A lengthy antitrust investigation into PC games geo-blocking in the European Union by distribution platform Valve and five games publishers has led to fines totalling €7.8 million (~$9.4 million) after the Commission confirmed today that the bloc’s rules had been breached.
The geo-blocking practices investigated since before 2017 concerned around 100 PC video games of different genres, including sports, simulation and action games.
In addition to Valve — which has been fined just over €1.6 million — the five sanctioned games publishers are: Bandai Namco (fined €340,000), Capcom (€396,000), Focus Home (€2.8 million), Koch Media (€977,000) and ZeniMax (€1.6 million).
The Commission said the fines were reduced by between 10% and 15% owing to cooperation from the companies, with the exception of Valve, which it said chose not to cooperate (a “prohibition Decision” rather than a fine reduction was applied in its case).
Valve has been contacted for comment. Update: A company spokesman said: “During the seven year investigation Valve has cooperated fully, providing all requested evidence and information to the Commission. We disagree with these findings, and plan to appeal the decision.”
An in-depth antitrust investigation was announced publicly by the Commission in February 2017, with a formal statement of objections issued just over two years later — when it accused the companies of “entering into bilateral agreements to prevent consumers from purchasing and using PC video games acquired elsewhere than in their country of residence” in contravention of EU rules.
The mechanisms used by the companies to prevent certain cross-border sales of certain PC games were geo-blocked Steam activation keys and bilateral licensing and distribution agreements to restrict certain cross-border sales.
EU lawmakers has now found that these business practices partitioned certain European markets according to national borders — denying regional consumers the benefits of the EU’s Digital Single Market to shop around for the best offer.
Commenting in a statement, EVP Margrethe Vestager, who heads up competition policy for the bloc, said: “Today’s sanctions against the ‘geo-blocking’ practices of Valve and five PC video game publishers 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.”
According to the Commission’s investigation, geo-blocking of Steam activation keys prevented activation of certain of the five games’ publishers titles outside of Czechia, Poland, Hungary, Romania, Slovakia, Estonia, Latvia and Lithuania.
It said agreements between the companies to geo-block activation keys had lasted between one and five years and were found to have been implemented at various times between September 2010 and October 2015.
While four of the games publishers (not Capcom) were found to have entered into licensing and distribution agreements with various PC games distributors (not Valve) in the European Economic Area (EEA) which contained clauses which restricted cross-border sales of the affected titles within the EEA, including the aforementioned Central and Eastern European countries.
The Commission said these agreements lasted generally longer (“between three and 11 years”), and were implemented at different times between March 2007 and November 2018.
Since the investigation started, EU lawmakers have passed a regulation against unjustified geo-blocking. Although the legislation only applies to PC video games distributed on CDs or DVDs, not to downloads. So games are only partially covered.
A Commission review of how the geo-blocking regulation is operating, published last November, discussed a possible extension of its scope in a range of areas, including for games. However it did not make a strong case for that change. (It also found demand for cross-border access to games, and software generally, relatively low versus other content services.)
But while games distributed via digital downloads look set to remain outside the scope of the EU’s unjustified geo-blocking regulation, the fines against Valve et al. show that geo-blocking can still be a legal minefield as contractual agreements to restrict cross-border sales run counter to the bloc’s antitrust rules.
The specific breaches are of Article 101 of the Treaty on the Functioning of the European Union (TFEU) and Article 53 of the Agreement on the European Economic Area which prohibit agreements between companies that prevent, restrict or distort competition within the EU’s Single Market, per the Commission.
Update 2: Valve has now sent additional details of its disagreement with the Commission’s findings, and denied that it did not cooperate with the investigation. It also warned the elimination of region locks could result in games publishers raising prices in some “less affluent” regions to avoid price arbitrage.
Its spokesman told us:
During the seven year investigation, Valve cooperated extensively with the European Commission (“EC”), providing evidence and information as requested. However, Valve declined to admit that it broke the law, as the EC demanded. Valve disagrees with the EC findings and the fine levied against Valve.
The EC’s charges do not relate to the sale of PC games on Steam – Valve’s PC gaming service. Instead the EC alleges that Valve enabled geo-blocking by providing Steam activation keys and – upon the publishers’ request – locking those keys to particular territories (“region locks”) within the EEA. Such keys allow a customer to activate and play a game on Steam when the user has purchased it from a third-party reseller. Valve provides Steam activation keys free of charge and does not receive any share of the purchase price when a game is sold by third-party resellers (such as a retailer or other online store).
The region locks only applied to a small number of game titles. Approximately just 3% of all games using Steam (and none of Valve’s own games) at the time were subject to the contested region locks in the EEA.
Valve believes that the EC’s extension of liability to a platform provider in these circumstances is not supported by applicable law. Nonetheless, because of the EC’s concerns, Valve actually turned off region locks within the EEA starting in 2015, unless those region locks were necessary for local legal requirements (such as German content laws) or geographic limits on where the Steam partner is licensed to distribute a game. The elimination of region locks may also cause publishers to raise prices in less affluent regions to avoid price arbitrage. There are no costs involved in sending activation keys from one country to another, and the activation key is all a user needs to activate and play a PC game.
This report was updated with comment from Valve. We also made a correction after initially stating that the EU’s investigation had taken four years, starting in 2017. That was the date the Commission announced it was launching an in-depth investigation. But, per Valve, the probe took longer — spanning seven years.