EU Commission calls “game over” on geoblocking by Valve gaming platform “Steam” and others

Context

Margrethe Vestager, the executive Vice-President in charge of the EU’s competition policy, stated that these sanctions against the “geo-blocking” practices […] serve as a reminder that under EU competition law, companies are prohibited from contractually restricting cross-border sales. Such practices deprive European consumers of the benefits of the EU Digital Single Market and of the opportunity to shop around for the most suitable offer in the EU”.

In a broader context, due to the catalytic effect of the Covid-19 pandemic, the video game industry has thrived and skyrocketed its net worth to over EUR 17 billion in the EU alone. With most European citizens on lockdown, and more than a half actively playing video games (according to sources of the European Commission), the strength and trustworthiness of the EU Digital Single Market (“DSM”) as an ecosystem fostering competition and instilling confidence in consumers is now being put to the test.

As part of its DSM package, the EU implemented the Geoblocking Regulation to put a stop to all geographic restrictions undermining online shopping and cross-border sales. Since the Regulation came into effect on 3 December 2018, any discrimination between EU customers to segment markets along national borders is considered unjustified geo-blocking.

The Commission did not stop there: On 15 December 2020, it introduced an ambitious proposal to reform the digital space through a new package of rules for digital services, including social media, online marketplaces and other online platforms operating in the EU: the Digital Services Act (“DSA”) and the Digital Markets Act (“DSM”). At the heart of these two proposals lies a common purpose of ensuring that consumers have access to lawful and safe online content, products and services and that businesses operating in Europe can compete freely and fairly online. The protection of consumers and right owners, easy and fair access to the single market and prohibitions of unfair conditions imposed by online gatekeepers, are becoming ever more important at a time when the Commission has placed the DSA and DSM at the core of its highly ambitious “Europe´s Digital Decade” project. We have distilled the intended scope of the draft DSA and DSM for you in our recent articles here and here.

How did Valve and the video game publishers bend the rules in their favor?

Valve’s online gaming platform “Steam” is one of the largest in the world. It allows registered users to download, play or stream video games online, and to activate and play video games bought either in-store or through digital downloads on third-party websites. At the same time Valve provides video game publishers with the technical tools to activate and make their games playable via Steam, which includes those purchased outside of Steam, by using “Steam activation keys”. Publishers include these keys in their games for user authentication and activation purposes, and then the games are distributed by third parties across the EEA. The combination of Steam activation keys with the territorial control function that Valve also made available to the publishers, allowing them to enable geographic restrictions upon activation, led to the sanctioned “geo-blocking” of certain video games based on the users’ location.

Why did the Commission pull the plug on these practices?

The Commission found that the agreement between Valve and each publisher to “geo-block” certain video games from outside a specific territory fragmented the EEA market in violation of EU antitrust rules under the Geoblocking Regulation.

The “geo-blocking” practices affected approximately 100 video game titles of different genres, preventing users from activating and playing those video games as sold through the publisher’s distributors irrespective of their format (i.e. physical media such as CD/DVD or through downloads). The Commission concluded that these business practices ultimately denied European consumers the benefits of the DSM, aimed at ensuring a seamless shopping experience that transcends borders in the search of the offer best suited to each consumer’s needs.

How were the fines calculated and why were some of the publishers able to obtain reductions?

The fines imposed by the Commission were determined on the basis of the EU’s Guidelines on fines. The publishers cooperated with the investigation by providing evidence of added value and expressly acknowledging the facts and infringements of EU antitrust rules. Their cooperation resulted in a reduction of the fines between 10-15% depending on the degree of assistance provided during the investigation. As Valve chose not to cooperate, the Commission imposed a fine without reductions on the online gaming platform.

What are the main takeaways?

Restrictions to access and availability of online content, products and services based on geographical location undermine online shopping and cross-border sales in the EU Digital Single Market. These practices can manifest across a broad spectrum of digital business models. Companies offering digital products or services are well-advised to evaluate their compliance against the check-list of banned behaviors, including:

• blocking access to websites and re-routing without the customer’s prior consent,
• preventing delivery within the trader’s own country for foreign customers,
• imposing additional conditions for the purchase of electronically supplied services to foreign customers,
• denying equal treatment to foreign customers in respect of a service supplied on the trader’s premises or physical location where the trader operates.

Therefore, consumers must be allowed to freely browse and shop across the different country versions of a website, without being discriminated against based on their place of residence or location. Both the DSA and DMA will proscribe an even more closely regulated regime for digital services, with the aim of combating illegal online content and avoiding unfair conditions being imposed by online platforms that act as gatekeepers to the single market. Follow us on Engage to keep track of the significant ongoing legislative developments at EU level.

Authored by Anthonia Ghalamkarizadeh and Laur Badin