New European regulations prohibiting geo-blocking conduct to be introduced in online shopping in 2018. Will it chip at the road block in Australia?
On 20 November 2017, the European Commission (EC) announced that the European Parliament, Counsel and the Commission had reached an agreement to end “unjustified” geo-blocking in online shopping in the European Union through regulation (Geo-blocking Regulations). Prior to this agreement, the EC’s published draft geo-blocking regulations in 2016 and conducted an in-depth review of the European e-commerce sector with a particular focus on the impact of geo-blocking practices.
Geo-blocking is used by firms to restrict digital access based on the geographic location of the consumer, which allows them to price discriminate across geographic markets (despite very similar costs of supply between them).
The EU’s agreement has the potential to substantially affect the obligations of e-commerce retailers who operate in Europe. According to the EC, once the Geo-blocking Regulations take effect, European citizens “will be able to buy their new electrical goods online, rent a car or get their concert tickets across borders as they do at home” and “ensure that they no longer face barriers such as being asked to pay with a debit or credit card issued in another country”. The regulations will also ensure businesses in the EU have more legal certainty to operate cross-border.
The date when the new regulation will come into effect has not been announced. However, the agreement is expected to be officially published in in the second quarter of 2018.
In this post, we discuss how the practice of geo-blocking has been considered in Australia and set out further details on the proposed Geo-blocking Regulations in the EU.
1 How has geo-blocking been considered in Australia?
In Australia, geo-blocking has been considered by the Productivity Commission as well as by the Federal Government in the context of Australia’s intellectual property framework.
The Productivity Commission (PC) in December 2016 recommended that the Government make it easier for consumers to access legitimate copyright-protected content by:
- amending the Copyright Act 1968 (Cth) to make clear that the circumvention of geo-blocking technology by consumers is not an infringement of copyright; and
- avoiding international obligations that would prevent or ban consumers from circumventing geo-blocking technology.
The ACCC supported the PC’s recommendation, stating that it “would remove a significant impediment for consumers to access legitimate content, and thereby promote competition”. However, the ACCC acknowledged that other restrictions, such as contractual terms and conditions that content providers offer to consumers and/or statutory provisions in jurisdictions outside Australia, would likely continue. Consequently, broader market effects would likely take time to benefit consumers in Australia. The Federal Government “noted” the PC’s recommendation without committing to any further steps, while observing that the terms and conditions under consumer contracts and/or regulatory arrangements in jurisdictions outside Australia would continue to govern the circumvention of geo-blocking technology.
The recent developments in Europe may re-open the dialogue in Australia. Since the PC’s report, the ACCC has considered the issue of geo-blocking in the context of a specific industry. The ACCC recently released its final report into the new car retailing industry, in which it found the practice of geo-blocking by overseas car manufacturers limited the substitutes available in Australia for technical information or proprietary diagnostic tools from the car manufacturers. Although not a specifically mandated issue, the impact of geo-blocking may also be relevant in the ACCC’s digital platforms inquiry given the geo-blocking practices of multi-national digital content providers (such as Netflix and Apple) that operate in Australia.
2 What will the EU’s Geo-blocking Regulations prohibit?
The content of new Geo-blocking Regulations has not been finalised. According to the EC’s announcement, however, the Regulations will prohibit online retailers that offer goods or services to European customers from discriminating based on consumer locations.
This has the potential to affect Australian businesses which sell goods and/or services in Europe, even if they are registered and primarily operate in Australia.
The table below sets out the situations where, according to the EC’s media release, businesses operating in the EU will no longer be able discriminate between customers from different EU Member States.
The main areas of concern identified by the EC in its 2016 inquiry were consumer goods (in particular clothing and electronics), airplane tickets, and copyright works (in particular digital content).
Given the prevalence of geo-blocking practices in Europe, the new Geo-blocking Regulations are expected to have significant implications on e-commerce retailers.
Relevantly, the EC estimates that 63% of websites currently prevent shoppers located in one EU country from purchasing goods or services in another EU country, including by:
- automatically re-routing or blocking shoppers (2% of websites);
- preventing the registration of a shopper located in a different EU country (27% of websites);
- refusing to deliver a product or provide a service to the shopper’s country (32% of websites); and
- preventing shoppers from entering payment details using a card issued in a different EU country (26% of websites).
Under the new Geo-blocking Regulations, these practices are likely to be prohibited.
The Regulations are expected to have significant implications for large retailers who operate in Europe, which the EC has identified as being the most likely to engage in geo-blocking practices.
We expect that the Regulation’s impact on competition within the EU, after implementation, will serve as a useful case study on the effects of geo-blocking practices on industries worldwide, particularly for those goods that do not require physical delivery or services that are supplied electronically.