The European Union (EU) is combatting geo-blocking with two Regulations.
Last summer, the European Union adopted the Portability Regulation, which allows for cross-border use of paid online services for subscribers (such as the streaming of movies and TV shows) during temporary stays in another EU Member State ( https://www.skwschwarz.de/en/news/articles/detail-of-article/news/online-auf-die-lieblingsserie-zugreifen-endlich-auch-im-urlaub/4/detail/News/). On February 27, 2018, the EU supplemented these measures for cross-border online trade with the Regulation on addressing unjustified geo-blocking as a manifestation of discrimination of EU citizens (EU 2018/302). The Regulation already entered into force on March 23, 2018 but will not apply until December 3, 2018. This transposition period is intended to give smaller operators in particular the opportunity to make adjustments.
What is geo-blocking?
Geo-blocking is generally defined as any technical device on websites of service providers or goods providers that prevents an Internet user from accessing the offers of a website in another country due to the user's current geographical location in one country (identifiable by the IP address). If Internet users still try to access the website offering, in most cases they either receive an error message or they are automatically redirected to another website of the provider, which corresponds to the location of their IP addresses. The most common form of geo-blocking, however, is the refusal to deliver to customers in another country, followed by the refusal to accept payments from such customers. Some providers use geo-filtering allowing Internet users to access the offers of the foreign website but giving them different terms than Internet users from another country are getting without the users realizing it.
Frequently, systematic geo-blocking is based on the sales strategy of international companies to divide up national markets to charge different prices for the same service – a practice contrary to antitrust law. This reality was recently also identified by the European Commission as part of a sector inquiry into cross-border e-commerce (Final report of the European Commission on the E-commerce Sector Inquiry of May 10, 2017, para. 49 http://ec.europa.eu/competition/antitrust/sector_inquiry_final_report_en.pdf). The Commission found, however, that most geo-blocking measures on consumer goods were based on voluntary decisions by retailers not to sell across borders, which is also the aim of the provisions of the Regulation.
What is the purpose of the Regulation?
The Regulation aims at creating a European digital internal market. The Regulation aims at ensuring equal cross-border treatment of Internet users within the EU irrespective of nationality, residence (establishment) or location. It does not only apply to consumer transactions (B2C), but also, to a limited extent, to transactions between businesses (B2B). These transactions require, however, the customer to be an end customer, i.e., someone who does not resell or process the ordered goods or electronic services. This restriction has been deliberately chosen by the EU to avoid interfering with B2B distribution networks based on a selection of dealers by the manufacturer/major supplier, such as in cases of selective distribution systems or exclusive distribution agreements. In the opinion of the EU legislator, antitrust law guarantees the protection of cross-border trade.
What are the rules on online commerce in the Regulation?
First of all, the Regulation does not ban geo-blocking in general, but only "unjustified geo-blocking." Geo-blocking in online trading therefore remains possible, albeit under very tight conditions. Exceptions are possible where different market or legal conditions actually exist on national markets (for example, as a result of government regulation) and services cannot or may not be offered in the same way in different Member States. Online traders that use geo-blocking are, however, likely to have to prove the existence of such circumstances.
The Regulation applies to all goods and services that are offered online and are not excluded from its scope (see below). It essentially prohibits two subsequent forms of geo-blocking:
- Blocking or obstructing access to the web shop for customers residing in an EU Member State other than the online trader. Customers may therefore only be redirected to the website (URL) of another EU Member State with their consent.
- Offering unequal terms of sale, delivery and payment. Different, country-specific conditions remain permissible, however.
These provisions do not force online traders to make deliveries to every EU Member State, even one in which it does not offer any sales at all, however. If a customer orders goods from such an EU Member State, the online trader must either enable the customer to have the goods picked up or to ship them to an EU Member State to which the online trader makes deliveries.
To what or to whom does the Regulation not apply?
The only exceptions to the scope of the Regulation are:
- online traders below EUR 17,500.00 annual revenue (small entrepreneurs)
- streaming or download offers for copyrighted works such as music, films, e-books, transmission of sporting events (some of these services are subject to the Portability Ordinance, however)
- health and social services
- financial services
- transport services (air, rail, sea, etc.)
- B2B transactions in which the sourcing company is not itself an end customer
If online providers violate the provisions of the Regulation, they face various sanctions. These are to be determined autonomously by the respective Member States. They must be effective, proportionate and dissuasive. Germany has not yet imposed any sanctions or fines.
In addition, complaints offices will be set up to assist consumers in disputes with suppliers. Consumer organizations may also sue online traders for injunctive relief.
Regardless of this, where online traders are obligated by manufacturers or wholesalers to use geo-blocking measures, a violation of European antitrust law may be involved if this generates or reinforces inadmissible territorial or customer restrictions. In this case, online traders and manufacturers/wholesalers face significant fines.
Outlook and practical tip
The Regulation intervenes in the sales control of the retail trade. Suppliers falling within the scope of the Regulation should use the period until December 3, 2018 to check whether they use geo-blocking or other forms of discrimination within the EU. This applies in particular to different terms of sale, payment, and delivery for orders from different EU Member States. If this is the case, such unequal treatment may only be maintained in cases of factual justification (e.g., different postage cost). Furthermore, conditions must be created that customers from other EU Member States may collect their orders from the online trader or that the goods can be sent to a delivery address in a supplied EU Member State.
It remains to be seen how large the economic impact of the Regulation will be. In the end, cross-border orders frequently fail because of language barriers. Online traders are not forced by the Regulation to design their websites in a language other than the one of their own EU Member State.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.