Published in European Competition Law Review, 2015:36(7), 298-304 Please do not cite this text without permission Blu-Ray Region Code Protection and EU Competition Law Dr. Ahmet Fatih ÖZKAN* * PhD (University of Sussex, Brighton), LL.M. in Law and Economics (Bilkent University, Ankara) European Competition Law Review Volume 36, Issue 7, 2015 Abstract This article sheds light on the technical functioning of Blu-Ray region codes, outlines the legal concerns associated with Blu-Ray region coding and provides an analysis of this practice under EU competition law rules. It argues that the design and enforcement of Blu-Ray region coding seems to be in compliance with EU competition law rules. Keywords Blu-Ray, Region code protection, EU competition law, Market sharing, Parallel import Published in European Competition Law Review, 2015:36(7), 298-304 Please do not cite this text without permission Introduction Offering high definition video quality and greater storage capacity, Blu-Ray is the latest media format in home entertainment. In contrast to Blu-Rays’ dazzling technical specifications and promising sales figures, little has been said about Blu-Ray “region code protection”. As a result of this protection, Blu-Ray discs can only be played in Blu-Ray players so long as the region code of the disc matches with the region code of the player. In case of mismatch, the Blu-Ray player will not play that Blu-Ray disc and therefore consumers will simply be denied access to the content of their licensed Blu-Rays. Blu-Ray region coding raises some legal concerns with regard to market sharing, facilitation of collusion, and restriction of free trade and parallel imports across different Blu-Ray regions. This article sheds light on the technical functioning of Blu-Ray region codes, outlines the legal concerns associated with Blu-Ray region coding and provides an analysis of this practice under EU competition law rules. It argues that after the lessons learned from the industry’s experience with DVD region codes, the design and enforcement of Blu-Ray region coding seems to be in compliance with EU competition law rules notwithstanding the concerns on the adoption of region code restrictions in the Blu-Ray media format. 1. Blu-Ray Region Code Protection 1.1. Blu-Ray Discs and Region Codes Blu-Ray is an optical disc storage media format which is often used to distribute prerecorded audio, video and other data such as video games and computer software. In contrast to Digital Versatile Disc (DVD) and its other predecessors such as Video Home System (VHS) and Video Compact Disc (VCD), Blu-Ray offers the most precision and higher storage capacities of 25 GB (single-layer), 50 GB (dual-layer) and 100 GB (triple-layer) to be stored on a single disc, which represents almost 5 to 20 times increased capacity compared to DVDs. This huge capacity allows high definition (HD) video to be recorded at large bitrates enabling high-quality video, crystal-clear audio, interactive features and hours of bonus material. Feature-length HD films have become the primary content of Blu-Ray discs thanks to the large capacities offered by these discs. As the market penetration of HD televisions (TV) and Blu-Ray players continues to grow, BluRay is expected become the primary physical media format in home entertainment. As an industry-standard, Blu-Ray was first introduced in 2002 by its developer Blu-Ray Disc Founders (whose name was later changed to Blu-Ray Disc Association (BDA) in 2005), a group of consumer electronics companies (manufacturers of Blu-Ray players) and some major Hollywood-based film studios (film production companies).1 The first Blu-Ray title (film) was released in June 2006, together with the first Blu-Ray players which began to appear globally earlier in the same month.2 Although the Blu-Ray media format was designed to supersede the ubiquitous DVD media format, initially it faced competition from the then emerging 1 Source: <http://www.bluraydisc.com/en/association/GeneralInfo.aspx> accessed 20/05/2015. 2 Source: <http://en.wikipedia.org/wiki/Blu-ray> accessed 20/05/2015. 2 Published in European Competition Law Review, 2015:36(7), 298-304 Please do not cite this text without permission rival HD DVD media format. Eventually Blu-Ray won the “format war” against HD DVD, but it has not yet significantly replaced the DVD media format which is still dominating the global home entertainment markets with far more available titles. As of 2011, DVDs account for 75 per cent of sales worldwide indicating three times more sales compared to Blu-Rays.3 In contrast to Blu-Rays’ dazzling technical specifications and promising sales figures, little has been said about Blu-Ray “region code protection” (region coding, regional playback control or regional lock out). As will be discussed, Blu-Ray discs are equipped with a region code and can only be played in players which have the same region code. Put a different way, if the region code of a Blu-Ray disc does not match with that of a Blu-Ray player, the Blu-Ray player will not play that Blu-Ray disc and thus consumers will simply be denied access to the content of the licensed Blu-Ray discs. Normally both Blu-Ray discs and Blu-Ray players have a single region code which is predetermined by the content provider of the disc or the manufacturer of the player. There are globally three different regions for BluRays. Figure 1 shows Blu-Ray regions: Figure 1 – Blu-Ray Regions and Corresponding Region Codes4 As can be seen from Figure 1, the world is divided into three different regions: Region (A) (also known as Region (1)) includes North, Central and South America, Japan and South Korea, together with some Southeast Asian countries. Region (B) (also known as Region (2)) mainly comprises all European countries, plus the Middle East, Africa, Australia and New Zealand. Lastly, Region (C) (also known as Region (3)) contains Russia, China, India and some other countries in Central Asia. There seems to be a harmony between Blu-Ray regions and geographic locations of countries, possibly with the exemption of Australia, Japan and some Southeast Asian countries. Technically, region codes are an example of “technological protection measures” (TPM). TPM are implemented by the owner (or licensee) of a copyrightprotected material that is stored in digital formats in order to control access to that material and provide protection against unauthorised uses or appropriations of its content.5 In this respect, region codes are being used as TPM to prevent Blu-Ray discs from being viewed in different regioncoded Blu-Ray players, thereby making 3 Source: <http://en.wikipedia.org/wiki/DVD> accessed 20/05/2015. 4 Source: <http://www.worldimport.com/world_region_code_map.htm> accessed 20/05/2015. Rothchild, “Economic Analysis of Technological Protection Measures”, 84 Oregon Law Review (2005), 489-493. 5 3 Published in European Competition Law Review, 2015:36(7), 298-304 Please do not cite this text without permission them viewable only for the region they are designated to.6 They are therefore technical in nature, rather than a legal or economic concept. 1.2. The Functioning of Blu-Ray Region Codes Region codes are embedded not only in Blu-Ray discs but also in Blu-Ray players. The region code of a Blu-Ray disc is predetermined by content providers (in this respect film production companies) before it is placed on the market. In the same vein, manufacturers of Blu-Ray players equip their products with a specific region code during the manufacturing process. When a Blu-Ray disc is inserted into a Blu-Ray player, the player first verifies whether the region code of the disc matches with that of the player. If the region codes overlap, the disc can be played on that player. If the region code of the disc is different than the region code of the player or vice versa, the disc cannot be played on that player no matter how legal and non-pirated it can be. For example a Region (A) Blu-Ray disc which is legally imported from the United States (US) will not work on a Region (B) Blu-Ray player in Europe. There are basically two different types of Blu-Ray players: computer-based players and standalone players. Computer-based Blu-Ray players are those that are externally or internally connected to either a client or a server computer as hardware devices and run Blu-Ray discs through the use of software depending on the operating 6 At this point, it should be noted that region codes differ from copy protection controls in that they are not designed to prevent illegal copying of the content of Blu-Ray discs but to prevent them from being viewed in different region-coded Blu-Ray players. system of that computer. BD-ROM drives, BD-Combos, multi Blu-Ray combo drives and so on come within this category. On the other hand, standalone Blu-Ray players are those that are connected to a TV so as to run Blu-Ray discs. Blu-Ray disc players, Blu-Ray recorders and some video game consoles are examples of standalone players. As will be seen, there are some differences between these categories in terms of enforcement and circumvention of region codes. Normally both a Blu-Ray disc and a BluRay player have a single region code, and players are only designed to play discs that have the same region code or vice versa. However, in some cases both discs and players may have more than one region code or not even a single region code if they are manufactured as “region-free”. If a Blu-Ray disc is manufactured as regionfree, it can be played in every Blu-Ray player regardless of the region code of the player. Likewise, if a Blu-Ray player is not equipped with a region code, it can play all Blu-Ray discs irrespective of their region codes in addition to the discs of its corresponding region.7 When a Blu-Ray disc or a Blu-Ray player is manufactured as region-free, there are no region restrictions that would otherwise tie consumers to a single region. In addition to the players that are manufactured as region-free, there are also computer programmes (software) that can be used to make computer-based Blu-Ray players region-free even if they are not originally manufactured as such. Known as “region removers” or “region killers”, these 7 Source: <http://www.bluraydisc.com/en/Technical/FAQs/BlurayDiscforVideo.aspx> accessed 20/05/2015. 4 Published in European Competition Law Review, 2015:36(7), 298-304 Please do not cite this text without permission programmes are designed to strip region codes off computer-based Blu-Ray players and make them compatible with different region-coded Blu-Ray discs. It should be noted that these programmes are perfectly legal and freely traded in the marketplace. Upon the installation of such a programme, computer-based Blu-Ray players become region-free as long as the programme is running in the background. As for standalone Blu-Ray players, it is reported that by entering some kind of an unlocking code via remote controllers, it is technically possible to change the factory-set configuration of a standalone player to play Blu-Ray discs from any region.8 All things considered, region codes are designed for both Blu-Ray discs and BluRay players, and it is necessary that region code of a Blu-Ray disc matches with that of a Blu-Ray player so as for that disc to be played on that player. Consumers are constrained by the region code of their players and of discs that they have legally purchased, and may encounter a region code error when they attempt to play their discs in players which are designed to play different region-coded discs. Despite those constraints, there exist region-free Blu-Ray players capable of playing any Blu-Ray disc, as well as region removers and unlocking codes which can be used to circumvent the region code of region-coded players. These help consumers who are aware of Blu-Ray region code restrictions, but the situation is not the same for those who are unaware of the situation. There is therefore the problem of asymmetrical 8 Source: <http://en.wikipedia.org/wiki/DVD_region_code> accessed 20/05/2015. information between manufacturers and consumers. 1.3. The Origin of Region Codes The use of region codes in Blu-Rays is inspired by DVDs for which region code protection is designed for the first time in the history of home entertainment. The idea of using region codes in DVDs was first put forward and agreed by the “DVD Forum”, an association of Hollywood-based film production companies and DVD player manufacturers, when the DVD media format was in its development stage.9 In 2000, members of the DVD Forum formed a new organisation known as “DVD Format and Logo Licensing Corporation” (DVD FLLC) which was given the right to licence the DVD format and logo to third parties as their exclusive owner.10 Under the terms and conditions of their licence agreements with the DVD FLLC, DVD player manufacturers agree and undertake to equip their products with a specific region code so as to legally use the DVD format and logo in their players.11 The same scenario is also true for BluRay region codes. The decision to use region codes in Blu-Rays was adopted by the BDA, an association of Blu-Ray player Özkan, “Avrupa Birliği Rekabet Kuralları Karşısında DVD Bölge Kodu Koruması Uygulaması: Teknik, Ekonomik ve Hukuki Bir Değerlendirme”, Competition Journal, 12(2), (2011), 184. Established in 1995, the DVD Forum works to develop, improve and promote broad acceptance of DVD products on a worldwide basis with the purpose of exchanging and disseminating ideas and information about the DVD format. Source: <http://www.dvdforum.org/aboutmission.htm> accessed 20/05/2015. 10 Source: <http://www.dvdfllc.co.jp/about/about.html> accessed 20/05/2015. 11 Özkan, above n 9, 184. 9 5 Published in European Competition Law Review, 2015:36(7), 298-304 Please do not cite this text without permission manufacturers and Hollywood-based film production companies when the Blu-Ray format was in its development stage.12 Similarly, in order to use the Blu-Ray format and logo in their players, Blu-Ray player manufacturers have to sign a “format and logo licensing agreement” and content providers (film production companies) have to sign a “content participant agreement” with the BDA which is the exclusive owner of the said format and logo. Under the terms and conditions of those agreements, licensees agree and undertake to use a region code in their products. In short, both sides of the market (content providers and player manufactuters) agree and undertake the use of region codes so as to use the BluRay format and logo, since the BDA ensures that only certified products are allowed to carry the said format and logo. 2. Legal Concerns Associated with BluRay Region Coding At first glance Blu-Ray region code protection looks to be nothing more than a technical complexity which is far from being appealing to lawyers unless they have a particular interest in information technologies law. More concerned lawyers, especially those who are specialised in intellectual property law, might think that as being an example of TPM, region codes are designed to digitally protect the copyright of film production companies and are therefore necassary. However, competition lawyers may cast doubt upon 12 Established in 2002, the BDA engages in research, development and manufacturing of Blu-Ray discs specifications, promotes wide adoption of Blu-Discs and provides useful information to third parties interested in supporting the Blu-Ray disc format. Source: <http://www.bluraydisc.com/en/association/GeneralInfo.aspx> accessed 20/05/2015. the segmentation of global markets and restrictions on the import of Blu-Ray discs into different regions on the grounds of a possible anti-competitive market sharing agreement among a group of competing undertakings or potentially abusive conduct carried out by a dominant firm to the detriment of consumers and/or competitors. Indeed Blu-Ray region code restrictions raise some legal concerns with regard to market sharing agreements, facilitation of collusion, and restriction of free trade and of parallel imports. The outcome depends on the answers to the questions as to who has developed and is implementing this practice, how these regions have been determined, why there has been a need for different regions for differents parts of the world and lastly what benefits region codes offer to consumers in addition to film production companies and player manufacturers. Whether region code protection is an indispensible technical necessity for the protection of intellectual property rights (IPRs) or is a mere restriction of competition without allowing consumers a fair share of any resulting benefit has a bearing on the analysis as well. Taking everything into account, it is worth taking a closer look at Blu-Ray region coding from the perspective of competition law. 2.1. Market Sharing and Facilitation of Collusion Market sharing agreements are particularly restrictive of competition in the marketplace since they involve a joint determination and allocation of geographic areas to be operated, goods to be distributed or customers to be served; all of which normally have to be decided unilateraly by 6 Published in European Competition Law Review, 2015:36(7), 298-304 Please do not cite this text without permission each undertaking. Such agreements may involve exclusivity in a particular geographic area or over a particular customer group and thus grant an undertaking a monopoly within that area or over that group leaving no room for competition between the parties to the agreement.13 As a result of such agreements, consumer choice is also diminished. Market sharing agreements are often treated as a restriction of competition by object and are likely to be punished severely.14 Market sharing agreements in the EU context may be viewed particularly serious because they serve to perpetuate the isolation of geographical markets and to retard the process of single market integration which is a primary goal of the EU.15 Segmentation of the world into three different regions prima facie suggests an anti-competitive market sharing agreement whereby competing film production companies shared the global Blu-Ray home entertainment market among them and agreed on the allocation of each region to a different party or parties. A closer look, however, shows that in the case of Blu-Ray regions, no region is allocated to a particular film production company or to a group of film production companies and no region is insulated from the others in this respect. All film production companies supply all regions and none of them is expected to refrain from selling to other regions. Furthermore, region coding does not keep other film production companies 13 Jones and Sufrin, EU Competition Law: Text, Cases and Materials, 5th ed. (OUP, 2014), 686. 14 Jones and Sufrin, above n 13, 687; Whish and Bailey, Competition Law, 7th ed. (OUP, 2012), 531; Monti, EC Competition Law (CUP, 2007), 40. 15 Whish and Bailey, above n 14, 530-531. away from Blu-Ray regions, nor does it place them at a competitive disadvantage. All film production companies are free to sell to any of the Blu-Ray regions provided that they sell their Blu-Ray discs with the correct region code for that region. All of these show that Blu-Ray region coding does not seem to be an anticompetitive market sharing agreement having the object restriction of competition among film production companies. After all, it does not involve the determination of level of prices or output among competitors. However, this does not mean that Blu-Ray region coding does not generate any anti-competitive effect. In fact, region coding seems like an agreement on a trading condition (selling Blu-Ray discs with a particular region code) rather than market sharing. This then begs an important question as to why there has been a need to determine certain regions and divide the world into three different regions. Film production companies argue that regional codes are required to control staggered release of films across cinemas within different regions and to protect the local theatrical exhibition of films from DVDs imported from other regions.16 In this way, they would be able to protect their box office grosses from imported Blu-Rays in regions where their films have not yet been released in cinemas.17 Özkan, above n 9, 196-197. See e.g. Murray and Scott, “Controlling the New Media: Hybrid Responses to New Forms of Power”, in Graham and Smith (eds.), Competition, Regulation and the New Economy (Hart Publishing, 2004), 152 (‘Producers and equipment manufacturers have collaborated in a regional coding system which allows for market segmentation within the DVD industry. Region coding was developed to permit studios to control the home release of movies within different 16 17 7 Published in European Competition Law Review, 2015:36(7), 298-304 Please do not cite this text without permission More importantly, facilitation of collusion is a more serious competition concern caused by the implementation of Blu-Ray region coding. The insertion of region codes into Blu-Rays is not a parameter of competition in the market; it is rather a commitment to an industry standard which is a result of an agreement among the market players and their associations, in this respect the BDA. Even if such agreement does not restrict competition by object, one could argue that it may have “spill-over effects” resulting in the coordination of behaviour among film production companies. The parties to that agreement may later extend their cooperation to other areas, such as the range of prices to be charged in certain regions, the quality of Blu-Rays to be imported to certain regions or the exchange of any other commercially-sensitive information. Therefore, Blu-Ray region coding runs the risk of facilitating collusion among film production companies. 2.2. Restriction of Free Parallel Imports Trade and Because Blu-Ray region coding involves the segmentation of the world into different regions, it is liable to restrict free trade and parallel imports that could have otherwise occurred across different regions. Restriction of free trade and of parallel imports gives rise to competition concerns in particular when it severely restricts consumer choice or artificially maintains prices which are higher than those that could have otherwise been charged at competitive levels. In some parts of the geographic regions allowing the staggering of cinematic releases... The equipment manufacturers assisted by producing region specific DVD players.’). world where a type of internal market is established among the neighbouring countries, such as the EU, Blu-Ray region coding may become more detrimental to free trade and parallel imports. In such cases, region codes may turn into an obstacle to free movement of goods and thus pose a risk to the sound functioning of the internal market in question. In the context of DVDs, it has been argued that the regional coding system is a global initiative aimed at preventing the free movement of licensed copies of copyrighted DVDs around the world.18 Parallel trade occurs when the goods are subsequently transferred to a second country by another party when the manufacturer sells those goods in both country (A) and country (B) where the price of the goods in country (A) is lower than the price in country (B).19 Manufacturers may have the incentive to prevent parallel importation of their goods, as parallel trade often brings about a reduction in their profits. However, manufacturers cannot legally hinder parallel imports once their goods are legally put on the market. In effect, manufacturers’ rights to distribute and import goods under the applicable intellectual property law rules are “exhausted” once they have been exercised and they cannot be further used to prevent those goods from being resold within the jurisdiction in question.20 The basic rule in the EU is that once a good has been placed on the market in any of the Member States Dunt, Gans and King, “The Economic Consequences of DVD Regional Restrictions”, Economic Papers, 21(1), 44. 19 Stothers, Parallel Trade in Europe: Intellectual Property, Competition and Regulatory Law (Hart Publishing, 2007), 2. 20 Stothers, above n 19, 40-41. 18 8 Published in European Competition Law Review, 2015:36(7), 298-304 Please do not cite this text without permission by a manufacturer or with its consent, that manufacturer can no longer rely on any IPR to prevent that good from being imported into or sold within another Member States.21 In this respect, Blu-Ray region coding appears as a system which provides greater protection from parallel imports in practice than the protection granted by IPRs themselves in theory.22 As a result of region codes, one Blu-Ray disc may not be practically sold in a region different than the one that is designed for it. Region codes allow film production companies to render resales practically unprofitable as there would be less, or no, demand for Blu-Ray discs equipped with different region codes. Blu-Ray region coding may give rise to legal concerns in the EU, if it artificially restricts the resale of Blu-Ray discs among the Internal Market. This may be the case if, for example, all of the Member States in question are not assigned the same region. It is well known that EU law regards free trade as key to the maximisation of social welfare in the long run and for this reason, parallel trade enjoys a strong degree of protection in EU law.23 21 Stothers, above n 19, 43. Due to Blu-Ray region coding being an example of TPM, it limits or eliminates many uses that the copyright laws otherwise permit. Rothchild, above n 5, 490. 23 Nazzini, The Foundations of European Union Competition Law: The Objective and Principles of Article 102 (OUP, 2011), 191 and 194. It should be noted that although it was discussed in Section 2.1 that the segmentation of global markets as a result of Blu-Ray region coding does not appear to be a restriction of competition by object under Article 101 TFEU, the finding that Blu-Ray region coding aims to prevent parallel trade may well lead it to be categorised as an object restriction. This is because, as Bailey argues, it is generally sufficient to find that an agreement seeks to prevent parallel trade in order for it to have a restrictive object. Bailey, 22 3. An Assessment of Blu-Ray Region Coding under EU Competition Law Rules Mainly because of the fact that Blu-Ray is the latest format in home entertainment markets, there has been no formal investigation into Blu-Ray region coding under Article 101 TFEU or Article 102 TFEU. Most cases, decisions or legal concerns are almost exclusively for DVD region coding which have major implications for Blu-Ray region coding. Within this context, the Commission launched an investigation into DVD region coding in 2001 on the grounds that DVD prices were significantly higher in the EU than in the US. According to the former Competition Commissioner Monti, the thrust of the complaints that the Commission had received was that DVD region coding allowed major film production companies to charge higher DVD prices in the EU because EU consumers were artificially prevented from purchasing cheap DVDs from overseas, especially from the US.24 The Commissioner stressed that if DVD region coding was used as a smoke-screen to allow major film production companies to maintain artificially high prices or to deny choice to consumers, this would not be allowed under EU competition law rules.25 The investigation mainly centred on price discrimination as a possible “Restrictions of Competition by Object under Article 101 TFEU”, 49 CML Rev. (2012), 566. 24 Monti, “Content, Competition and Consumers: Innovation and Choice”, (2001) Speech at the Third European Competition Day, Stockholm, SPEECH/01/275, <http://europa.eu/rapid/pressrelease_SPEECH-01-275_en.htm> accessed 20/05/2015. 25 Monti, above n 24. 9 Published in European Competition Law Review, 2015:36(7), 298-304 Please do not cite this text without permission competition concern and examined whether there were significant price differences between different DVD regions, especially between the EU and the US. The Commission had concerns that the industrywide system was equivalent to a market partitioning scheme restricting parallel trade, but it faced two significant problems. First, as all Member States of the EU at the time of the investigation were in the same region,26 the Commission had to look at the negative effects in the EU as a result of EUUS trade being effected. Although theoretically possible, particularly as internet sales by companies such as Amazon were growing, this proved very difficult in practice. Secondly, over the period of the investigation, the fluctuations in exchange rates for US Dollar to Euro affected price differences so much that it would likely have been impossible to demonstrate any adverse effect. As a result, the case was closed without further action and no formal announcement of case closure was made to public.27 Because the Commission did not find that DVD region coding amounted to a restriction of competition under Article 101 TFEU, the case was not further examined under Article 101(3) TFEU.28 As discussed above, film production companies defend 26 Latvia, Lithuania and Estonia, which joined the EU later in 2004, were assigned Region (5). This was mainly because those countries were associated with the Union of Soviet Socialist Republics, which were also assigned Region (5), at the time of the initial design of DVD regions. It should be noted that these three countries are now in the same BluRay region (Region (B)) with the rest of the Member States. 27 Özkan, above n 9, 216-217. 28 There was no evidence that a film production company enjoyed a dominant position in global film production and distribution markets, therefore no assessment was made under Article 102 TFEU. that DVD region coding is necessary to protect the local theatrical exhibition of films from DVDs imported from other regions implying that it is not intrinsically detrimental to the competitive process. Even if it is accepted under Article 101(3) TFEU that DVD region coding would “improve the production or distribution of goods or promote technical or economic progress” as film production companies argue, it would be difficult to argue that this would “allow consumers a fair share of the resulting benefit”. This is because region codes are not a response to consumer demands and they have no use to consumers whatsoever; they hardly allow consumers a fair share of the resulting benefit enjoyed by film production companies.29 Commissioner Monti confirmed that the Commission received “a significant number of complaints from consumers” with regard to price differences across DVD regions, one reason for which is evidently DVD region coding.30 What DVD region coding means for consumers is incurring additional costs that they would not have incurred, had there been no region codes. First of all, consumers are artificially deprived of cheaper DVDs from other regions that they could have otherwise been able to purchase. This competition concern was examined by the Commission, but was not found contrary to Article 101 TFEU. Secondly, in order to play their region-coded DVDs they have legally purchased from other regions, consumers have to use and pay for region remover software. Although the lite versions of these programmes are offered to 29 See Guidelines on the application of Article 81(3) of the Treaty [2004] OJ C101/97, para85. 30 Monti, above n 24 (emphasis added). 10 Published in European Competition Law Review, 2015:36(7), 298-304 Please do not cite this text without permission consumers as freeware, often the full versions are sold at a charge. This means that consumer welfare is likely to reduce as consumers incur a charge to circumvent region codes. This issue was not discussed in the investigation. One study that analysed the economic consequences of DVD region coding found, inter alia, that social welfare is likely to be significantly enhanced by eliminating region code restrictions.31 Moreover, DVD region coding seems not indispensable to the attaintment of the protection of local theatrical exhibition either, since even old DVD titles continue to be released as region-coded years after the initial release of films in cinemas. Against this backdrop, one could conclude that the situation would be the same for Blu-Ray region coding, since BluRay region codes work in the same way as DVD region codes do. However, despite this similarity in terms of their technical functioning, the implementation of Blu-Ray region coding differs from that of DVDs in many ways. First, the BDA confirms that ‘the usage of region coding on a Blu-ray Disc movie title is a publisher's option’.32 In contrast to DVDs, it is therefore voluntary rather than mandatory for film production companies to attach a region code to their Blu-Ray films. Secondly, even if film production companies decide to use BluRay region codes, in any case region-coded media ‘shall not be further replicated for 31 Dunt, Gans and King, above n 18, 32. The authors claim that region coding is ‘a clear deadweight loss’ and argue that as a result, a cost is imposed on consumers to undo a feature that, from the consumer’s perspective, is either unnecessary or harmful. ibid, 42. 32 Source: <http://www.bluraydisc.com/en/Technical/FAQs/BlurayDiscforVideo.aspx> accessed 20/05/2015. such countries after the expiration of such period (12 months after such media was replicated for the first time)’.33 This shows that the BDA has put a time limit on the use of region codes in Blu-Rays and prevented the preservation of region-coded Blu-Rays for more than a year after their initial release. Lastly, it is reported that over 70 per cent of Blu-Ray films available in the market are region-free.34 This reduces consumers’ expenditures on region killer software. Arguably, these improvements in Blu-Ray region coding outweigh the abovementioned adverse effects on consumers caused by region code restrictions. To conclude, it is safe to argue that if DVD region coding was not found as a restriction of competition under Article 101 TFEU, then Blu-Ray region coding does not a fortiori violate Article 101 TFEU either thanks to the following improvements: First and foremost, all Member States of the EU are included in the same Blu-Ray region (namely Region (B)) which greatly minimises, if not eliminates, concerns with regard to restriction of free trade and parallel imports across the Member States. Secondly, the use of Blu-Ray region codes has become voluntary and has been further restricted to new titles only. With the removal of region codes for old titles, it can be argued that the practice of region coding now better serves its purpose of protecting the local theatrical exhibition of films from DVDs imported from other regions. Lastly, the vast majority of Blu-Ray films currently available in the 33 Source: <http://www.blu-raydisc.info/licenseapp/cpa-app.php> accessed 20/05/2015. 34 Source: <http://en.wikipedia.org/wiki/Bluray_Disc> accessed 20/05/2015. 11 Published in European Competition Law Review, 2015:36(7), 298-304 Please do not cite this text without permission market are region-free. It appears that the legal concerns expressed in the context of DVD region coding were taken into account in the design of Blu-Ray region coding. All in all, the current enforcement policy of Blu-Ray region codes by the BDA and major film production companies does not amount to a restriction of competition under Article 101 TFEU and thus seems to be in compliance with EU competition law rules. Conclusion Blu-Ray is the latest media format in home entertainment. Yet this industry standard is equipped with a special “region code protection”, as a result of which Blu-Ray discs can only be played in Blu-Ray players so long as the region code of the disc matches with the region code of the player. This technological protection measure raises some legal concerns with regard to market sharing, facilitation of collusion, restriction of free trade and of parallel imports across different Blu-Ray regions. Although no case has yet been brought against Blu-Ray region coding under EU competition law rules, it appears that the implementation of Blu-Ray region coding has been improved after the industry’s experience with DVD region coding. At its current form, Blu-Ray region coding does not seem to amount to a restriction of competition under Article 101 TFEU. In fact, the easing of terms and conditions on the use of region codes in Blu-Rays, together with the ever-increasing number of region-free Blu-Ray films available in the market, suggests that region-coded BluRays may well be relegated to history in the future. With the advent of online streaming and the increases in the market penetration of broadband service, the real threat to BluRay format is, however, not the circumvention of the region code protection, but illegal downloads from the internet. 12