On 27 September 2023, the General Court upheld the European Commission's infringement decision against Valve and five video game publishers (Bandai, Capcom, Focus Home, Koch Media and ZeniMax), that had entered into agreements to restrict cross-border sales of certain video games distributed on Valve's "Steam" gaming platform.
In doing so, not only has the Court confirmed that a provider of "technical services" can be sanctioned under Article 101 TFEU, but it has also clarified the relationship between IP rights and competition law in the context of the cross-border provision of copyright-protected content within the EU.
Valve operates the "Steam" online platform which hosts video games owned and produced by third-party video game publishers. Gamers can buy access to video games directly on the Steam platform or from third-party distributors (including in physical stores on physical mediums). When purchased from a third-party, the user needs to activate the game on the Steam platform by using a code (a Steam key). Valve allows publishers to geo-block the Steam keys to prevent users located in certain countries from activating video games purchased elsewhere.
In January 2021, the Commission concluded that Valve had committed five distinct infringements of Article 101 TFEU (one with each of the five publishers) by restricting cross-border sales of certain Steam video games. The Commission found that through the geo-blocking of Steam keys, these agreements were designed to prevent distributors from responding to unsolicited requests from users or other distributors located outside certain designated countries. Valve's role was limited to providing the technical geo-blocking services, which could be used by publishers to implement parallel trade restrictions.
Four of the five publishers had also supplemented the geo-blocked Steam keys with bilateral agreements with some of their distributors that contained cross-border sales restrictions. However, the Commission concluded that Valve had neither been aware of these separate agreements nor of the fact that the geo-blocked keys were being used to reinforce these restrictions.
Judgment of the General Court
Valve did not succeed in having the infringement decision set aside. The General Court took the opportunity to revisit and develop the case law on the relationship between Article 101 TFEU and intellectual property rights.
Valve argued that its relationship with the publishers did not fall within the scope of Article 101 TFEU because it merely acted as the technical provider of the geo-blocking service to the publishers. The General Court, however, confirmed that such conduct did not fall outside the scope of Article 101 TFEU, including in the context of a vertical relationship, where it forms part of an agreement or concerted practice which restricts competition.
Notion of anti-competitive agreement and concerted practice
The General Court confirmed that an anti-competitive agreement or concerted practice (whether vertical or horizontal) requires the existence of a "concurrence of wills" between the parties to restrict competition. This can be demonstrated not only through direct evidence but also objective and consistent indicative evidence that, taken together and in the absence of another plausible explanation, may constitute evidence of an infringement. In the case at hand, the Commission had satisfactorily demonstrated the existence of a concurrence of wills between Valve and the five publishers regarding the implementation of geo-blocking for the purpose of restricting parallel imports. The General Court's view was that, at the very least, Valve had "acquiesced" to the geo-blocked Steam keys it provided being used to implement passive sales restrictions because it had promoted its keys as a way to restrict imports from Member States where games were sold at lower prices and had an economic incentive to stem parallel trade due to the commission it was earning for each game sold on its platform .
Restriction of competition by object and intellectual property rights
The General Court upheld the finding that the agreements had the object of restricting competition and rejected Valve's argument that the Commission should have carried out an effects analysis because the technical means though which the restrictions were implemented were novel. According to the General Court, the essential criteria was not whether the restriction is novel but whether the agreement (or concerted practice) reveals in itself a sufficient degree of harm to competition that an assessment of its effects becomes unnecessary. As the purpose of the agreement was to restrict parallel imports, the General Court found that the Commission had been correct in concluding that the agreement amounted to a "by object" infringement.
Valve also argued that the Commission had failed to take into account the existence of the publishers' IP rights. who were allowed to grant licences with a limited territorial scope and permitted under the Copyright Directive to use "technical measures" such as geo-blocking and other territorial restrictions, to prevent unauthorised communication to the public of their video games in the EEA. The General Court rejected these arguments and instead held that competition law did not allow the rights holders to use their IP rights to restrict competition where the exercise of those rights were "the object, the means or the consequence of conduct" which infringes Article 101. The publishers' ability to adopt unilateral geo-blocking measures to protect their copyright and/or to grant limited territorial licences did not mean that they could enter into agreements to restrict competition and eliminate parallel imports in order to protect their margins and those of Valve.
An expansion of the case law?
This judgment is a timely reminder that providers of technical services and other service providers are not immune from exposure if they acquiesce to or facilitate anti-competitive conduct. The judgment is also important as regards the relationship between IP rights and competition law in the context of the cross-border provision of copyright-protected content within the EU. This is because the General Court appears to indicate that the ability of rights holders to grant territorially limited licences, bring copyright infringement cases before national courts, and/or unilaterally implement geo-blocking measures, does not give them permission to enter into agreements with other undertakings designed to facilitate the elimination of parallel trade and artificially partition national markets in order price discriminate across Member States. It was long debated and previously uncertainty whether such a far-reaching conclusion could be derived from the previous case law of the European Courts. Hence it is not surprising that the Judgment of the General Court has been appealed to the Court of Justice of the European Union which will now have another opportunity to revisit the delicate balance between competition law and intellectual property rights and potentially deliver a ruling which could have significant practical implications for many intellectual property licensing agreements.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.