FINES FOR VIOLATION OF EU ANTITRUST RULES: VALVE, OWNER OF THE GAMING PLATFORM “STEAM” AND OTHER FIVE PUBLISHERS WERE FINED A TOTAL OF MORE THAN € 7 MILLION FOR GEOBLOCKING PRACTICES RESULTING IN MARKET PARTITIONING
According to the European Commission, Valve and the game publishers Bandai Namco, Capcom, Focus Home, Koch Media and ZeniMax restricted cross-border sales of about 100 PC video games, thereby violating EU competition law. The agreement was designed to prevent consumers from playing games outside certain Member States. Therefore, the parties partitioned the European market. The practices took place in nine different EU-Member States between March 2007 and November 2018.
Steam is an online platform, accessible worldwide, that offers video games for download or for playing in streaming. Also, games bought via traditional channels or electronically from third parties may be played via Steam. Users obtain specific activation keys enabling them to activate and play games on the platform. Said activation keys are included in the video games sold by the publishers. The platform Steam includes a territory control function: during the activation process the user’s geographic location is recognized. As a result, a “geo-blocking” is possible because of the combination of activation keys and the territory control function.
After almost four years of investigation, the European Commission (“Commission”) has ascertaining, with regard to the relationship between Valve and the five abovementioned publishers: “Bilateral agreements and/or concerted practices … implemented by means of geo-blocked Steam activation keys which prevented the activation of certain of these publishers’ PC video games outside Czechia, Poland, Hungary, Romania, Slovakia, Estonia, Latvia and Lithuania, in response to unsolicited consumer requests (so-called “passive sales”). These lasted between one and five years and were implemented, depending on the cases, between September 2010 and October 2015.”
Furthermore, with regard to the PC video game publishers Bandai, Focus Home, Koch Media and ZeniMax and some of their respective PC video games distributors in the EEA (other than Valve) the Commission ascertained: “Geo-blocking practices in the form of licensing and distribution agreements … containing clauses which restricted cross-border (passive) sales of the affected PC video games within the EEA, including the above-mentioned Central and Eastern European countries. These lasted generally longer, i.e. between three and 11 years and were implemented, depending on each bilateral relationship, between March 2007 and November 2018”.
While the game developers Bandai Namco, Capcom, Focus Home, Koch Media and ZeniMax choose to cooperate, Valve, the owner of the platform Steam, according to the reasoning of the European Commission, did not so.
The legal background of the decision is reported to be twofold: it both mentions unjustified geo-blocking and vertical sales restrictions. EU – “Geo-blocking” Regulation n. 2018/302 aims at preventing 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.” In particular, a trader shall not, through the use of technological measures or otherwise, “block or limit a customer’s access to the trader’s online interface for reasons related to the customer’s nationality, place of residence or place of establishment”. However, the Regulation entered into force on December 3, 2018 only and thus after the end of the ascertained practices.
While the press-release of the European Commission repeatedly mentions the aspect of geo-blocking, the legal reasoning is rather to be found in art. 101 TFEU prohibiting the sharing of markets, being incompatible with the idea of an internal market: agreements between suppliers and distributors that limit the territory in which, or the customers to whom, the goods or services may be sold are not allowed.
The European Commission has issued reduced fines against the publishers acknowledging the collaboration during the investigations. To the contrary, the fine issued against the platform owner Valve was not reduced: according to the European Commission, Valve did not sufficiently cooperate during the proceedings. Valve is reported to consider appealing the decision. In past, Valve argued that it could not be considered as “games-distributor”. It would only provide a platform as a mediator between game providers and consumers. In any event, the Commission was not convinced: Valve was considered to plays a crucial role in a practices leading to market sharing.
The case exemplifies the close connection between aspects of geo-blocking and market partitioning. According to the regulation on geo – blocking, the EU member States shall ensure “effective, proportionate and dissuasive” measures against geo-blocking. However, as it is shown here, where geo – blocking results in market sharing, also consumers may claim damages. As the European Commission underlines in its press release: “any person or company affected by anti-competitive behaviour as described in this case may bring the matter before the courts of the Member States and seek damages. The case law of the Court and Council Regulation 1/2003 both confirm that in cases before national courts, a Commission decision constitutes binding proof that the behaviour took place and was illegal.”
CJEU: REGISTRATION PROTECTS NOT ONLY THE DESIGNATION OF ORIGIN, BUT ALSO THE SHAPE AND APPEARANCE OF THE PDO PRODUCT
In its judgment of 17 December 2020, issued at the end of case C-490/19 (“Syndicat interprofessionnel de défense du fromage Morbier v. Société Fromagère du Livradois SAS”), the European Union Court of Justice was called upon to rule on the protection of the Protected Designation of Origin (PDO), clarifying that under EU law it is possible to prohibit also the imitation of the shape and appearance of a PDO product, if the imitated elements may cause confusion to the consumer.
“Morbier” is a cheese produced in the Jura mountains (France) which has been registered as a PDO under European legislation since 22nd December 2000. Société Fromagère du Livradois (hereinafter ‘SFL’) is not located in the geographical area designated for the name “Morbier”, which is why it produces cheese under the different name “Montboissié du Haut Livradois”. Although the two cheeses have different names, they both share the same aesthetic feature, namely a horizontal black stripe encircling the whole of the cheese, which is explicitly identified in the description of the PDO “Morbier” product.
The dispute in question stems from the proceedings brought in 2013 by the Syndicat interprofessionel de défense du fromage Morbier (Morbier Cheese Protection Consortium) against SFL, seeking an order that SFL cease all direct or indirect commercial use of the name ‘Morbier’ PDO for products not protected by it, all misuse of the name, any usurpation, imitation or evocation of the PDO, any other false or misleading indication as to the provenance, origin, nature or essential qualities of the product likely to mislead the consumer as to the true origin of the product, any other practice likely to mislead the consumer as to the true origin of the product, and in particular any use of a black stripe separating two parts of the cheese. The application for an injunction thus formulated was, however, not granted at first instance. In particular, in a decision of 2017, the Cour d’Appel de Paris stated that PDO registration was not intended to protect the appearance or characteristics of a product, but was limited to protecting its name, and that the manufacture of different products using the same working techniques was not per se prohibited.
The consortium, after its claims for protection were not upheld, appealed the decision of the Court of Appeal to the French Court of Cassation. On this occasion, the Cassation, by way of a preliminary reference, asked the European Union Court of Justice for clarification not only on the rules concerning the use by third parties of a registered name, but also on the possibility of prohibiting, on the basis of EU legislation, the reproduction of shapes and characteristics of a product with a designation of origin.
The CJEU decision
The Court of Justice is thus called upon to rule on this practice and, in particular, to clarify whether the reproduction of the shapes and characteristics of a product bearing the PDO mark is likely to mislead consumers as to the real origin of the product. The CJEU first of all clarifies the interpretation of both Article 13(1) of Council Regulation No 510/2006 of 20 March 2006, in force at the time of the facts, and Article 13(1) of Regulation No 1151/2012 of the European Parliament and of the Council, which replaced the first regulation on quality policy for agricultural products and foodstuffs, stating that “registered names shall be protected against […] any other practice liable to mislead the consumer as to the true origin of the products”. According to the Court, both rules must be interpreted broadly so as not only to prohibit the use by third parties of the registered name, but also to preclude them from reproducing the characteristic shape or appearance of the PDO product, where such a practice is liable to mislead the consumer into believing that the product in question is covered by the registered name. Therefore, although the protection provided for by Regulations Nos 510/2006 and 1151/2012 relates expressly to the registered name and not to the product to be protected and, more specifically, to its shape or appearance, PDOs are protected precisely because of those particular characteristics which distinguish the product. For this reason, according to the CJEU, it is not possible to exclude a priori that the reproduction of such characteristics attributable to a product covered by a registered name, without that name appearing on the product, may fall within the scope of the rules in question. Lastly, the judgment states that it is necessary to ascertain on a case-by-case basis whether that reproduction is likely to mislead the European consumer – who tends to be well-informed and circumspect –, having regard not only to the relevance and distinctive character of the elements being imitated, but also to all the factors in the case (i.e. the manner in which the product is presented to the public and marketed) which are likely to mislead the consumer.
THE FRAND EXCEPTION WILL BE DISCUSSED AGAIN BEFORE THE COURT OF JUSTICE: THE COURT OF DÜSSELDORF REFERS SOME OF THE MOST DEBATED ISSUES IN THE PATENT FIELD TO THE JUDGES OF LUXEMBOURG
In the proceedings that Nokia Technologies Oy brought against Daimler AG for infringement of the German part of a European patent, the Court of Düsseldorf (Germany) announced last week that it would not issue an injunction against Daimler. Instead, the Court addressed the Court of Justice with a series of questions concerning the scope of application of the so-called FRAND exception: the patent concerns a method for sending data in a telecommunication system, being essential for the LTE (4G) standard. The battle between Nokia (and other owners of patents essential for the standard) against Daimler has already seen several decisions of the courts in Mannheim and Munich that excluded referral to the Court of Justice.
The patent litigation concerns the German portion of patent EP 2 087 629 B1. Its owner, Nokia Technologies Oy, has applied for an injunction against the car manufacturer Daimler AG. This patent is essential for the LTE (4G) standard, which requires the use of LTE-enabled modules from various suppliers, which are installed in Daimler machines. These modules allow services such as music streaming or ether updates. As early as September 2014, the actress’s predecessor declared that he considered his patent essential to the LTE standard and issued a FRAND declaration, undertaking to grant licenses to third parties on fair, reasonable and non-discriminatory terms. However, not only the defendant Daimler but also many of its suppliers had so far used the standard (and thus also the patent in question) without having obtained a license. In the proceedings before the court in Düsseldorf, the defendant Daimler points out that, on the basis of the EU internal market rules and the FRAND declaration of September 2014, the plaintiff must grant a license to each applicant. In terms of scope, the license should be unlimited for all types of use that the standard allows.
The standard procedure in the automotive industry would require suppliers to obtain licenses. A central aspect of the dispute between Nokia and Daimler is, in fact, the granting of licenses in articulated supply chains, composed of various levels. It should be noted that there are different practices in different sectors: In the mobile communications sector, licenses are traditionally negotiated at the level of the manufacturer of the final product. In the automotive industry, on the other hand, licenses are traditionally granted to suppliers, leading to the exhaustion of licensing rights downstream along the supply chain. On the contrary, the actress Nokia argues that the choice of supplier within a business chain to which to grant a license is solely up to her as the owner of the patent essential to the standard. In the automotive industry, on the other hand, licenses are traditionally granted to suppliers, leading to the exhaustion of licensing rights downstream along the supply chain. On the contrary, the actress Nokia argues that the choice of supplier within a business chain to whom a license is granted is up to itself as the owner of the patent that is essential to the standard.
The Court did not reject the defendant Daimler’s argument and raised the question whether Nokia’s initiative could be considered an abuse of a dominant position. The questions submitted to the Court of Justice belong to two macro-themes. The first concerns the question whether there is an obligation of the holder of a patent essential standard to grant licenses to suppliers in priority. The second concerns specifications of the obligations formulated in the judgment of 16 July 2015 of the Court of Justice in the Huawei case. ZTE (C-170/13).
With regard to the possible obligation to grant licenses, in priority, to suppliers (intended as upstream in the commercial chain), the Court specified the question as follows: can a company that is downstream in the commercial chain invoke the abuse of a dominant position within the meaning of Article 102 TFEU if the patent holder has refused to grant a license to suppliers that are upstream in the commercial chain?
The Court of Düsseldorf – perhaps having in mind what factor could be decisive for the answer – then formulated a further question: is it relevant for the answer the existence of a commercial practice – in the field of the final product – according to which it is the supplier to take action to obtain the necessary licenses for the components supplied? Is there such a priority to grant a license to suppliers at every level of the commercial chain or only to the last supplier? Is the practice of trade decisive in this case too?
Even in the latter case, the formulation of the questions suggests a clear trend of the German court.
Regarding the second macro-theme, the Court of Düsseldorf also referred more general questions relating to FRAND’s defense to the Court of Justice: First, the Court of Düsseldorf asks whether the impending circumstances of the judgment in the Huawei case. ZTE for both parties can be fulfilled even after the initiation of legal proceedings. Secondly, the court asks what the prerequisites are for qualifying a proposal as sufficient by those who intend to use a standard essential patent within the mechanism of the decision.
The decision of the Court of Düsseldorf to make a request for referral to the Court of Justice on the one hand increases the hope of achieving greater clarity and uniformity of application in the future. However, in view of the proceedings already in progress and/or established before a final decision is made, the mere pending before the Court of Justice entails the risk of further suspension decisions, which is why one can only hope for a speedy final decision.
PROHIBITION OF DISCRIMINATION FOR PERFORMERS OUTSIDE THE EU: THE CGUE RECOGNISES THE RIGHT TO FAIR COMPENSATION
By decision of 8 September 2020 in case C-265/19, the Court of Justice of the European Union clarified the subjective scope of application of Article 8 of Directive 2006/115/EC on rental right and lending right and on certain rights related to copyright in favour of performers of works fixed in phonograms and communicated to the public by producers. In particular, the Court specified that the territorial origin of the rightholder may not be a determining factor with respect to the emergence of the right to obtain the fair compensation provided for by the Directive in favour of performers for broadcasting or for any communication to the public of protected musical works within the territory of the Union.
The case that has reached the Court of Justice of the European Union originates from a dispute between two Irish collective management societies of copyright and related rights in relation to the enforceability of the right to fair compensation by performers from countries outside the EEA (in particular the United States of America) for broadcasting or for any communication to the public of protected musical works within the Irish territory.
In detail, the Recorded Artists Actors Performers Ltd (“RAAP”) – which manages the rights of performers in Ireland – and Phonographic Performance (Ireland) Ltd (“PPI”) – which manages the rights of phonogram producers in Ireland – entered into a contract to regulate the way in which the rights to fair compensation payable by RAAP members in respect of the exploitation of protected works by PPI members are divided.
However, a dispute arose about the enforceability of these rights by persons from outside the EU because, according to the PPI phonographic producers’ collection, the Irish national legislation on copyright and related rights would only make the right to fair compensation enforceable in favour of an Irish citizen coming from or domiciled in a state of the European Economic Area (EEA) or, finally, of a country included in the list of states with conditions of reciprocity. On the contrary, the RAAP Performers’ Collections considered that also subjects coming from non-EEA territories (such as the United States of America) would have accrued the rights deriving from the fair compensation for the exploitation of the protected works because in EU law (nor in any international treaty signed by Ireland) there would be no limitation with respect to the territorial origin of the performers.
The decision of the Court
First, the Court specified that the definition of ‘performers’ in Article 8(2) of Directive 2006/115 must be interpreted uniformly throughout the Union in the absence of any reference to national rights as regards the scope of this definition. Since this provision does not expressly specify whether the term ‘performers’ refers only to performers who are nationals of a State in whose territory this Directive applies, or whether it also refers to performers who are nationals of another State, any limitation of territorial origin should be considered excluded.
The right to fair compensation is in fact, according to the Court, a right of a compensatory nature whose causal factor is the communication to the public of the interpretation or performance of the work fixed on a phonogram published for commercial purposes. It follows that each Member State of the Union should ensure, on the one hand, that a single equitable remuneration is paid by the user when a phonogram published for commercial purposes, or a reproduction thereof, is used for broadcasting or for any communication to the public and, on the other hand, that such remuneration is shared between the performer and the producer of the phonogram.
There is therefore no limitation on the territorial origin of the person who may claim such compensation.
This conclusion would also be confirmed by the international treaties signed by European States, including the Rome Convention of 26 October 1961 in relation to the protection of performers, according to which any performer who is a national of a Contracting State to that Convention must benefit from the national treatment accorded by the other Contracting States to their own nationals if the performance is recorded on a phonogram protected under that Convention.
According to the Court, the right to a single equitable remuneration, recognised by Article 8 of Directive 2006/115, cannot be reserved by the national legislature to nationals of EEA Member States alone, with the consequent disapplication of any national legislation (in the present case the Irish legislation) which conflicts with that harmonised definition.