Geoblocking: EU Commission imposes fine on game providers

For my original post, see here.

Background

The European Commission has fined Valve, the owner of the online PC gaming platform “Steam,” and five publishers Bandai Namco, Capcom, Focus Home, Koch Media and ZeniMax EUR 7.8 million for violating EU antitrust rules.

Valve and the other publishers restricted the cross-border sale of certain PC video games based on the geographic location of users within the European Economic Area (“EEA”) by engaging in so-called “geo-blocking.” The fines for the publishers, totaling over €6 million, were reduced due to the companies’ cooperation with the Commission. Valve decided not to cooperate with the Commission and was fined over €1.6 million.

Commission Vice-President Margrethe Vestager, responsible for competition policy, said:

More than 50% of all Europeans play video games. The video games industry in Europe is flourishing and is now worth over 17 billion euros. Today’s sanctions against Valve and five PC publishers’ “geoblocking” practices are a reminder that EU competition law prohibits companies from contractually restricting cross-border sales. Such practices deprive European consumers of the benefits of the EU digital single market and the opportunity to shop around for the best deal in the EU.

Steam is one of the world’s largest online platforms for PC video games, offering more than 35,000 games worldwide. It allows users to directly download or stream PC video games after authentication. In addition, users who purchase PC video games outside of Steam, such as from brick-and-mortar stores (e.g., DVDs) or digitally through downloads from third-party websites, can activate and play video games on Steam.

Valve provides video game publishers with the technical means to activate and play games on Steam, including games purchased outside of Steam, through what are known as “Steam activation keys.” Publishers add these keys to their PC video games for user authentication/activation. The PC video games are then sold by third-party vendors throughout the EEA. Valve also offers publishers a territory control feature that allows for geographic restrictions to be set at activation. Combining Steam activation keys with the territory control feature enables “geoblocking” of PC video games based on the user’s geographic location.

The publishers granted Valve a non-exclusive license to use certain PC video games worldwide, including throughout the EEA. In return, publishers received a license from Valve to use Steam activation keys to distribute these PC video games outside of Steam. Publishers asked Valve to set up geographical restrictions and provide geo-blocked Steam activation keys. The publishers made these keys available to their distributors for the sale and distribution of the PC video games in the Member States concerned. As a result, users located outside of a certain member state were prevented from activating a certain PC video game with Steam activation keys.

The Commission found that Valve and the individual publishers, by bilaterally agreeing to block certain PC video games from outside a specified territory, partitioned the EEA market in violation of EU antitrust rules. Today’s decisions specifically find that Valve and the publishers engaged in the following geoblocking practices:

• Bilateral agreements and/or concerted practices between Valve and each of the five publishers that used geo-blocked Steam activation keys to prevent the activation of certain of those publishers’ PC video games outside the Czech Republic, Poland, Hungary, Romania, Slovakia, Estonia, Latvia, and Lithuania in response to unsolicited consumer requests (so-called “passive sales”). These lasted between one and five years and were implemented between September 2010 and October 2015, depending on the case.
• Geoblocking practices in the form of licensing and distribution agreements entered into bilaterally between four of the five PC publishers (i.e. Bandai, Focus Home, Koch Media and ZeniMax) and some of their respective PC video game distributors in the EEA (other than Valve), which contained clauses restricting cross-border (passive) sales of the PC video games concerned within the EEA, including the Central and Eastern European countries mentioned above. These typically lasted longer, between three and 11 years, and were implemented between March 2007 and November 2018, depending on the bilateral relationship at the time.

The geoblocking practices affected around 100 PC video games of various genres, including sports, simulation and action games. They prevented consumers from activating and playing PC video games sold by publishers’ distributors either on physical media, such as DVDs, or through downloads. These business practices therefore denied European consumers the benefits of the EU’s Digital Single Market to shop around for the best deal between member states. The Commission has concluded that the illegal practices of Valve and the five publishers have divided the EEA market in violation of EU antitrust rules.

Fines

The fines were set based on the Commission’s 2006 Guidelines on Fines (see press release and MEMO).

The five publishers cooperated with the Commission by providing evidence of added value to the investigation and by expressly acknowledging the facts and the violations of EU antitrust rules.

The Commission therefore granted reductions of the fines depending on the extent of this cooperation, ranging from 10 % (for Bandai, Focus Home, Koch Media and ZeniMax) to 15 % (for Capcom).

The fines imposed on the publishers are distributed as follows:

Valve has decided not to cooperate with the Commission. The Commission therefore issued a prohibition decision against Valve under the ordinary antitrust procedure and imposed a total fine of €1,624,000 on Valve.

Background of the investigation

On February 2, 2017, the Commission opened formal antitrust proceedings regarding the bilateral agreements between Valve Corporation and the other 5 publishers

On April 5, 2019, the Commission sent Valve and the others a Statement of Objections on “geoblocking” of PC video games.

This investigation is a stand-alone proceeding, independent of the Commission’s e-commerce competition law investigation, but follows up on some of the issues identified there.

The investigations into PC video game “geo-blocking” complement Regulation 2018/302 on unjustified “geo-blocking,” which has been in effect across the EU since December 3, 2018.

Procedural background

Article 101 of the Treaty on the Functioning of the European Union (TFEU) and Article 53 of the Agreement on the European Economic Area prohibit agreements between undertakings that prevent, restrict or distort competition within the EU’s internal market.

Fines imposed on companies that have violated EU antitrust rules flow into the general EU budget. This money is not earmarked for specific expenditures, but the member states’ contributions to the EU budget for the following year are reduced accordingly. The fines thus contribute to the financing of the EU and reduce the burden on taxpayers.

More information on this case will be available in the public case register on the Commission’s competition website under the case numbers AT.40413; 40414; 40420; 40422; 40424 once confidentiality issues have been resolved.

Action for damages

Any person or business affected by anticompetitive conduct such as that described in this case may bring an action in the courts of the Member States seeking damages. Both the case law of the Court of Justice and Council Regulation (EC) No 1/2003 confirm that in cases before national courts, a Commission decision is binding evidence that the conduct took place and was unlawful. Even if the Commission has imposed a fine on the cartel participants concerned, damages may be awarded without being reduced on account of the Commission’s fine.

The Antitrust Damages Directive, which member states had to transpose into their legal systems by December 27, 2016, makes it easier for victims of anti-competitive practices to obtain damages.

Whistleblower Tool

The Commission has set up a tool to make it easier for individuals to inform it of anti-competitive behavior while preserving their anonymity. The tool protects the anonymity of whistleblowers through a specially designed encrypted messaging system that allows two-way communication.

Author: Marian Härtel

Marian Härtel ist Rechtsanwalt und Fachanwalt für IT-Recht mit einer über 25-jährigen Erfahrung als Unternehmer und Berater in den Bereichen Games, E-Sport, Blockchain, SaaS und Künstliche Intelligenz. Seine Beratungsschwerpunkte umfassen neben dem IT-Recht insbesondere das Urheberrecht, Medienrecht sowie Wettbewerbsrecht. Er betreut schwerpunktmäßig Start-ups, Agenturen und Influencer, die er in strategischen Fragen, komplexen Vertragsangelegenheiten sowie bei Investitionsprojekten begleitet. Dabei zeichnet sich seine Beratung durch einen interdisziplinären Ansatz aus, der juristische Expertise und langjährige unternehmerische Erfahrung miteinander verbindet. Ziel seiner Tätigkeit ist stets, Mandanten praxisorientierte Lösungen anzubieten und rechtlich fundierte Unterstützung bei der Umsetzung innovativer Geschäftsmodelle zu gewährleisten.