Chillin'Competition

Background

Earlier this week the General Court delivered its ruling in Valve (see here). It addressed some of the legal issues that the Court of Justice did not, and could not, tackle in Canal+ (and which I discussed here). Because the latter case was decided by means of a commitments decision, the ECJ could not ‘definitively’ rule on whether the contentious clauses restrict competition by object (see para 54 of Canal+).

Valve, like Canal+, is about restrictions to the cross-border provision of copyright-protected content within the EU. Both differ from plain vanilla market integration cases in two ways. First, intellectual property is exploited in an intangible manner (as opposed to incorporated in, say, a Hello Kitty t-shirt).

Second, they are not subject to the exhaustion doctrine. As a result (and as the Court held in Coditel I), a copyright holder (or its licensee) may rely on its exclusive rights to preclude the cross-border provision of content.

These two differences can be consequential in individual cases. Because the copyright holder (or its exclusive licensee) can exercise its rights in relation to every communication to the public, cross-border trade may be prevented by the intellectual property system itself (that is, irrespective of whether there is an agreement in place).

In other words (and to use the vocabulary employed in Generics), the intellectual property system may, in some circumstances, represent an ‘insurmountable barrier to entry’ preventing the cross-border provision of services.

We know from the case law (think of Toshiba and E.On Ruhrgas) that, where the absence of (inter or intra-brand) competition is attributable to the regulatory context (as opposed to firms’ behaviour), the agreement under consideration does not restrict competition, whether by object or effect (this case law is elegantly summarised in Advocate General Kokott’s Opinion in Generics).

The (seemingly) straightforward

These precedents suggest that the key question to raise in Valve is whether there were ‘insurmountable barriers’ to the cross-border offer of video games via the Steam platform.

While the outcome of individual cases is never the focus of my analysis, I will note that, as far as I could gather from the public version of the decision (many crucial bits of which were confidential), Valve had received a worldwide non-exclusive licence to distribute the relevant video games via its platform (and therefore, it would appear, the right to distribute the said video games across the whole of the EU).

In such circumstances, it seems very likely (this is at least what the public version of the decision suggests) that any restrictions to cross-border trade would be attributable to the agreements, not to the copyright regime. For the same reason, the qualification of the said agreements as restrictive of competition by object seems in principle inescapable.

Assuming that the agreements (as opposed the copyright regime) are what preclude the cross-border provision of content, there would be no plausible rationale for the restraints other than the limitation of passive sales. This is, almost word for word, what the Commission argued in the case (para 211).

Summing up, the case seems, on the surface, straightforward. Some of the points made about the relationship between competition law and intellectual property, moreover, are wholly uncontroversial (such as the fact that the non-exhaustion of the rights does not preclude, as held in Coditel II, the application of Article 101(1) TFEU).

The open questions: a new relationship with intellectual property?

Other points, however, appear to go further than exisiting case law. They may perhaps be irrelevant in the context of the case, but they are definitely worth discussing. In para 203 of the judgment, the General Court suggests that a restriction of passive selling would be restrictive by object unless and until a national court declares that such passive selling amounts to a copyright infringement:

‘203. […] as is apparent from recitals 305 to 309 and 352 to 354 of the contested decision, the question whether or not […] passive sales by the publishers’ distributors could be the subject of legal proceedings before the competent national courts is not decisive for the purposes of the application of Article 101 TFEU […]’.

In other words, competition law, according to Valve, does not defer to the intellectual property system for as long as an infringement has not been expressly declared. In the same vein, the General Court appears to imply that licensees in different territories are presumed to be potential competitors before a copyright violation is formally established.

If the logic of the General Court were applied in an agreement like the one in Coditel II, the absolute territorial protection granted by virtue of the exclusive licence would be treated as a restriction by object pending a final declaration of an infringement.

It is difficult to overestimate the consequences of this interpretation of Article 101 TFEU. The presumptive validity of intellectual property titles (and, more precisely, the question of whether they raise ‘insurmountable barriers’ within the meaning of Generics) would bear no relevance in competition law analysis. These titles would only come into the picture once a breach has been proved.

The General Court’s arguments draw from the Commission decision in Valve. The latter, in turn, appears to be based on a reading of Generics that turns the specifics of the case into a general rule. Paras 49 and 50 in Generics deal with a very particular factual scenario, namely one where the primary patent had expired and where the relevant process patent did not and could not preclude potential competition.

The Generics case, in other words, was about an instance in which a presumptively valid intellectual property right was not an insurmountable barrier to entry.

The General Court judgment in Valve (just like the Commission decision) suggests the conclusions drawn in paras 49 and 50 of Generics are relevant in a different context, that is, one in which a presumptively valid intellectual property right would constitute such an insurmountable barrier. By doing so, Valve fundamentally changes, in passing, the relationship between competition law and intellectual property.

It remains to be seen whether this expansive interpretation of Generics will be embraced by the Court of Justice (either in Valve or a different case).

What can be said for the time being is that Valve is a manifestation of a wider trend in competition policy. The discipline is becoming less deferential, over time, to intellectual property. I have been tracing this evolution in forthcoming work of mine, which I look forward to sharing with the wider world. In the meantime, I would very much welcome your thoughts.