EC fines game companies for geo-blocking

On 20 January 2021, the European Commission (“EC”) announced it has imposed fines totalling €7.8 million on Valve Corp. and game publishers Bandai Namco Holdings Inc., Capcom Co. Ltd., Focus Home Interactive SA, Koch Media GmbH and ZeniMax Media Inc. for “geo-blocking” practices.7The game companies are said to have violated EU antitrust rules by restricting cross-border sales of certain PC games based on the user’s geographical location within the European Economic Area.

Specifically, the game publishers granted Valve, which owns game distribution service Steam, a nonexclusive license to exploit specified games. In exchange, the publishers secured a license from Valve to use Steam activation keys to dispense games outside Valve’s game distribution platform. The publishers requested that Valve set up geographical restrictions and provide geo-blocked Steam activation keys. As a result, PC video games were prevented from being activated in response to unsolicited consumer requests from outside a particular Member State. In addition, the EC found that the licensing and distribution contracts concluded bilaterally between four of the PC video game publishers and several of their PC video games distributors contained clauses preventing the cross border sale (including passive sale) of PC video games. The EC said that around 100 types of PC games were involved in the geo-blocking.

The publishers’ fines, which amounted to more than €6 million, were reduced for cooperation with the EC. Meanwhile Valve, which “chose not to cooperate,” was fined more than €1.6 million.

The EC’s decision follows other high profile geo-blocking cases, such as the decisions to fine Guess for an amount of nearly €40 million and the Spanish hotel group Meliá for an amount of €6.7 million. Taking into account the EC’s long-held determination to encourage cross-border trade within the EU’s single market, companies are encouraged to review their licensing and distribution systems, as well as commercial conduct, to double-check for possible territorial restraints within the European Economic Area.

German due diligence law

On 12 February 2021, following months of discussions with the Federal Ministry for Economic Affairs and Energy, the German Federal Ministry for Economic Cooperation and Development and the Federal Ministry of Labor and Social Affairs were able to agree on a draft bill for a new due diligence law for supply chains (the “Act”). The purpose of the Act and the new duty of care introduced by it is to protect human rights as expressed in the International Bill of Human Rights.

The Federal Government initially drew up a National Action Plan for Business and Human Rights (NAP) in 2016, which relied on the implementation of the requirements by companies on a voluntary basis. The two stage monitoring procedure showed, however, that the voluntary “commitment” provided for in the NAP to comply with human rights due diligence was not sufficiently implemented by many companies.

On 3 March 2021, after a brief formal stakeholder consultation, the German Federal Cabinet passed an official government draft of the Act, which now enters the parliamentary procedure. The Act is expected to be passed by the German Parliament (Bundestag and Bundesrat) during the current parliamentary term.

As mentioned above, the Act will introduce a new duty of care for human rights, which will commence on 1 January 2023 for companies with 3,000 or more employees in Germany (“Companies”). Furthermore, starting from 1 January 2024, the scope of the Act will be extended to include companies with 1,000 or more employees in Germany.

The content of the duty of care will be closely aligned to the due diligence as outlined in the UN Guiding Principles on business and human rights and the NAP, i.e. Companies will have to: 

• publish a basic declaration as to their respect for human rights;
• regularly perform a risk analysis;
• implement preventive measures;
•  mitigate risks; and document their process.

Under the Act, Companies that do not carry out a risk analysis, do not set up a complaint procedure or do not effectively put an end to identified human rights violations must expect hefty fines of between EUR 100,000 and EUR 800,000. For Companies with an average worldwide annual group turnover of more than EUR 400 million, up to two percent of the turnover can be incurred as a penalty. Moreover, Companies may be excluded from public procurement for up to three years if they have been fined at least EUR 175,000.

EC further prolongs Temporary Framework on state aid

On 28 January 2021, the EC once again amended the Temporary Framework on state aid (the “Amendment”).

Besides prolonging the application of the Temporary Framework until 31 December 2021, the Amendment consists of the following updates:

The following amounts of aid that can be granted as direct grants, tax and payment advantages or other forms such as repayable advances, guarantees, loans and equity, have been increased:

• aid to companies active in the primary production of agricultural products has been increased from EUR 100,000 to EUR 225,000;
• aid to companies active in the fishery and aquaculture sector has been increased from EUR 100,000 to EUR 270,000; and
• aid to companies active in all other sectors has been increased from EUR 800,000 to EUR 1,800,000
• In addition, the aid amount that can be granted to companies whose activities have been suspended or reduced due to the COVID-19 outbreak has been increased from EUR 3 million to EUR 10 million per company.

The Amendment allows for the conversion of certain repayable instruments granted under the Temporary Framework into direct grants. This is to encourage Member States to grant, at least in the first instance, aid in the form of repayable instruments. These conversions must take place based on transparent and non-discriminatory conditions and by 31 December 2022 at the latest.

Lastly, in relation to aid pursuant to Article 107(2)(b) TFEU (i.e., “aid to make good the damage caused by natural disasters or exceptional occurrences”), the EC has clarified what is considered to constitute restrictive measures that could directly cause damage. Examples mentioned include forced closures, exclusion of tourists, measures capping event attendance, etc., however, excluded hereof are general social distancing measures or general sanitary constraints

By Anderson Mori Tomotsune, Japan, a Transatlantic Law International Affiliated Firm. 

For further information or for any assistance please contact japan@transatlanticlaw.com

Disclaimer: Transatlantic Law International Limited is a UK registered limited liability company providing international business and legal solutions through its own resources and the expertise of over 105 affiliated independent law firms in over 95 countries worldwide. This article is for background information only and provided in the context of the applicable law when published and does not constitute legal advice and cannot be relied on as such for any matter. Legal advice may be provided subject to the retention of Transatlantic Law International Limited’s services and its governing terms and conditions of service. Transatlantic Law International Limited, based at 42 Brook Street, London W1K 5DB, United Kingdom, is registered with Companies House, Reg Nr. 361484, with its registered address at 83 Cambridge Street, London SW1V 4PS, United Kingdom.