In the European Union, customers, mainly consumers, are increasingly more often encountering traders who carry out activities in other Member States, but refuse to sell goods or services to them or adjust their prices because a particular customer is from a different Member State. Such a practice is described as unjustified geo-blocking.

With the objective of eliminating the most serious cases of using geo-blocking, as a part of its strategy for the single digital market, about which we informed in a previous edition of Havel Holásek & Partners EU Legal News, in May 2016 the Commission adopted a proposal for a Regulation of the European Parliament and of the Council on addressing geo-blocking and other forms of discrimination based on customers' nationality, place of residence or place of establishment within the internal market, and amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC of 25 May 2016, COM(2016) 289 final (the "Proposal"). The purpose of the Proposal is to prevent artificial segmentation of the market by traders, thus ensuring that customers on the single market are not directly or indirectly discriminated against on the basis of nationality, place of residence or place of establishment (hereinafter jointly referred to as "residence"). An example of such an unjustified geo-blocking may be a pricing policy differentiating between countries from where goods or services are ordered.

In connection with the ban on discrimination on the basis of the customer's residence, it seems to be appropriate to refer to Article 20 of Directive 2006/123/EC of the European Parliament, and of the Council of 12 December 2006 on services in the internal market which imposes a duty on the Member States to ensure that the recipient is not subject to discriminatory requirements based on his nationality or place of residence. Nevertheless, despite of the implementation of the said provision in the laws of the Member States, customers abroad still face refusals to sell and different conditions of access to goods and services in the context of e-commerce, among others, on the basis of using an IP address of a Member State different from the trader's Member State. Therefore, the Commission decided to solve this problem by drafting a proposal of a new regulation, i.e. by means of directly applicable legislation.

We find it appropriate to emphasise that the Proposal relates to both off-line and on-line environment, and that customers pursuant to the Proposal should be understood to mean mainly consumers, but also enterprises as end-users. Non-economic services of general interest, financial services such as banking, loans, insurance and reinsurance, transport services, audio-visual services, gambling activities, healthcare services and certain social services are expressly excluded from the scope of the Proposal.

Based on consultations with involved parties (consumers,businesses, consumer and business associations and national authorities) it was established that the goods and services most affected by geo-blocking include clothing, footwear and accessories, physical media (books), computer hardware and electronics, airplane tickets, car rental, digital content such as streaming services, computer games and software, e-books and audio files. The Commission also undertook mystery shopping, during which it analysed geo-blocking and techniques of territorial restrictions used in different industries in the whole EU. In connection with this analysis, in March 2016 the Commission published a Mystery Shopping Survey (the "Study") in which over 10,000 web pages were tested, of which, however, only 37% allowed the customer to successfully reach the final stage of the process of making a purchase from abroad. In other cases, the traders automatically rerouted the customers or blocked the customers' access, rendered it impossible for the customers to register, refused to deliver goods or services to them, or rejected their payment.

Different on-line interfaces

One of the main subjects of the Proposal is access to the on-line interface. Some traders operate different versions of their on-line interfaces which are focused on customers from different Member States. As a general rule, traders are not allowed to reroute customers to the on-line interface version which is intended for their country of residence, if it is different from the version which the customer originally attempted to access. Nevertheless, these practices cannot be clearly labelled as illegal, as in some cases, access to the on-line interface may be restricted, or rerouting may occur due to compliance with the statutory requirement of EU law, or laws of the respective Member States; the trader is obliged to justify such restrictive measures in the language in which the customer originally attempted to access the website. Thus, re-routing can only take place with the customer's consent and requires traders to keep the version of the online interfaces that the customer sought to access before having been rerouted easily accessible.

Different general conditions

At the same time, the Proposal prohibits traders from using different conditions for the access of their customers to goods and services in three situations. The first case is the case when the trader sells goods, but without cross-border delivery of the product to the Member State of the customer. In this situation the customer should be able to buy the goods under exactly the same conditions as customers having their residence in the Member State of the trader (i.e. having the goods sent to an address in this Member State or to collect the goods personally). At the same time, the Commission concluded that it is not desirable if the traders are obliged to deliver the goods to all EU Member States which would undoubtedly cause inadequate costs mainly to smaller and medium entrepreneurs. The second case is a situation where the trader provides electronically supplied services such as cloud services or data warehouse services. In this case, physical delivery is not required and, therefore, differences in treatment of the customers via applying the general terms cannot be justified. The third case applies to services, which are provided by the trader and received by the customer on the trader's premises, or at a place chosen by the trader and located in a Member State different from that of the customer's Member State of residence. This case applies to, e.g., hotel accommodation, car rental or fees for admission to amusement parks. Even in such a case, the use of different general conditions is unjustifiable.

However, not even the applicability of this ban is absolute, as even in the case of general conditions, there may be objective reasons for their different versions in different Member States. This concerns the different legislations across the EU for example, in relation to the sale of books, the ban on the use of different general conditions does not prevent the traders from setting different prices for customers from various countries.

Restrictions due to reasons related to payment

Last but not least, the Proposal sets out that traders are free to decide which means of payment they accept. It prohibits unjustified unequal treatment of individual customers from the Member States when paying for goods or services for reasons related to the location of the payment account, the place of issue of the payment instrument, or the customer's place of residence, and sets out again three situations when such a prohibition applies. These include: (i) payments made through electronic transactions by credit transfer or a card-based payment instrument within the same brand, (ii) the payee may request strong customer authentication by the payer (pursuant to the Directive (EU) 2015/2366 of 25 November 2015 on payment services on the internal market) a (iii) the payments are in a currency that the payee accepts.

Legislative outlook

The Proposal must be adopted in the EU legislative procedure, thus, certain changes are likely to be made to the current Proposal. After receiving favourable opinions of the EU Council (2016/0152(COD)) and the European Economic and Social Committee, the Proposal is currently being considered by the European Parliament's Committee on Internal Market and Consumer Protection of the (IMCO/8/06772). If the Proposal is indeed approved, it is expected to enter into force during 2017. However, postponement of the effective date until 1 July 2018 is expected in relation to electronically provided services (cloud, webhosting etc.) which do not concern a copyright-protected content.

In light of the results of the Study, which indicated that in relation to the residence, consumers are most frequently restricted by traders from the Member States in Central and Eastern Europe, including the Czech Republic, in particular due to refusal to deliver the goods and services or rejection of the payment, it can be expected that the efforts of the Commission and national supervisory bodies to keep pace with the other Members States after the effective date of the Proposal will be reinforced in particular in these areas. Traders' compliance with the relevant anti-discriminatory measures in the Czech Republic could be within the competence of the Czech Trade Inspection Authority in the future with regard to its extensive experience with general consumer protection in the Czech Republic.

At the same time, the Commission agreed to consider whether the prohibition of geo-blocking in the future should apply also to electronically provided services which provide access to, among others, copyrighted works, which would have implications mainly in the provision of audio-visual services (such as watching pre-paid films or TV series etc.). However, this field has been excluded from the scope of the discussed regulation thus far, as it is connected with the issue of territorial restriction of copyright licences due to non-homogenous copyright legislations of the different Member States.

In conclusion, we can summarise that the Commission's original ambitious plans to substantially eliminate the practice of unjustified geo-blocking have remained partly unfulfilled. As mentioned above, the Commission has previously already identified for example the market for air tickets or digital content (services such as Spotify or Netflix) as areas most affected by geo-blocking. However, these services have been excluded from the scope of the Proposal and, therefore, their providers will be able to continue differentiating customers on the basis of geographical location. Despite the declared effort to eliminate barriers on the internal market while the volume of trade in digital content is still increasing, the actual impact of the regulation on traders and consumers in the EU is being limited. Sellers of tangible goods will have to adjust their business strategies and terms of sale more quickly than others and to take into account the different impacts of the proposed regulation on the respective types of goods and services. Thus, moving forward, we can expect further adjustments of the current partial regulation of cross-border trade in the EU.