A TL;DR summary of the law on modchips in the EU following Nintendo v PC Box:
• Console manufacturers can use “technological protection measures” (which are physically linked to either the console or the game itself) to restrict acts which they do not want users to be able to carry out.
• However, modchips intended to circumvent those TPMs are not illegal per se: you have to look at what the modchip is doing and whether its usage is proportionate to the actual harm done.
• If the primary use of the modchip technology is for infringing purposes (e.g. to pay pirated games), this suggests the modchip would NOT be being used legitimately and proportionately.
• However, if the mod chip is used primarily used for legitimate, non-infringing purposes (e.g. home brew games), this suggests the use of the modchip may be used legitimately and proportionately.
• The evidential burden is on the console manufacturer to show on the facts that an attempt to circumvent their TPMs is unlawful.
• So: modchips are not ALWAYS illegal – it all depends on whether a user is using them in the right and proportionate way.
In practice, will this really change much? On one view, maybe only a little: the pendulum has swung away from the device manufacturers in the EU (who were, as Angus put it excellently, at one stage trying to use the law to create an exclusive ‘console manufacturers’ right’) and towards modchip makers and users. However, all the CJEU has really done is put a balancing test in place between these opposing sides: there still needs to be litigation in order for the balancing test to be applied in any particular situation. IF litigation does kick off, the modchip maker or user will find stronger legal defences for their activity than they found previously. But in practice how many will have the necessary financial resources and resolve to face down a console manufacturer in order to bring those legal defences into play?
On the other hand, these things are seldom as straightforward as they seem, particularly given the ability of legal changes to shape business behaviour over time. What if, for example, a group of users decide to petition (or even sue) a console manufacturer to build modchip type abilities into a device right from the outset? What if a console manufacturer itself decides that this kind of case shows that there is both user and legal support for modchip type abilities and decides voluntarily as a business to introduce new functionality themselves? (Actually that’s happened before, when Sony introduced “OtherOS” functionality to the Playstation 3, before later removing it).