harmful to the proper functioning of normal competition (see Commission Guidelines, §1.2.4).

According to the Commission, IP rights cannot be exercised in such a way as to contravene the creation and protection of the internal market. This also applies to non-exclusive licensing agreements and distribution agreements.

Valve appealed.

The GC decision

As is well-known since at least Deutsche Grammophon, “the mere fact that an agreement involves intellectual property rights does not preclude the application of Article 101 TFEU” (para 191). Indeed:

Although the Treaty does not affect the existence of intellectual property rights, in particular copyright, the exercise of those rights may nevertheless fall within the prohibitions laid down by the Treaty, in particular by Article 101 TFEU. Thus, the exercise of an intellectual property right may fall within the prohibition laid down in Article 101 TFEU whenever it appears to be the object, the means or the consequence of an agreement

What is particularly interesting from an IP perspective is that Valve submitted that the Commission failed to appreciate the novelty of the case at hand. As a result, it unduly rushed to consider the conduct at issue a restriction of competition by object.

Instead, submitted Valve, this case would call for the first time for a consideration of the use of TPMs within the meaning of Article 6 of the InfoSoc Directive. According to the applicant, the Commission erred in considering Valve a reseller or distributor of the publishers’ games: instead, it should have considered it a supplier of digital services (para 164). As a result, a case like this would not call for the application of existing case law on parallel imports for the purpose of categorizing the agreements in question as a restriction by object.

The GC disagreed: “the supply of geo-blocked Steam keys did indeed have the object of restricting parallel imports of the video games at issue, by making any passive sales outside the territory of certain EEA countries practically impossible.” (para 173)

Furthermore, “it is not the existence of an exclusive distribution or licence agreement as such that has been considered harmful to competition, but rather the establishment of contractual obligations or additional measures preventing passive sales and resulting in partitioning of the internal market” (para 178).

It follows that “that conduct leads to a reconstruction of the partitioning of national markets and an artificial segmentation of the internal market liable to frustrate the Treaty’s objective of achieving the integration of national markets through the establishment of a single market.” (para 179).

In all this, the Court also noted that:

• The potential applicability of exhaustion does not preclude a scrutiny under competition law. Hence, the qualification of Valve as supplier of digital services instead of reseller/distributor would not be decisive (para 194).
• The Commission’s decision does not put a blanket prohibition on granting territorial licences because this is not what the objected conduct was about: “The conduct at issue relates to the additional measures, adopted by the applicant and each of the publishers, intended to ensure compliance with such territorial limitations by making any sale or any use of the video games at issue outside the territory of certain EEA countries impossible” (para 197).
• The fact that TPMs are allowed does not mean that they cannot come within the scope of application of Article 101 TFEU (para 198).

Overall, the GC was adamant that Valve’s conduct was not aimed at protecting the publishers’ copyright, but rather eliminating parallel imports in order to create market segmentation and charge higher prices (para 202). Referring to the Premier League CJEU decision, the GC recalled that protection of copyright does not mean that rightholders are entitled “to demand the highest possible remuneration or to engage in conduct such as to lead to artificial price differences between the partitioned national markets” (para 204). Incidentally, such a consideration was also more recently reiterated in Tom Kabinet [here].

Geoblocking in practice

In light of the foregoing and several other considerations, the GC ultimately dismissed the appeal in its entirety and held that the Commission had not erred in catching the conduct of Valve and the publishers within the scope of application of Article 101 TFEU.

Comment

Geoblocking practices have given rise to more than one question (and headache!) over the past several years.

Insofar as policy action is concerned, readers might recall that, when the European Commission unveiled its Digital Single Market Strategy (DSMS) back in 2015 [here and here], “unjustified geoblocking” in the copyright sector featured indeed among the areas indicated for intervention:

when trying to access or purchase online copyright-protected content from another Member State, consumers are sometimes told that it is unavailable or cannot be accessed from their own country. This situation is partly linked to the territoriality of copyright and difficulties associated with the clearing of rights. In other cases, the lack of availability and/or access may result from contractual restrictions between rights holders and distributors, or from business decisions taken by distributors. This may sometimes be due to the role territorial exclusivity plays in the financing of certain types of (audiovisual) works.

An initiative of this kind, if taken seriously, would mean overcoming or at least substantially reducing a key feature of copyright, that is its territorial nature and – with that – the territorial scope of licences. Due to this and also some developments at the level of antitrust intervention (notably the European Commission’s investigation into the pay-TV sector), geo-blocking was eventually only addressed in the ecommerce sector.

In the copyright field, the much less ambitious (if not altogether unremarkable) output in the context of the DSMS was the Portability Regulation.

More recently, geoblocking could have been also addressed by the CJEU in Grand Production, though in a different context than the one at issue in, e.g., Premier League. This interesting referral from Austria asked the CJEU inter alia to clarify the liability of a platform operator which fails to implement effective anti-circumvention technologies. In his Opinion nearly a year ago, Advocate General Szpunar advised the CJEU to rule that, in such as case, liability for the undertaking of unauthorized acts of communication to the public would subsist. The referral was however eventually withdrawn, so no ruling was issued.

In all this, it is clear that the interplay (and clash) between IP protection and competition rules always stands on a frail equilibrium: respecting the territorial character of IP rights (and their exclusive nature) while also avoiding undue market fragmentation feels like a game that is very difficult to play, let alone win ... whether on Steam or any other gaming platform.