E-commerce: Is your business prepared for the new rules on "geo-blocking"?

By Assistant Attorney Victoria Törner and Legal Consultant (EU-Attorney/Abogada) Maite Mazzitelli

What is "geo-blocking"?

In the e-commerce context, "geo-blocking" can occur through discrimination based on customers' nationality, place of residence or place of establishment. In practice, this can e.g. occur through the blocking of access, by the automatic redirection of users to their own national sites or by not accepting payment cards or offering delivery to certain countries. The "geo-blocking" can also occur through more indirect means such as e.g. offering different terms and conditions to customers located in another Member State. The new Regulation targets some of these practices that lead to "geo-blocking".

Background: The Digital Single Market and the E-Commerce Sector Inquiry

The EU Geo-Blocking Regulation 2018/302 (the "Regulation") signifies one step further in the EU's digital single market strategy, which already have led to other initiatives such as the end of roaming charges for mobile phones and the introduction of cross-border portability for online subscriptions.

The EU Single Market is based on four fundamental freedoms (free trade of goods, free provision of services, and free movement of capitals and persons), which have been at the core of the European project since its cradle. While the Digital Single Market strategy does not add a new pillar to the policy, it aims to implement these four principles into the e-commerce environment.

In this context, the European Commission launched a sector enquiry into e-commerce in May 2015, which quickly identified unjustified "geo-blocking" as one of the main obstacles to achieving a Digital Single Market in the EEA. By way of example, a mystery shopping survey conducted across e-commerce in the EU has revealed that 63% of websites do not allow customers to purchase from another EU country (the survey is accessible here). The new Regulation aims to remove unjustified geo-discrimination in e-commerce and will require companies to change some of their marketing strategies when offering customer-targeted content. 

What do the new rules mean for your digital presence?

Access to online interfaces: Firstly, it will no longer be allowed to block or limit a customer's access to your website for reasons related to the customer's nationality, place of residence or establishment. This includes the redirection of customers to another online interface than the one they initially decided to visit – without the customer's explicit consent. In practice, many websites have already implemented a procedure that asks the customer to select their country when first landing on the website or the app.

Access to goods and services: Secondly, the new Regulation stipulates three scenarios in which it will not be allowed to geo-discriminate on users' terms and conditions:

1. For goods that are either delivered in a Member State to which the trader already offers delivery or are collected at a location agreed with the customer. An example of this could be if a Danish customer orders something from a Swedish web shop and travels to Sweden to pick up his delivery. The trader is not allowed to charge a higher price for the product because of the Danish customer's nationality.
2. For electronically supplied services, e.g. cloud, data warehousing and website hosting
3. Where the customer receives non-electronically supplied services from the trader in the same Member State as where the trader operates. This refers e.g. to hotel accommodation, concert tickets and car rental services when received by the customer in the country where the trader operates.

We note in this regard that the new Regulation is aligned with the provision on non-discrimination in Article 20 of the old Services Directive 2006/123/EC (the "Directive"). It is found that the Directive has not been fully effective in reducing discrimination, which is why the new Regulation aims to clarify the rule on non-discrimination by defining certain situations where different treatment based on nationality, place of residence or place of establishment cannot be justified. In case of conflict, the rules contained in the Regulation will prevail.

No discrimination on means of payment: Thirdly, when certain requirements are fulfilled, traders will not be allowed to geo-discriminate by not accepting means of payment for reasons related to:

• nationality, place of residence or place of establishment
• the location of the payment account
• the place of establishment of the payment service provider
• the place of issue of the payment instrument within the EU.
   

What are the consequences for competition law rules on active vs. passive sales?

Under EU competition law, there is a general distinction between active and passive sales. Active sales refer to proactively targeting your customers e.g. via advertising, websites directed at the customers or physical stores, whereas passive sales refer to responses to unsolicited orders by customers, i.e. situations where the customer makes the first move. It is generally allowed to restrict active sales, whereas passive sales restrictions are treated as "hardcore" restrictions, and therefore cannot be justified.

As a general rule, the new Regulation will prevail in cases of conflict with competition law. In the proposal to the Regulation, it is stated that the rights of traders to impose active sales restrictions will remain, as the practice is seen as part of the traders' commercial freedom to set up their distribution systems, of course, as long as the restrictions comply with competition law. In the Commission's Vertical Guidelines from 2010, it is already provided that internet sales are generally to be treated as passive sales, which has also been the Commission's firm practice. Article 6(2) of the new Regulation now regulates that restrictions of passive sales that infringe its provisions automatically become void.

In practice, it remains possible to differentiate between costumer groups and retain a ban on active sales from one customer group to another. In an e-commerce context, it means that traders can still have variations on prices and product offerings in different Member States as long as they fulfil the new requirements, i.e. that they do not geo-discriminate by e.g. automatically redirecting customers or by not accepting their means of payment. 

What is not included in the Regulation?

As of its entry into force, the Regulation on "geo-blocking" will not apply to online services on copyright-protected content such as music, e-books, software and online games, as well as to services in sectors such as financial, transport, healthcare and audio-visual. However, this is subject to an evaluation on the impact of the new rules on the Digital Single Market in two years' time. The European Commission will then consider broadening the scope of the Regulation to cover some of the services which were initially excluded.

The Regulation will not force companies to deliver their product or services across all EU Member States. This being said, it is noted that an EU Regulation on cross-border parcel delivery services became applicable earlier this year in order to ensure that e-commerce reaches its full potential through price transparency and enhanced competition in delivery services.

As a result of companies' freedom to contract and set up their own preferred distribution systems (if compliant with competition law), the Regulation will not affect business-to-business transactions, where the goods are designated for resale. It only applies to transactions between businesses and consumers, and business-to-business in circumstances where the customer purchases the goods for end use.

Follow this link to access the Geo-Blocking Regulation 2018/302 of 28 February 2018.