On 27 February 2018, the EU Commission adopted the EU
geo-blocking regulation (the Regulation – the full title is Regulation
(EU) 2018/302 of the European Parliament and of the Council of 28 February 2018
on addressing unjustified geo-blocking and other forms of discrimination based
on customers’ nationality, place of residence or place of establishment within
the internal market and amending Regulations (EC) No 2006/2004 and (EU)
2017/2394 and Directive 2009/22/EC). It will enter into force on 3 December
2018. The Regulation prohibits unjustified geo-blocking, and other forms of
discrimination, based on customers’ nationality, place of residence, or place
of establishment.
The Regulation is particularly relevant to
all businesses selling online in different EU Member States, whether or not
they are located in the EU. Before the end of the year, businesses should
carefully review their online interface mechanisms, terms and conditions,
payment mechanisms, and distribution agreements to assess whether unjustified
geo-blocking practices are in place, and, if necessary, adjust their terms and
sales organisation to ensure compliance with the Regulation.
What
is geo-blocking?
Geo-blocking
refers to practices where traders offering services in one EU Member State
block or limit access to their online interfaces, such as websites and apps, by
customers from other EU Member States wishing to engage in cross-border
transactions. Geo-blocking also occurs when traders
apply different general conditions based on geo-factors, such as nationality,
place of residence,
or temporary location. Geo-blocking can occur as a result of a trader’s
unilateral decision, but also pursuant to clauses in a bilateral agreement
(distribution agreement).
Combating
geo-blocking is central to the EU’s Digital Single Market (DSM) strategy. The
concern is that geo-blocking potentially limits online shopping and
cross-border trade, and leads to undesirable geographical market segmentation. The
European Commission’s final e-commerce sector inquiry report identified the
widespread use of geo-blocking, highlighting that 38% of responding retailers
selling consumer goods and 68% of responding digital content providers
implement geo-blocking measures.
What
does the Regulation cover?
Online
interfaces
Traders
must not block or limit a customer’s access to the trader’s online interface
(website, mobile app, etc.) for reasons related to the customer’s nationality,
place of residence, or place of establishment. Traders must also refrain from
automatic redirecting to affiliates located in the customer’s territory without
the customer’s consent. The bans do not apply if geo-blocking is necessary to
ensure compliance with legal requirements.
Access
to goods or services
Traders
must not apply different trading conditions (including net sale prices) for
reasons related to a customer’s nationality, place of residence, or place of
establishment in three specific scenarios, namely where a customer seeks to:
- buy
goods from a trader who under its general conditions offers delivery to a
Member State or collection by customers in a Member State - receive
electronically supplied services from a trader (such as cloud services, data
warehousing services, website hosting and the provision of firewalls, use of
search engines, and internet directories) - receive
services other than electronically supplied services in a Member State where
the trader operates (such as hotel accommodation, sports events, car rental,
and entrance tickets for music festivals or leisure parks).
There
are some important carve-outs from the geo-blocking ban.
- Electronically
supplied services offering copyrighted content are excluded from the
Regulation. For this reason, the Regulation does not affect online television,
films, e-books, music, online games, and streamed sports. However, the EC will
first evaluate the Regulation’s impact two years after its entry into force, to
assess a possible extension of the new rules to electronically supplied
services offering copyrighted content. - Traders
are not forced to deliver goods across borders. A trader that in its general
terms and conditions has established that it only delivers domestically can
continue to do so. Customers from other Member States can order the goods, but
they will have to pick up the goods in the trader’s Member State (if the trader
offers a pick-up option), or provide a delivery address in the trader’s Member
State. - There
is no requirement to offer a single EU shopfront. Traders are not precluded
from offering goods or services in different Member States, or to certain
groups of customers, by means of targeted offers and differing general
conditions of access, including through the setting-up of country-specific
online interfaces. - Traders
are not precluded from offering, on a non-discriminatory basis, different
conditions, including different prices, in different points of sale, such as
shops and websites, or to make specific offers only to a specific territory
within a Member State. However, they cannot prevent consumers in other Member
States from availing themselves of these offers.
Payment
Traders
must not discriminate against customers by refusing certain transactions, or by
applying different conditions or payment, for reasons related to customers’
nationality, place of residence, place of establishment, the location of the
payment account, the place of establishment of the payment service provider or
the place of issue of the payment instrument. This obligation is subject to
certain limitations, such as that the payment transaction is made through an
electronic transaction, strong customer authentication is available and the
payment transactions are in a currency that the trader accepts.
Passive
sales
Passive
sales clauses (for example, in distribution agreements) requiring traders not
to respond to unsolicited demand from consumers in other Member States will be
automatically void and unenforceable. While passive sales restrictions will
often infringe EU competition law in any event, the Regulation renders the
prohibition of passive sales absolute — irrespective of the trader’s market
position. The relevant article of the Regulation relating to passive sales
(Article 6) will apply 24 months from the Regulation’s date of entry into
force.
Scope
The
Regulation’s scope is aligned with that of the Services Directive (Directive 2006/123/EC of the European Parliament and of the Council
of 12 December 2006 on services in the internal market). However, if conflicts arise, the
rules of the Regulation prevail. The Regulation aims to clarify the
non-discrimination obligations in Article 20 of the Services Directive. For
this reason, a number of important service industries are excluded from the Regulation’s
scope, including financial, transport, electronic communication, healthcare, audio-visual,
and broadcasting services.
The
Regulation covers B2B transactions, but only if a consumer or business receives
a service or purchases a good for the sole purpose of end use.
Entry
into force
The
Regulation has now been published in the EU’s official journal and will take effect nine months after that publication, namely on 3 December 2018.
The
bigger picture
The
Regulation forms part of the EU’s wider DSM strategy. EU legislators are also
introducing a broader e-commerce package, which includes a multitude of
legislative initiatives. These include a new regulation on the portability of
digital services across the EU, which will come into force on 1 April 2018. Under
this new regulation, consumers who paid for online content services in their
home country will be able to access these services when visiting another EU country.
Other proposals include more transparent and affordable cross-border parcel
deliveries, and the modernisation of value-added tax rules for e-commerce.
In
parallel to its legislative initiatives, the EC has challenged geo-blocking
measures under the EU competition rules (Articles 101 and 102 TFEU). The EC has
launched a number of individual anti-trust investigations in the consumer
electronics, video game, hotel industry, clothing, and licensed merchandise
sectors, as well as into the licensing and distribution practices of movie
studios. Some of these enforcement actions target copyrighted content, and thus
may reach beyond the Regulation’s scope.
Lars Kjølbye is the Managing Partner of
Latham & Watkins’ Brussels office
Elisabetta Righini is counsel in the
Antitrust & Competition Practice in Latham & Watkins’ Brussels office.
Peter Citron is Knowledge Management
Counsel at Latham & Watkins LLP.
This article first appeared as a Latham
& Watkins Client Alert.
