Law

Article 101 of the Treaty on the Functioning of the EU prohibits “all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market.”  The prohibition covers conduct aimed at fragmenting the EEA into national markets and at prohibiting or limiting parallel imports and thus passive sales (i.e. sellers in lower-priced countries responding to requests from buyers located in higher-priced countries).  Such practices can lead to the elimination of competition in countries where prices are higher.  Under Article 101, there must be an agreement or concerted practice to prevent competition (Article 101 does not catch unilateral conduct) but it is not necessary to demonstrate the effect of the agreement or practice on competition if the agreement or practice in itself reveals a sufficient degree of harm to competition.

Background

Valve Corporation is the owner of the Steam PC games platform.  Valve licenses platform technology and offers certain services to games companies to enable them to develop and publish games for the Steam platform.  The publishers then upload their games to Steam servers and grant Steam a licence to sell the games to users on the Steam platform.  Access to Steam video games can be purchased by users directly on the Steam platform or from third-party distributors, on either tangible or intangible media. In the latter case, the user must activate the game on the Steam platform by means of an activation key consisting of a single alphanumeric code, to be able to access and play that game in the Steam environment. The keys are provided by Valve to publishers free of charge as part of its development and publishing support services.

Commission Decision

In January 2021, the European Commission found that Valve, and five game publishers, breached Article 101.  The breach arose from a group of anti-competitive agreements or concerted practices between Valve and each of the publishers in the territory of the EEA, intended to restrict (by object) cross-border sales of certain Steam video games by preventing publishers’ distributors from responding to unsolicited requests from distributors or users located outside the territory of certain EEA countries. Effectively, the keys were used in certain territories, where Steam games were sold by the publishers’ distributors at lower prices, to prevent cross-border sales of those games to buyers located in higher-priced countries.

Appeal

Valve appealed the Commission decision and, on 27 September 2023, the General Court rejected the appeal.

Valve raised many arguments during the appeal including that there was, in fact, no anti-competitive agreement or concerted practice with the publishers but that Valve acted unilaterally, providing the geoblocking within the keys at the publishers’ request (a fact not denied by Valve), that Valve was a service provider to the publishers or that their relationship was that of distributor and supplier, precluding a finding of the existence of an agreement or concerted practice.  In addition, it argued that the publishers were entitled to exercise their IP rights in the games and license third party distributors to sell those games only in certain EEA countries.  It also argued that the Commission failed to prove that use of the keys prevented the erosion of prices of the games in higher-priced countries and failed to consider that geo-blocking benefitted consumers by enabling publishers to build an audience in countries where prices are generally lower.

The Court held that none of these arguments altered the finding of the Commission decision.  The evidence established that Valve chose to offer territorial control functionalities; it provided the keys at the request of the publishers; it had, on certain occasions, proactively raised the possibility of using the territorial control function; it was aware (or ought to have been aware) that those keys were being used by the publishers to hinder passive sales; and it had never distanced itself from such practice.  The Court also pointed out that the provision of the keys also protected games sales made by Steam directly on the Steam platform (for which Steam retains 30%). The evidence demonstrated acquiescence in the publishers’ conduct, or “a concurrence of wills”, to restrict passive sales with a view protecting the high amounts collected by the publishers, and Steam for its sales on the Steam store, in certain EEA countries.

In response to some of Valve’s specific arguments, the Court stated that Article 101 is not limited to exclusive distribution or licence agreements (the subject of many Article 101 cases) and the exercise of IP rights in granting licences to third parties to sell products only in certain countries does not itself infringe Article 101, but further measures within such licences may do so where they lead to artificial price differences between national markets.  Further, there is no requirement to show that an anti-competitive agreement is in the commercial interest of the parties and Valve’s claims as to the pro-competitive effects of the agreements were unsubstantiated.

To access the judgment, click here.