European Commission finalises a new regulation aimed at stimulating a single digital market

Combating geo-blocking has been high on the European Commission’s agenda for some time already, particularly since the completion of the e-commerce sector inquiry. The Commission is trying several approaches to fight geo-blocking practices. This year, for instance, it launched multiple investigations into unlawful geo-blocking as part of distribution policies of clothing brands and merchandise licensors (see also this blog). On 20 November 2017, the European legislative bodies reached an agreement on the regulation that prohibits online suppliers of goods and electronic services from discriminating on the basis of nationality or place of residence of customers within the EU. This blog describes the developments in relation to geo-blocking and geo-discrimination and envisages the details of the new European rules and their practical implications.

Different types of geo-blocking and new legislation

Geo-blocking is a broad term that relates to discrimination based on the location of the distributor, customer or consumer. Geo-blocking may occur in the following three situations:

  1. designing licence and distribution agreements on the basis of geographical borders;
  2. preventing cross-border access to digital content; and
  3. discriminating against customers from other Member States in (online) purchases.

These are three different types of geo-blocking, each of which must be remedied in a different manner. For that reason the European Commission has introduced several regulations aimed at promoting equal treatment of customers in the cross-border sale and use of goods and services.

First, on 14 June 2017, the Regulation on cross-border portability of online content services was adopted. Under this Regulation customers will be entitled as from March 2018 to access digital content when they are located in a Member State other than where the content was purchased (situation under (ii)). Furthermore, the Regulation on geo-blocking and other forms of discrimination (the “Geo-blocking Regulation”) will enter into force in the near future. It serves to prevent unilateral geo-blocking measures and geo-discrimination (situation under (iii)). In particular, under the Geo-blocking Regulation traders will no longer be allowed to take into account a customer’s nationality or (temporary) place of residence (jointly referred to as “geo-factors”) when:

  • preventing access to a website, app or other platform (online interface), for instance by means of automatic rerouting to another online interface;
  • applying different general sales conditions, including net prices; and
  • applying different payment and delivery conditions.

Scope of the Geo-blocking Regulation

In principle, the Geo-blocking Regulation relates to online and offline sales of physical goods and the provision of (electronic) services by online and offline providers in situations that are not purely internal affairs. The new rules will particularly impact online sales by webshops, but is not limited to that. The offline provision of services by hotels and car rental companies and the online sale of event tickets will for instance also be subject to the new legislation. Examples of electronic services which fall under the geo-blocking rules are cloud services, data storage, website management and cyber security.

The Commission’s initial draft regulation also places the provision of non-audiovisual copyright-protected digital content, such as e-books, music and online games, within the scope of the ban on geo-blocking. Audiovisual content services, financial retail services, transport services, electronic communication services and healthcare services were however excluded.

During the legislative process there was a great deal of debate on the exact scope of the Geo-blocking Regulation. The debate focused on amendments proposed by the Parliamentary Committee to extend the scope of the legislation (in the future) to the provision of audiovisual digital content services. After criticism from interest groups from several creative industries, the legislative bodies have reconsidered the application of the Geo-blocking Regulation to (non-)audio visual copyright-protected services and eventually excluded it from its scope. Audiovisual content will however be addressed in the pending draft regulation on the revision of the European copyright rules.

Another question of scope that was debated during the negotiation phase is whether the Geo-blocking Regulation should be restricted to transactions with consumers or should also extend to transactions with business customers.

Details and implications of the rules

The Geo-blocking Regulation prohibits traders from blocking access to online interfaces and from automatically rerouting. A customer’s express consent is required in order to reroute. The purpose of this prohibition is to allow customers to consult local websites and possibly to compare prices in different countries. The Geo-blocking Regulation does however not force an online provider to extend its business to other Member States, nor to harmonise its prices and sales conditions in different countries.

The Geo-blocking Regulation merely prescribes that a provider of goods or services may not use unequal conditions based on geo-factors within every Member State in which it is already active. The use of price differentiation and other differences in sales conditions based on a customer’s nationality or place of residence is permitted only if there is (objective) justification for doing so. The obligation to use the equal sales conditions does not apply, for instance, if European or national legislation prevent this, e.g. in the case of the sale of books based on national book prices.

Also relevant is the ban on discriminating in terms of payment conditions between local and foreign customers or payment methods. Although traders will still be free to determine what means of payment they accept, they may not distinguish on the basis of customer’s geo-factors or on the basis of the location of that customer’s payment service provider or bank account. A trader who accepts Maestro as a means of payment must therefore also accept foreign Maestro (debit) cards. But the trader may charge the customer a fee for the costs related to the use of that means of payment.

Enforcement and entry into force

In a practical sense, the Geo-blocking Regulation provides that Member States must put one or more authorities in charge of (i) giving practical assistance to consumers; and (ii) supervision of compliance with the geo-blocking rules (including the imposition of fines). The draft regulation on cooperation between national authorities in the area of consumer protection can also be mentioned in this context.

The ACM (Netherlands Authority for Consumers and Markets) has been put forward by the Dutch government as a possible enforcement authority. In a letter to the Lower House of the Dutch Parliament, Minister Koenders (Foreign Affairs) noted that amending the Wet handhaving consumentenbescherming (Consumer Protection (Enforcement) Act) could expand the ACM’s powers to include supervision of infringements of the geo-blocking rules in relation to consumers. If the Geo‑blocking Regulation also applies to geo-blocking practices to the detriment of business customers, a separate basis for those enforcement powers will have to be created.

The European legislature aims to adopt the Geo-blocking Regulation before the end of this year. The Commission has previously proposed a brief transitional period, whereby the new rules will enter into force six months after publication. It is therefore advisable for companies that offer online goods and electronic services to timely prepare and possibly obtain advice on the consequences of the new Geo-blocking Regulation for their business.