As we wrote in April, the European Commission (the Commission) has been conducting an in-depth review of the European e-commerce sector with a particular focus on the impact of geo-blocking practices. The Commission initiative aims to ensure non-discrimination against customers in the single market on the basis of their geographical location. In particular, the Commission is seeking to remove the ability for companies to discriminate against customers where there is no objective reason for a different treatment between foreign and domestic customers.

The EU Services Directive allows providers of goods and services to implement geo-blocking where it is objectively justifiable (Article 20(2)). However, the Services Directive raises a number of issues and has been criticised as giving rise to significant legal uncertainty for businesses and enforcers. The Commission has therefore sought to remedy this in its draft geo-blocking regulation (the Proposed Regulation).

Geo-blocking describes the practice where providers of goods and services impose restrictions on a customer's ability to purchase those goods and services based on their geographic location. In its issues paper the Commission sets out a number of ways in which companies may seek to achieve this:

  1. by refusing to supply goods and services to companies outside the retailer’s jurisdiction;
  2. by requiring customers to pay for goods and services with credit cards/bank accounts registered in the retailer’s jurisdiction;
  3. by redirecting customers between websites for different jurisdictions; and
  4. by blocking website access to foreign customers.

Most consumers will be familiar with geo-blocking in one form or another, whether it be the inability to access streaming services from a different country, a refusal to deliver physical goods to specified jurisdictions or being re-routed to a local version of a global website.

The Proposed Regulation is in the early stages of the EU legislative procedure and the approach of the Commission is subject to review and amendment by both the EU Parliament and EU Council.

As set out in our analysis below, some aspects of the Proposed Regulation fail to make changes that are likely to substantially benefit customers. In particular, the provisions relating to the sale and delivery of goods will have limited impact on businesses.

The Proposed Regulation does set out effective provisions that restrict the ability of traders to reroute customers to local websites without consent which may require businesses to adapt their websites accordingly.

Additionally, the Proposed Regulation also closes a loophole which could enable business to effectively geo-block customers based on their method of payment.

Scope of the Proposed Regulation

The Proposed Regulation includes a number of measures designed to remove the ability for retailers to unjustifiably discriminate against foreign customers within the EU. The scope of the Proposed Regulation is limited. In particular, the Proposed Regulation does not apply to providers of the following types of services:

  1. non-economic services of general interest (e.g. police or military services);
  2. transport services;
  3. gambling services;
  4. healthcare services; and
  5. certain social services.

Transport service providers are excluded from the scope of the Proposed Regulation on the premise that transport-related EU regulations already prohibit discrimination based on EU customers’ geographic location. However the Commission specifically notes that the results of its impact assessment identified airplane tickets as being amongst the services most affected by geo-blocking, suggesting perhaps that current transport-sector EU regulations are not effective in combating such discrimination.

Obligation not to prevent access to online interfaces

The Proposed Regulation imposes an obligation on retailers not to prevent customers from accessing online interfaces based on their geographic origin (Article 3). The provision does not go as far as to prevent a website operator from rerouting customers. It does however require that, before rerouting a customer, the customer must be given a choice whether to access the trader’s website through the original site requested or to be rerouted.

Where the customer consents to be rerouted the trader is required to keep the version of the online interface that the customer sought access to before having been rerouted easily accessible. It is not presently clear what the Commission considers to be "easily accessible" but it may be that this provision is designed to prevent traders from automatically rerouting customers on the basis that they previously consented to such rerouting (e.g. via the installation of cookies).

The Proposed Regulation does provide for a limited exemption to these requirements, where the trader is required to impose access restrictions and/or rerouting as a result of the laws of the EU and/or Member States. But even in such "exceptional circumstances” a trader will be required to provide a clear justification for such restrictions.

Prohibitions against customer discrimination

The Proposed Regulation expressly sets out (in Article 4) three situations in which it is not permissible for traders to apply different general conditions of access to their goods or services for reasons relating to nationality:

  1. where the trader sells goods that are not delivered cross-border to the Member State of the customer;
  2. where the trader provides electronically supplied services (other than services providing access to copyright protected works or other protected subject matter). (Such services may include cloud services, data warehousing services, website hosting and the provision of firewalls); and
  3. where the trader provides other services to a customer in the premises of the trader or in a physical location where the trader operates (e.g. hotel accommodation, sport events, car rental, and entry tickets to music festivals or leisure parks).

There are a number of exemptions to the above, in particular where a trader is legally prohibited from selling goods or providing services to certain customers or in certain countries. This exemption is likely to be particularly relevant for traders who provide regulated goods or services.

Article 4 also provides a specific exemption in relation to the sale of books, enabling traders to apply different prices to customers in different territories so far as they are required to do so under the laws of Member States.

Article 5 of the Proposed Regulation also prohibits traders from discriminating against customers on the basis of their means of payment provided such payments:

  1. are made through electronic transactions via credit transfer or direct debit;
  2. can be verified, at the trader's request, with a strong customer authentication pursuant to the Payment Services Directive; and
  3. payments are made in the currency that the trader accepts.

However, the Proposed Regulation makes it clear that traders may request charges when a customer uses certain payment services to which EU regulations do not apply, albeit such charges must not exceed the actual costs incurred by the trader for the use of such instrument.

Passive Sales

The Proposed Regulation contains a provision stating that any agreement which imposes on traders obligations in respect of passive sales which would lead them to act in contravention of the Proposed Regulation will be automatically void.

This is a particularly interesting and controversial inclusion in the Proposed Regulation because, under the Commission’s current safe-harbour rules (known as the Vertical Agreements Block Exemption), passive sales restrictions are permitted in certain exceptional circumstances. Thus a passive sales restriction could, for a limited time, be lawfully imposed on a distributor in an exclusive distribution agreement with a manufacturer.

This ostensible ban in the Proposed Regulation on all possible restrictions of passive sales, has been criticised as contradictory to the Commission's own existing safe-harbour rules. The Commission's own regulatory scrutiny board expressed concerns with this provision, even after its initial negative opinion noting that "the interaction and coherence with other related regulatory provisions or initiatives need to be clarified".

Impact of the Proposed Regulation

Unfortunately there are many sectors which are either (a) carved out of the Proposed Regulation, or (b) where the Proposed Regulation does not go far enough. As a result, in practice the Proposed Regulation is likely to have limited impact on customers and businesses.

One of the most notable absences, certainly for those who have tried to access digital content such as BBC iPlayer or Netflix whilst abroad, is that copyright and other protected works are carved out of the Proposed Regulation entirely. This means that providers of copyrighted digital content, such as Netflix and Spotify can continue to discriminate against consumers based on their location. Resolving this issue was always likely to be the most difficult. In particular, copyright law in the EU is a collection of independent, national rules which can vary substantially between Member States. Therefore, material which benefits from copyright in one Member State, may be completely unprotected in another. This has left rights holders to implement various licenses of their material which are carried out on a national basis to reflect the different national frameworks for copyright law.

The Proposed Regulation does not address copyrighted content; however, a general approach on the "Proposal for a Regulation on ensuring the cross-border portability of online content services in the internal market" (the Portability Regulation) was reached on 26 May 2016 and seeks to impose restrictions on geo-blocking of copyright content. In particular, the Copyright Communication aims to prevent digital content providers from geo-blocking customers who are roaming temporarily within the EU. Under the proposed Portability Regulations, a UK customer with a UK "NOW TV" subscription should not be prevented from accessing that content when on holiday within another EU member state. The Commission has once again emphasised that the portability provisions should be applicable before the end of 2017. This will mean that the Portability Regulation will be expected to come into force before 1 July 2017.

Secondly, the provisions relating to physical goods appear to not go far enough to promote a single market between Member States. The Proposed Regulation merely prevents geo-blocking where a trader would be required to deliver goods cross-border to the Member State of a customer. This still leaves a significant practical hurdle to a customer actually ordering from another Member State. Businesses are not required to deliver cross border to another Member State, and as such in practice this provision will have limited, if any, benefit to customers seeking to purchase physical goods from another Member State.

Some areas of the Proposed Regulation are fit for purpose. For example, the provisions relating to the provision of services (other than access to copyright protected content) serve to effectively remove geographic barriers. In particular they allow customers seeking services to acquire services from across the EU provided, in effect, that the service provider does not have to substantially alter their working practices to deliver those services.

Finally, the provisions preventing a trader from discriminating against a customer indirectly by imposing artificial restrictions on payment type is an effective means of closing what might otherwise be viewed as a significant loophole in the Proposed Regulation.

Conclusion

The main areas of concern identified by Commission in its impact assessment and its initial findings on geo-blocking - for example consumer goods (in particular clothing and electronics), airplane tickets, and copyright works (in particular digital content) - are carved out of the Proposed Regulation. This leads one to conclude that, ultimately the Proposed Regulation does not go far enough to address concerns regarding geo-blocking. This failure to address the main areas of concern identified means that, in its current form, the Proposed Regulation will be of limited benefit to customers and have a limited impact on businesses.