News site Politico this week leaked a draft proposal for an EU Regulation on addressing geo-blocking and other forms of discrimination based on place of residence or establishment, or nationality within the Single Market. (And as a reminder – the phrase “geo-blocking” in this context refers to access limitations to websites generally rather than blocking audio-visual content – and indeed this is specifically excluded from the scope of the proposal (see below).) As we reported earlier (see here and here), this proposal was expected and follows from the e-commerce sector inquiry and the public consultation on geo-blocking which the European Commission conducted last year. It is expected that the final proposal will be published on or around 25 May 2016.

The draft proposal is part of the Commission’s Digital Single Market (DSM) strategy which contains 16 aligned initiatives in a variety of fields such as telecommunications, consumer rights and Big Data, each of which is intended to bring the EU one step closer to a digital single market. The DSM strategy is monitored by Hogan Lovells’ cross practice multi-jurisdictional DSM Watch team.

Scope

The draft proposal covers the sale of goods and the provision of services in the EU in circumstances where the customer is not a national of or not residing in or established in the Member State in which the provider is established. The proposal covers both goods and services sold to consumers but also to businesses, unless the goods/services are purchased for resale.

A number of services are, however, excluded from the scope of the Regulation – in particular audio-visual services (the exclusions follow the exclusions set out in Directive 2006/123/EC (the Services Directive)). It is rumoured that EU commissioner Oettinger blocked the application of the draft Regulation to the online distribution of films, TV series and sports broadcasts and that no other legislation on geo-blocking in this field would be issued. The proposal furthermore foresees an extended transitional period for traders providing access to other copyright protected goods, showing the reticence of the Commission to act in this matter.

Principles

The basic principle of the draft Regulation is that providers of goods and services operating in the EU cannot directly or indirectly discriminate between customers based on their nationality, place of residence or place of establishment (Article 1). This proposal does not, however, prevent other types of discrimination. So, for example, traders will not be prohibited from implementing dynamic pricing based on other factors.

The principle of non-discrimination is applied in two key ways:

  • Traders cannot block or limit customers’ access to their websites or a particular version of their website, unless the customer explicitly consents (and even in that case customers must continue to be able to easily access the initial version of the website they wanted to access) (Article 3); and
  • Traders cannot apply different “general conditions of access” (which, crucially, include price) to their goods or services (Article 4).

There are nevertheless certain circumstances in which traders can discriminate between customers from different Member States:

  • Traders are not required to offer physical deliveries in other Member States;
  • Traders are not required to grant access to copyright protected works (such as music or e-books) in other Member States if they do not hold the required rights for those Member States; and
  • Traders can still discriminate with “targeted offers” – it’s unclear exactly what this means but presumably it includes sales and other temporary offers.

The draft proposal also states that traders are required to offer the same payment conditions to customers, regardless of their nationality, place of residence or place of establishment (Article 5). The trader will therefore be required to accept credit cards from other Member States if it accepts credit cards from the Member State in which it is established.

In its recitals, the draft Regulation states that it does not affect the rules on competition contained in the Treaty on the Functioning of the European Union. The regulation nevertheless states that agreements imposing on traders obligations in respect of passive sales to act in violation of the Regulation would automatically be void (Article 6).

Next steps

The leaked draft proposal still contains some wording in square brackets and is therefore not entirely finalised. However, it is expected to be finalised and formally published on or around 25 May 2016. Afterwards, it will need to pass through the European Parliament and the Council of the European Union (representing the Member States) which can amend the draft. The legislative procedure is likely to take well into 2017. The draft proposal currently foresees that, after its enactment, a period of six months would be given to companies to implement the legislation.