At a time when the Internet enables us to quickly and easily access the knowledge and intellectual content of the entire globe from the comfort of our couch by simply pressing a button, traditional national borders are of only secondary importance in the digital space. For this reason, geoblocking has been established for more than a decade as a way for providers to block content regionally. The Court of Justice of the European Union (EuG) recently found that geoblocking of product keys on the Steam platform by the operator Valve and several publishers (including Bandai Namco & Capcom) constitutes a violation of European competition law
Free trade and the free movement of goods between the member states is one of the most important pillars of the European Union. In order to protect this, the European Commission monitors the markets and, in the case of cross-border competition violations by member states or market participants, repeatedly intervenes itself to investigate and, in the case of violations, to impose sanctions. After the Commission received information that certain video games on the platform “Steam” were subject to geo-blocking due to user location and these allegations were confirmed in the investigation, the European Commission imposed fines totalling €7.8 million on Valve and five game publishers (Bandai Namco, Capcom, Focus Home, Koch Media and ZeniMax) by decision of 20 January 2021
Vale Corporation, which was fined more than €1.6 million, then brought an action for annulment against this decision before the General Court of the European Union (CFI), with which it has now failed. In its judgment of 27 September 2023, the CFI confirmed the European Commission’s view and dismissed the action.
Initial case – What is Steam and geoblocking?
In order to be able to classify the decision of the ECJ, it is first important to understand what both geoblocking and Steam are. Geoblocking is a technical possibility of the various providers to block internet content regionally. It is used in particular to protect copyright in the case of works that are distributed and can be accessed via the internet. In everyday life, geo-blocking is particularly well known in the area of music and film transmission, e.g. on platforms such as YouTube or streaming services (Netflix & Co). In the context of geo-blocking, providers on the internet determine – by means of the IP address – from which country of origin the respective users are accessing their offer in a specific case, in order to exclude the specific users from viewing or using certain internet content (e.g. for country-specific copyright reasons)
Steam is an internet distribution platform for computer games and software, but also for films, series and computer devices, which was developed by Valve in 2003 and has been operated ever since. It is particularly popular in the gaming sector, where Valve CEO Gabe Newell is also jokingly referred to as “Lord Gaben”. Via the Steam platform, users can download or stream PC video games directly after registering. For game publishers, Steam enables online distribution, maintenance (patching), as well as digital rights management (DRM) of games. The distribution of a game includes the processing of the necessary financial transaction (the purchase), the subsequent download of the programme data, the activation/decryption of the programme data and the installation of the software. The origin of the user is determined primarily via the IP address and the platform shop (“Steam Store”) is adjusted on the basis of this
Valve also provides the technical means with activation keys with which the video games of the publishers can be activated and played on Steam, even if they were not purchased on Steam. The publishers assign these keys to their PC video games so that the games in question can only be activated with these keys. Valve offers publishers a territory control feature as part of these activation keys, so that the activation of PC video games could be geographically restricted. The linking of the activation keys with the territory control function means that the activation of PC video games could be blocked depending on the geographical location of the user (in the context of geo-blocking)
This linking of the area control function with the activation keys was the subject of the European Commission’s examination and the subsequent proceedings before the ECJ. According to the findings of the European Commission, in any case concerted practices between Valve and the publishers ensured for about 100 games that the activation of certain video games of these publishers with keys from certain member states (including the Baltic States) was not possible in other member states
The main objective of these restrictions was to prevent the purchase of activation keys in European countries with lower prices by distributors or users in other (also European) countries where the prices for activation keys are significantly higher
The decision of the ECJ
The ECJ, like the European Commission before it, saw the collusive design of the product keys as a violation of European competition law; specifically, the limited activation keys are a violation of Article 1(1) TFEU
According to Article 1 (1) TFEU, all agreements and concerted practices between undertakings are prohibited if they are capable of affecting trade between Member States and if they have as their object or effect the distortion of competition. As a particular example, the law mentions the direct or indirect fixing of purchase or selling prices or other trading conditions (Art. 1 para. 1 lit. a TFEU), as well as the application of different conditions to equivalent services vis-à-vis trading partners (Art. 1 para. 1 lit. d TFEU)
According to Vale in its action for annulment against the fine imposed, the European Commission erred in finding that there was collusion or concerted practice between Vale and each of the five video game publishers and in doing so wrongly assessed the specific conduct of Vale and the publishers. In addition, the European Commission erred in finding that there was a restriction of competition by object in the restricted activation keys because, according to Vale, the Commission failed to take into account their role as a two-sided platform and the nature of the goods and services at issue (digital video games). In particular, the CFI had overlooked the necessary copyright protection of video games on the internet
These arguments were rejected by the CFI, which held that it was sufficiently established that there was either an agreement between Valve and the publishers or (in the absence of such an agreement) in any event a concerted practice, the purpose of which was primarily to restrict parallel imports by geo-blocking the keys and thus preventing games distributed at low prices in some European countries from being purchased by distributors and users in other European countries
According to the court, geo-blocking thus did not pursue the goal of protecting the copyrights of the publishers of PC video games, but was intended to protect the high level of royalties charged by publishers in various member states and, moreover, the margin achieved by Valve
In this respect, the ECJ once again rightly stated that copyright law is indeed intended to secure for the owners of the rights in question the possibility to monetise the putting on the market or the making available of the protected subject matter for royalties. However, this protection does not include the possibility to demand the highest possible remuneration or to act in a way that leads to an artificial price difference between foreclosed national markets
The court thus once again highlighted the interaction between copyright protection and Union competition law. The principles pointed out by the court are not only applicable to the sale of online games, but to all sales of digital content within the European Union