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Prohibition on geo-blocking and geo-discrimination in sight

Lawyers:
Linde Bremmer
Ruben Elkerbout

Geo-blocking Regulation likely in force at the end of 2018

Two years ago, we already wrote in this blog that the European Commission was closely monitoring the practices in the e-commerce sector, in particular the geo-blocking practices of providers of goods and services. Combatting geo-blocking was high on the agenda of the European Commission, for which the creation of a digital single market is very important. That is why the European Commission presented a proposal in May 2016 for a specific Regulation to prohibit and tackle Geo-blocking and other (geo-)discriminatory practices.

In early February 2018, the European Parliament (EP) agreed to the Geo-blocking Regulation (the Geo-blocking Regulation). The European Council agreed on 27 February 2018 and adopted the regulation. This new specific legislation removes barriers to e-commerce in the internal market on the basis of which, among other things, web shops are no longer allowed to treat customers differently based on ‘ geo-factors’ such as nationality, residence or establishment of consumers and companies.

What does the Geo-blocking Regulation regulate?

The most important prohibition included in the Geo-blocking Regulation pertains to blocking or limiting access to online interfaces based on geo-factors. Further, automatic re-routing of a customer to another online interface will be prohibited. In practice, re-routing customers seems currently the most common form of geo-blocking. The Geo-blocking Regulation also includes a prohibition on geo-discrimination: applying various (general) sales conditions per geographic area or discriminating against customers based on geo-factors. Neither are traders any longer allowed to apply different payment conditions per customer based on nationality, residence or domicile.

There is a prohibition on geo-blocking for sneakers, garden furniture and hotel rooms, but not yet for Netflix

The new rules will be applicable to a broad range of services and goods:

Physical goods, such as clothing, furniture and electronics;
Online services (such as cloud hosting and web hosting);
Rental of hotel rooms and cars;
Tickets for festivals, concerts and amusement parks.
The geo-blocking rules will not yet apply to online video and streaming platforms, because these services are excluded from the scope of the new legislation. At the earliest, copyrighted online digital and audio-visual content will fall within the scope of the Geo-blocking Regulation within two years, because a first evaluation of the regulation is likely to have been performed by the European Commission at that time.

Areas of attention for companies

The idea behind the regulation is to strengthen the digital single market and the position of companies from the EU on that market. The European Commission has emphasised repeatedly the importance of international retail and the digital single market strategy in order to make companies from the EU stronger in the competition with American or Asian (tech) giants. The Geo-blocking Regulation may lead to more challenges for smaller enterprises (small and medium-sized enterprises, or SMEs). They often have less advanced digital sales channels, but nonetheless they must also make their digital sales channel accessible and suitable for foreign customers, or at least, they will not be allowed to discriminate (any longer) on the basis of a customer’s origin. It is important that the Geo-blocking Regulation does not contain any obligations to also actually deliver products in other Member States as long as it is possible to make the purchase itself. Member States’ own consumer legislation also remains in force.

An important area of attention is the relationship to competition law. In some instances, geo-blocking and geo-discrimination were already not permitted in respect of a trade agreement between two competitors. It was neither allowed to impose geo-blocking by a supplier on its distributors. The Geo-blocking Regulation expands this prohibition, as a result of which geo-blocking and/or geo-discrimination in unilateral and intra-company situations will also not be permitted in the near future. This means that, in future, a corporate group can no longer set up its distribution model in such a way that each customer is automatically re-routed to the website in their own Member State. Another important clarification of the Geo-blocking Regulation is that agreements with traders that limit passive sales (for example, Internet advertising and online sales) are void.

To the disappointment of some lobby groups, the Geo-blocking Regulation does not contain any additional rules for (dynamic) pricing. In other words, a company may not (continue) to apply different prices per Member State and is not required to deliver its products cross-border to consumers in other Member States.

What’s next?

We advise companies to check the setup of their websites and distribution model against the Geo-blocking Regulation in order to determine whether and where, for example, access or payment conditions must be aligned with the future regulation. At this point, it is difficult to estimate the precise risks of a violation. Although the Geo-blocking Regulation contains a provision about enforcement, the details are left up to the Member States. It has been established that the enforcement must be adequate, effective and deterrent, among other things. In the Netherlands, the Authority for Consumers & Markets (ACM) will be responsible for the enforcement and obtaining the authority to impose sanctions.

It is known that geo-blocking has been a thorn in the European Commission’s side for quite some time. The European Commission conducted its investigation into geo-blocking based on the EC’s E-commerce sector inquiry as part of its digital internal market strategy. In 2016, it turned out that nearly 40% of retailers use geo-blocking and in the case of providers of online digital content, this percentage is even higher. Even now, without specific regulations in place, the European Commission is already receiving thousands of complaints about geo-blocking. For this reason we expect that the first enforcement case will soon present itself after the rules come into force.