European Union: European Commission Publishes Draft Regulation Prohibiting Geo-Blocking By Online Traders And Content Publishers

Last Updated: 11 November 2016
Article by Susan McLean and Holger Kastler

As part of the European Commission's Digital Single Market initiative, the European Commission has published a draft Regulation aimed at preventing traders from discriminating against customers located in other EU Member States by denying those customers access to e-commerce sites, or by redirecting those customers to websites that offer inferior goods or sales conditions—a practice known as geo-blocking. The proposed new rules will benefit both consumers and businesses that purchase goods or services within the EU (excluding resellers).

The European Commission believes that geo-blocking and discriminatory practices undermine online shopping and cross-border sales within the EU.

The Regulation, which must still undergo review by the European Parliament and the Council of the EU, may change and is expected to be in force in 2017 (except the ban on discriminating against customers of electronically supplied services, which is expected to be effective beginning July 2018). When it is adopted, the Regulation will automatically take effect in all Member States without each Member State having to implement it into national law.

The Traders to Whom the Regulation Applies

The Regulation will apply to all traders, (including small- and medium-sized enterprises and micro-enterprises) operating in the EU. Small businesses that fall under a national VAT threshold, however, will be exempt from certain provisions. The Regulation will also apply to traders established outside the EU to the extent that they sell or intend to sell goods or services to customers in the EU.

The Prohibition Against Discrimination

Traders must not discriminate against customers on the basis of their nationality, place of residence or place of establishment when selling (or seeking to sell) goods or services:

  • in a Member State other than the Member State in which the customer resides or has its establishment;
  • in the same Member State, but the customer is a national of another Member State; or
  • in a Member State in which the customer is temporarily located without residing in that Member State or having a place of establishment there.

The Prohibition Against Blocking

A trader operating an online interface (such as a website or app) will not be permitted, through technology measures or otherwise, to block or limit customers' access for reasons related to the customer's nationality, or place of residence or establishment. In addition, a trader will not be permitted to redirect a customer from one website to an alternative website without the customer's consent. And, if a customer consents to the redirection, the customer must still be able to access the original website.

The Prohibition Against Different Terms, Goods or Services

A trader may not apply different terms and conditions to a customer based on that customer's nationality, residence or place of establishment. This ban applies to:

  • sales of goods where the trader is based in a different Member State than the customer;
  • all electronically supplied services (except services that involve providing access to copyright-protected content, as discussed below), e.g., cloud services and web hosting; and
  • offline services provided at the trader's premises or in a location where the trader operates, where such site is in a different Member State to where the customer is a national, is resident or is established.

Note that the Regulation does not require traders to deliver goods cross-border, however. As long as it requires the same thing of all of its customers, a merchant may require a foreign customer to pick up goods in the Member State where the merchant is located, or in another Member State to which the merchant delivers.

The Prohibition Against Different Payment Conditions

A trader may not apply different payment conditions to sales of goods or services within the EU, subject to certain criteria. However, a trader will still be free to decide which payment means it accepts from customers. And the Regulation does not address pricing, so traders will still be free to set prices in a non-discriminatory manner.

Exceptions

To the relief of content providers across the EU, the Regulation does not apply to copyrighted content. This is a departure from the Commission's original plans, and means that digital content providers (e.g., providers of audio-visual media, e-books, gaming apps and software) can continue to licence their content on a territorial basis (subject to portability obligations under the draft Regulation on cross-border portability and obligations under the proposed amendments to the Audiovisual Media Service Directive).

The Regulation also does not apply to financial services, transportation services, health care services or gambling.

There are also specific exceptions to the discrimination obligations, where required, to comply with applicable EU or Member State laws (e.g., applicable laws regarding the protection of children), but any such restrictions must be "precisely justified."

The Impact of Brexit

The UK voted to leave the EU on 23 June 2016. However, until the UK government formally provides an Article 50 notice, the UK remains part of the EU and subject to EU law and regulation. Accordingly, if this Regulation comes into force in 2017, it will apply to the UK because it is directly applicable in all EU Member States. Whether or not the law will continue to apply post-Brexit will depend on the Brexit model that the UK government adopts, which is not yet clear. It seems likely that this sort of law is one which the UK government would positively want to encourage—or at least the UK government would need to find some way to agree mutual recognition between the EU and the UK, because if the law doesn't apply to the UK, then it would mean that EU businesses could discriminate against UK customers.

What Traders Should Do Now

Traders that will be affected by the proposed new law should start reviewing the technical features of their platforms, as well as their terms and conditions, including their payment terms, to identify whether they discriminate against customers based on their nationality, place of residence or place of establishment. Traders should also consider what changes their platforms and terms will have to undergo to ensure compliance with the new law so that, when the proposed law is adopted, they will have started to undertake the necessary preparations.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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Authors
Susan McLean
Holger Kastler
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