Geo-Blocking Beyond Copyright: Can Territorial Licensing Become Anti-Competitive?

In today's rapidly growing digital ecosystem, OTT platforms like Netflix, Amazon Prime, Disney Hotstar, etc., have experienced a boom in the consumer market, especially after the Covid 19 shutdown of cinema halls and the decline in the theatre culture. Initially, this growing trend began as a convenience model for the customers; however, the current situation says otherwise. Has it ever happened to you that one day you are watching your favourite show on one of these platforms and the next day the show is either "rented" or "not available in your geographic location" and you are left wondering? This blog aims to give you insight into that question and analyse the legal nuances behind such digital market practices, such as geo-blocking, which involves showcasing selected content according to the consumer's geographical location. Further, it looks at geo-blocking from a lens of competition law and its overall impact on the digital market.

Zooming in on the Amazon Prime Video example, where a movie available today gets rented tomorrow, this whole mechanism is made possible through the means of licensing agreements under the Copyright Law and these agreements(End User Licensing Agreements) you can pay for your monthly Prime subscription, but you do not own the content on the website.

This brings to mind the Right to Sale or the Doctrine of Exhaustion in copyright law, for the longest time, the practice of the first sale doctrine, where once the first sale of the "physical" object lawfully occurs with authorisation of the copyright holder, then such author ceases to have control over subsequent transfers have proved to be beneficial from both perspectives of IP protection and market circulation.

However, now that the market structure is more digital, the implications of the first sale doctrine becomes quite sombre, especially with the technological advancements and the easy reproduction of content, which has called for the need for Digital Rights Management Technologies(or DRMT's) which help in restricting unauthorized resales or transfers, through Technological Protection Measures(TPM's) involving Geo-blocking, IP filtering, time access control, etc. As a result, access to such content has become more "controlled" rather than owned.

Coming to the material issue of geo-blocking, which has been prominent throughout cross-border jurisdictions, this is where the real scrutiny lies. But first, it's important to understand what geo-blocking is -it is basically the restriction of content,^[1] websites or services ^[2]provided to consumers based on their geographical location. So, the streaming giants decide their content based on several factors, like IP address, consumer behaviour and once again licensing access. This unchecked power is often under scrutiny as it expands the scope for price differentiation^[3], causing market partitioning and artificial barriers. Hence, the question arises whether such restrictions are even legal? And through constant dialogue and debate in the field of law, this issue is primarily discussed by drawing an analysis of the territorial nature of copyright protection.

The Berne Convention for the Protection of Literary and Artistic Works (1886) was the first instrument entailing the "principle of territoriality" to extend and limit protection given to the artist/owner of the work to the national borders of the nation where such protection is sought. Similarly, following the development of Intellectual Property Laws, the TRIPS agreement further brought in developments in such protection and reaffirmed the same. The intent behind such a restriction is backed by the varied economic and legal circumstances of the nations. Thereby, providing an unrestricted space for individual states to frame their own copyright-related laws, which favour the needs of their population and economy.

Tailoring to the present needs of society, these big OTT platforms like Netflix, Amazon Prime, Disney Hotstar, etc., make available such international content worldwide through copyright licensing. Moreover, these agreements allow the owner of such cinematographic work to issue a certain bundle of rights to such platforms for profit-making or to reach a vast consumer market.

As provided in Section 30 of the Copyright Act 1957, the Indian laws permit an owner of such copyright to grant an interest in their owned intellectual property through licensing agreements, and these agreements usually include a territoriality clause to ensure the value of the agreement is preserved. So, from a copyright perspective, geo-blocking seems to be a legitimate practice, but its implications extend beyond legality and begin to raise concerns when viewed from a competition law perspective in digital space. Especially now, when the internet world has reached a state of no territorial boundaries, promoting a shared space for technology and creativity, practices like geo-blocking stimulate artificial territorial walls, contrary to the whole objective of having a digital landscape in the first place.

The real problem occurs when a consumer is disrupted from watching the content without having an explanation for the same. It's not like you didn't pay for the content, or suddenly the laws changed. What merely changed is the validity of these agreements, which allowed the availability of such content beyond its territorial limits.

This might seem like a normal agreement story: you get into an agreement, you put a validity clause, and upon reaching the date of such validity, the agreement is deemed to be exhausted. However, when you look at these practices from the perspective of market competition, this simple routine becomes a very complex area for the law to deal with.

The jurisprudence behind competition law does not always depend on legality, but also on fairness, market structure, and consumer welfare. And this threshold is important for the concern of geo-blocking. Big enterprises having major shares in the field of OTT and digital content providers have often received backlashes for using the provisions of licensing and Right to Sale as a tool to gain market power, as prohibited under Sections 3 and 4 of the Competition Act.

For instance, in the case of HT Media Ltd vs Super Cassettes,^[4] the court ruled that mere copyright ownership with T-series does not insulate a dominant player like T-series from scrutiny of its commercial conduct and held that their discriminatory conditions for providing licensing of their original content to rival music streaming platforms were anti-competitive.

To further understand this overlap, let's briefly bring in what Sections 3 and 4 of Competition Act actually entail, where the former discusses agreements of an anti-competitive nature i.e. horizontal or vertical agreements between competitors, limiting production, price fixing or market sharing, the latter prohibits abuse of dominance position causing appreciable adverse effect on market competition. Moreover, these provisions also include practices like Tie-in arrangements, Exclusive supply and distribution clauses, as well as resale price maintenance, which are mostly practices facilitated through licensing agreements in the realm of OTT platforms. Thus, licensing practices are not beyond scrutiny when they affect market structure.

Now, the following three key issues arise in this context. First, do such agreements contribute to market dominance and stimulate foreclosure? Second, is consumer interest at stake? Third, do such practices distort overall competition in the market?

Concerning the first question of the creation of concentration of power and the increased probability of foreclosure, this can be observed even in the OTT market at present, since these licenses require substantial financial investment to acquire the original access from the author, and the market is mostly driven only by big platforms. Now, if a newcomer tries to establish its presence in the market, the circumstances are quite rigid, either requiring extensive funding or unique strategies like original content creation, which once again becomes a hindrance through indirect means.

Another essential aspect to be considered is consumer lock-in. For instance, the Amazon ecosystem now offers varied services, and digital content is just another add-on; consumers are more driven to such tie-in arrangements rather than opting for new entrants. This also leads to the second question of the consumer interest being at stake. It is important to highlight that digital markets still suffer from information asymmetry, where the service providers have now developed extensive technology to study consumer behaviour and structure the market in a controlled manner. Moreover, the restricted licensing practices where the erosion of digital exhaustion is prevalent lead to an artificial scarcity of resources, and consumers are left with low to no substitute options.

Finally, these practices do raise concerns of competition distortion. The legal overlaps between the legal monopoly of copyright and the overly dynamic markets of this age will become a major driver of market dominance, enabling price control and discrimination. If these practices are allowed to persist without any interference for a long time, then an adverse, irreparable impact can be observed in the market structures over time. Therefore, developing a transparent and balanced legal approach to regulate such licensing strategies and promote fair market competition in digital markets is a necessity.

References:

1. Restriction of content based on geographic location: Grand Production GmbH & Co. KG v. GO4YU GmbH & Co. KG, Case C-423/21 (CJEU, Advocate General Opinion of AG Szpunar, 20 October 2022) ↑

2. Restriction of websites or services based on geographic location: Ramdev v. Facebook Inc. & Ors., CS(OS) 27/2019 (Delhi High Court, 23 October 2019) ↑

3. Price differentiation through geo-blocking: European Commission, Case AT.40436 — Guess (Decision, 17 December 2018) ↑

4. M s HT Media Limited & M/s Super Cassettes Industries Limited. Case No, 40/2011/ ↑

Author is a Law student at CHRIST (Deemed to be University), Pune Lavasa. Views are personal.