Clifford Chance

The Decision illustrates the Commission's renewed determination to encourage cross-border trade of digital sector products and services and copyrighted works.

Background

On 20 January 2021, the European Commission ("Commission") announced its decision that Valve Corporation ("Valve"), the owner of the "Steam" video game distribution platform, and five PC video game publishers had partitioned the internal market by entering into bilateral agreements or concerted practices to use geo-blocked activation keys to prevent the activation of PC video games outside certain EU member states ("the Decision"). The Commission fined Valve a total of EUR 1,624,000 (with total fines including those of the publishers amounting to EUR 7.8 million). Valve appealed the Decision on 31 March 2021.

It was not until very recently, however, that the Commission published the Decision.

Summary of the Decision

Between September 2010 and October 2015, Valve entered into distribution agreements with each PC video games publisher (the Steam Distribution Agreements, "SDAs"). In parallel, Valve licensed a suite of software tools and technologies to the publishers through either the SDAs or in separate "Steamworks Agreements", to make their PC video games compatible with the Steam platform.

These agreements did not contain clauses which in and of themselves restricted the distribution of the publishers' video games to a given territory. However, they were found to have created the possibility to geo-block Steam activation keys by means of a "territory control" function as per the terms of the agreement. The fact that the generation of geo-blocked keys required agreement between Valve and each publisher to set up activation restrictions was found by the Commission to be an infringement by object, of Article 101(1) TFEU.

Key Points in relation to the Decision and territorial restrictions

This Decision is unusual in that Valve was not actually the distributor of the relevant activation keys – that task was entrusted by the publishers to third party distributors. The distribution agreements between the publishers and their respective third-party distributors were also found (separately) to infringe competition law, as a result of the territorial restrictions on the distribution of activation keys that they contained. Valve's breach essentially consisted of facilitating the territorial sales restrictions that were imposed by the Publishers on other distributors. Notably, the Commission referenced the AC Treuhand judgment throughout,¹ by highlighting that Article 101(1) TFEU applies to all anticompetitive agreements and concerted practices, "irrespective of the market on which the parties operate and that only the commercial conduct of one of the parties need be affected by the terms of the agreements in question".²

The Commission found that Valve had breached competition law for the following reasons:

(1) The activation restrictions were not set up unilaterally

The Commission was opposed to the fact Valve had generated geo-blocked activation keys as a consequence of agreements with the Publishers to set up activation restrictions.

Moreover, the Commission also provided evidence that Valve had on occasion proactively raised the possibility of using Steam activation keys as a means of enabling the Publishers to restrict cross-border sales, and Valve knew (or ought to have known) that the geo-blocked keys were used by the publishers for the purposes of restricting cross-border sales.

Ultimately it was held not to be material for the assessment who initiated the conduct.

(2) Valve was in fact found to have benefitted from the infringement

Although it is not necessary for the finding of an infringement of Article 101 TFEU to demonstrate that the undertaking benefitted from the infringement, the provision of the "territory control" and related geo-blocked keys was found to be consistent with Valve's business strategy. Valve also obtained valuable user data, which they could use for a dedicated marketing strategy. Finally, Valve did obtain a direct financial benefit, as the geo-blocking restricted the degree to which cheaper activation keys in certain regions could undercut the price at which Publishers' PC video games were sold on Steam, from which Valve took a cut of 30%.

(3) Valve was found not to have been a mere service provider

Valve argued it could not be held liable as a distributor as it had acted as a mere service provider without interfering in the transaction process. However, the Commission rejected this argument, citing clauses in the Steam Subscriber Agreement ("SSA") which indicated that Valve concluded transactions with Steam's users in its own right, and not on behalf of publishers, as sufficient evidence to characterise Valve as acting as a digital distributor of the Publisher's video games.

(4) Compatibility of geo-blocking with copyright laws was not regarded as relevant

Drawing on recent judgments of the EU Courts, the Commission considered that it was irrelevant that Publishers could have applied copyright laws to prevent sales outside a distribution territory. An agreement to restrict such sales through geo-blocking of activation keys still fell within the scope of the competition rules.

Key Takeaways

The Decision is in line with the Commission's recent enforcement practice in relation to cross-border sales restrictions, and illustrates the Commission's renewed determination to encourage cross-border trade of digital sector products and services and copyrighted works.

The Decision cites the AC Treuhand judgment a couple of times confirming the need to preserve the effet utile of Article 101 TFEU.

Finally, given Valve's appeal, it will be interesting to see whether the Court provides any clarity on the remit of competition authorities vis-à-vis taking into account parties' conduct in relation to copyright law, particularly in light of AG Rantos' opinion in Meta Platforms Inc. v Bundeskartellamt, which stated that competition authorities may be able to "take account, as an incidental question, of the compatibility of conduct with the provisions of the GDPR".³

¹ Judgment of the Court of 22 October 2015, AC-Treuhand AG v Commission (hereinafter referred to as "AC-Treuhand"), C-194/14 P, ECLI:EU:C:2015:717.

² Case C-194/14 P AC-Treuhand, paragraphs 34 and 35.

³ Opinion of Mr Advocate General Rantos delivered on 20 September 2022, Case C-252/21 Meta Platforms and Others (Conditions générales d’utilisation d’un réseau social), paragraph 22.