In what looks like a decision that will upheave Valve’s anti-competitive practices, the European Commission fined Valve and five game publishers last week for violating the EU’s Regulation on geo-blocking. Regulation 2018/302 on unjustified geo-blocking, entered into force on December 3, 2018, aims to prevent discriminatory trade practices “based on customers’ nationality, place of residence of establishment, including unjustified geo-blocking, in cross-border transactions between a trader and a customer relating to the sales of goods and the provision of services within the Union.” EU regulators want consumers to have the freedom to shop around the EEA for the best offer, bringing the EU closer to its goal of the “EU Digital Single Market.”

However, the Regulation is incompatible with Valve’s policy of offering a “territory control” function to developers using Valve’s Steamworks portal. Developers can request Steam activation keys through the Steamworks portal, which are licenses to play a game in the Steam client. Aside from purchasing the game directly through Steam, consumers may have the option of going through brick-and-mortar stores and third-party websites. Developers  can include Steam activation keys with the  purchase of a physical or third-party website copy. With the territory control function, developers can limit the territories from which their games may be activated and downloaded through the Steam client.

Between 2007 and November 2018, approximately one hundred games were subject to this territory control function. The European Commission found that consumers could not activate their Steam activation keys outside of the EEA even if they purchased the game from a store within the EEA. The Commission felt these were illegal “concerted” practices contrary to the mission of the EU Digital Single Market.

The Commission sent a Statement of Objections and fines to each of Valve and the five publishers following an almost two-year investigation into these practices. After Valve and the publishers responded with their defenses, the Commission concluded that there was sufficient evidence of an infringement and fined them each based on a percentage—usually 10% but can be up to 30% and for repeat offenders, up to 100%—of their respective annual sales related to the infringement. These fines were reduced as much as 15% depending on their cooperation with the investigation and admission of the violations. Out of the six, Valve was the only party to not cooperate and, as a result, Valve was fined the full 1.6 million euros.

With this ruling, developers, publishers, and distributors may be wary of utilizing the territory control function of Valve’s Steam activation keys to limit accessibility in the EEA. Not only can these individuals be sanctioned by the Commission, but any person who is harmed by such geo-blocking activity can bring an action for damages in the local EU courts and a damage award is in addition to a fine from the Commission.

It remains to be seen whether Valve will change its policy on Steam activation keys, especially after Valve refused to cooperate with the Commission’s investigation.

If you have questions about this development, please contact Sean Kane at skane@fkks.com, Saphya Council at scouncil@fkks.com, or any other member of the Frankfurt Kurnit Interactive Entertainment Group.