Lars Kjolbye, Elisabetta Righini and Peter Citron bring us up to speed on this important new Regulation that seeks to underpin the Digital Single Market
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?
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:
There are some important carve-outs from the geo-blocking ban.
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 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.
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.