In May 2016, the European Commission published proposals to prevent companies and online retailers, who sell in or into the EU, from engaging in 'geo-blocking' and other geographical restrictions. The European Commission is of the view that geo-blocking undermines online shopping and cross-border sales. According to the Commission, geo-blocking limits the opportunity for consumers and businesses to benefit from the advantages of online commerce. The proposed measures, if passed through the EU law-making process, could become law in 2017. We take a look at some of the key proposals.
What is geo-blocking?
Geo-blocking occurs when companies and online retailers apply certain barriers or impose restrictions on consumers based on their nationality or place of residence. Most internet users will be familiar with geo-blocking in terms of location-based restrictions on TV, music and movie streaming services. Similar restrictions are also seen in online shopping and e-commerce transactions, particularly in instances where a credit card with a specific country address is required.
Prevention is the best cure
Tackling geo-blocking is one of the elements of the EU's drive towards a Single Digital Market. According to a 2015 European Commission study, only 37% of websites allowed cross-border customers successfully complete an online purchase. Further to this, only 15% of consumers buy online from another EU Member State and only 8% of companies sell cross-border. The European Commission has raised this as a concern, since its goal under the Single Digital Market is to facilitate individuals and businesses seamlessly partaking in online activities regardless of their nationality or place of residence. The proposed measures are seen as a way of removing territorial barriers and fostering online cross-border trade.
Key proposals under the measures
1. Sale of products and services
The proposed measures outline specific situations in which there can be no justified reason for geo-blocking. In certain situations, set out below, customers from another Member State should be entitled to the same access to goods and services as local customers. These include:
- sale of products without delivery;
- sale of electronically supplied services; and
- sale of services provided in a specific physical location.
In such instances, geo-blocking will only be permitted in exceptional situations. According to the proposals, there would need to be strict national or EU laws obliging the seller to block access to the offered goods or services.
2. Access to websites
Another proposed measure is to ban the blocking of access to websites and the use of re-routing without the customer's prior consent. The Commission believes that this will increase price transparency, as customers will be able to easily cross-reference different national websites. This particular measure will apply to non-audio-visual, electronically-supplied services (such as e-books, music, games and software).
3. Non-discrimination in payments
A further proposed measure is that sellers cannot treat customers differently regarding payments. Sellers remain free to accept whatever payment means they want. However, different treatment is not allowed provided three conditions are met:
- payments are made through electronic transactions by credit transfer, direct debit, or card-based payment instruments;
- the seller requests "strong authentication" by the customer; and
- the payments are in a currency that the seller accepts.
Who does it apply to?
The proposed measures apply to both consumers and businesses. The measures extend to any company or online retailer that sells to customers in the EU, regardless of where the seller is situated. Despite this, it is important to note that the proposed measures which specifically relate to discriminatory terms do not apply to sellers who arrange delivery of the goods.
Despite the broad application of the proposed measures, the following sectors fall outside the scope of the proposals:
- Transport services: existing EU transport legislation already prohibits discrimination based on nationality and place of residence for certain types of transport.
- Retail financial services: the Commission is planning to deal with this separately in upcoming proposals.
- Audio-visual services: facilitating cross-border access to audio-visual services is part of other proposals under the Digital Single Market strategy.
Standby for audio-visual services
The exclusion of audio-visual services, such as films and sports broadcasts, from the proposals is interesting. In 2015, the European Commission raised concerns in respect of licensing contracts between Paramount Pictures and Sky UK. In that case, Sky was contractually obliged by Paramount to block access to Paramount's films, through both Sky's online and satellite pay-TV services, to consumers based outside its licensed territory (United Kingdom and Ireland). The Commission raised a concern regarding geo-blocking, alleging that the measures were anti-competitive, could eliminate cross-border competition and had the potential to partition the EU's Single Market. As a result, Paramount was required to enter into commitments with the Commission that it would not impose or act upon such obligations.
What does this mean?
The European Commission expects the proposed measures to increase the levels of cross-border internet transactions. As indicated above, these measures are likely to interact with a variety of other proposals aimed at the development of the Single Digital Market. For now, it remains to be seen whether the proposed measures will be adopted in full or will be subject to amendments. As it stands, however, audio-visual services are excluded and will be dealt with separately. As a result, EU customers accessing such online services from other Member States may still encounter territorial restrictions for some time yet.
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.