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The new Geo-blocking Regulation and what it means for e-commerce

Posted: 20/12/2018


New legislation removing the practice of unjustified geo-blocking across the EU came into force on 3 December 2018. Geo-blocking has been a wide-spread phenomenon in the EU’s digital landscape but going forward, businesses that offer goods and services in the EU should ensure that they do not discriminate against customers based on their nationality, place of residence or place of establishment. To comply, businesses may need to review their trading terms, sales promotion strategies, digital offerings and distribution networks. In this article we look at some of the restrictions and technical steps that businesses may need to consider to comply with the new legislation.

The Geo-blocking Regulation 2018/302 came into force in the UK under the Geo-blocking (Enforcement) Regulations 2018, SI 2018/1153 (UK Enforcement Regulation). The Regulation aims to improve cross-border access to goods and services online, build trust for consumers and provide certainty for businesses, as well as to reduce transaction costs when trading cross-border via online means, such as apps or websites. The European Commission believes that discriminatory practices are contributing to the current low level of cross-border transactions (only 7% of SMEs sell cross-border at present) and boosting cross-border e-commerce is one of the Commission’s main objectives for the digital single market.   

Why has the Regulation been introduced?

The purpose of the Regulation is to prevent internal borders in the EU marketplace and allow customers in one EU member state to have access to the goods and services provided in another on the same terms as if they were a resident in that member state. Statistics indicate that EU customers could save €11.7 billion annually if they had access to the full range of EU online goods and services.[1] To achieve this, the Regulation prohibits geo-blocking (a term used to describe when traders use technical means to prevent customers from accessing services or goods based on discriminating factors, such as location) and geo-filtering (when traders re-direct customers to another ‘local’ website, often offering different prices). The Regulation is not intended to affect sales located entirely in one member state.

With the increasingly digitised economies of the EU member states, the Commission is committed to creating and protecting a single digital market. The Regulation is part of the Commission’s wider ‘Digital Single Market Strategy’ to enable free movement of goods and services across borders in the digital marketplace, thus enhancing fair competition. In practical terms, the legislation allows, for example, a customer based in France or with a French credit card to access a German website and its prices, without being automatically redirected to a French version of the website with potentially different prices. This is viewed as being ‘a great step forward for e-commerce in Europe’.[2] 

How does geo-blocking work?

Websites have historically used geolocation software to identify a computer’s IP address and find the location of a website user. This information can then be used to block or redirect any non-native users to their local site. Some websites may also include code to restrict overseas credit cards, overseas bank accounts and international payments, and to not provide PayPal, which can be used across the internet.

Who does the Regulation apply to?

The Regulation applies to cross-border traders entering into either business-to-consumer or business-to-business transactions. A trader is defined as being a ‘natural or legal person acting in relation to a trade, business or craft’. Ultimately this will cover any entity involved in economic activity, although it will exclude individuals who occasionally sell second-hand goods as this is not part of their trade.

The Regulation applies to all traders who are trading in the EU; it does not relate to purely internal situations. This means that there must be a cross-border element for the Regulation to apply. For example, it would not affect a transaction between a trader established in the UK and a consumer who is a national and resident in the UK wishing to access the UK version of the trader’s website, buy a service and pay for it with a UK bank card. The Regulation would however apply where a German customer requests to purchase a product through a UK website, since there is a cross-border element by virtue of the fact that the customer is not in the UK and the trader is in the UK. In this situation, the trader could not refuse to supply to the customer without an objective reason and would not be allowed to treat the German customer differently from a UK customer.

The Regulation also has extra-territorial scope so non-EU companies that offer goods or services in the EU must comply with it. Yet this scope is narrowed somewhat as the customers need to be resident or a national within the EU.

There are some fields that are not within the scope of the Regulation, including: 

  • audio-visual services;
  • copyright protected content;
  • transport;
  • healthcare and social services;
  • financial services or retail financial services; and
  • gambling.

The prohibitions do not apply to non-audio-visual copyright protected works either, such as music, e-books or software and online games.  However the Commission intends to evaluate this position in a year’s time.

Summary of the restrictions 

A summary of the restrictions under the Regulation and the practical implications for businesses to consider is set out below:

 


Trader restrictions


Exceptions

Technical and commercial practicalities for traders

Access to online interfaces

  • must not block or limit a customer’s access to their online interface using technological measures.
  • unless necessary for a relevant EU or national law.
  • ensure firewalls are not set to blacklist or block certain IP addresses; and
  • if there is an exception, provide a clear and specific explanation (in the language of the online interface) of why customers are being blocked or given limited access.
  • must not redirect to a different (or local) online interface to the one originally sought.
  • except if the customer has provided its explicit consent to being redirected (with the ability to withdraw consent).
  • update any programming to re-route IP addresses;
  • ensure that there are persistent cookies so that consent is not needed every time a customer visits the site;
  • include a mechanism to withdraw consent at any point; and
  • comply with relevant data protection and e-privacy legislation.

Access to goods or services

  • must not apply different general conditions of access (such as terms, conditions and net sale prices which apply in lieu of a negotiated contract) to services or goods, where:
    • services are supplied electronically (such as cloud and web hosting services);
    • services are physically supplied; or
    • goods are bought and collected from or delivered to a specified location.
  • unless necessary for a relevant EU or national law; and
  • traders that are exempted from paying VAT are allowed to apply general conditions of access on electronic services.
  • trader can still set net sales prices which differ between member states;
  • trader is not obliged to comply with non-contractual legal requirements of the customer’s member state or to tell the customer of such requirements; and
  • trader is not obliged to offer cross-border delivery services which it would not have ordinarily offered.

Non-discrimination for reasons related to payment

  • must not apply different payment conditions on a transaction, where:
    • made through an electronic transaction;
    • EU authentication requirements are fulfilled; and
    • payment is in currency trader accepts.
  • trader can withhold delivery or provision until payment has been properly received.
  • trader can still charge a fee for use of certain card-based transactions (as long as they do not exceed the direct costs borne by the trader); and 
  • deactivate or delete any technical code that may result in payment variations.

It should be noted that the Regulation does not apply to purely informative websites where customers can view goods and services but cannot make a purchase.

Traders who are in scope should ensure that their terms and conditions and the technical controls on their online applications comply with the new Regulation.

Competition implications

Under EU competition law, as a general rule restrictions on passive sales in distribution agreements are prohibited and traders should be free to respond to unsolicited orders from customers outside their territory.

Any agreement which restricts active or passive sales within the definition of the Block Exemption Regulation (EU) 330/2010 is unaffected by the Regulation. Any contractual provisions between traders, however, which attempt to restrict passive sales in violation of the Regulation will be automatically void and traders cannot invoke a restriction on passive sales in their supply agreement as a ground to refuse a sale.

Traders should therefore ensure that their terms have been amended to comply with the Regulation. In respect of agreements concluded before 2 March 2018, the longstop date for such amendment is 23 March 2020.

Which member state’s consumer protection law is applicable?

The rules on applicable consumer protection law and jurisdiction of courts are regulated by the Rome I Regulation and the Recast Brussels Regulation. The Regulation does not amend or override these rules. The Rome I and Recast Brussels Regulations should therefore still be used to determine applicable consumer protection law and which courts are competent.

The Rome I and Recast Brussels Regulations provide that where a trader enters into a contract with a consumer and directs its activities towards the state in which the consumer is habitually resident, the contract will be governed by the law of the state of the consumer’s residence, even if the trader’s terms and conditions state otherwise. Where the trader is considered to be directing his or her activities to another member state, local consumer protection regulations will apply and the consumer will also be able to bring proceedings against the trader in the courts of his or her country of residence.

The Regulation does not modify this rule on applicable law and jurisdiction, which remains to be assessed on a ‘case by case’ basis, depending on whether a trader is directing activities to the member state of the consumer. Article 1(6) of the Regulation clarifies that simply complying with the Regulation does not mean that the trader is directing his or her activities to another member state.

Who will enforce the Regulation?

The UK has designated the Competition and Markets Authority (CMA) as its enforcement body. The CMA will handle civil claims by customers against traders for an ‘actionable breach’ under the UK Enforcement Regulations. An actionable breach is where a trader’s online geo-blocking has caused the customer loss or damage and is a breach of the duty owed by the trader to its customer. Customers should also be provided assistance to deal with any current or potential disputes.

Brexit and next steps

In the event that the UK leaves the EU, the Regulation will cease to have effect in the UK. However the withdrawal agreement is likely to ensure that the Regulation will apply (at least until the end of the transition period). Nevertheless, the extra-territorial effect will mean that a UK trader trading in the EU would still have to adhere to the Regulation and must not discriminate between different EU member state customers. It is therefore still a crucial consideration for cross-border traders with an online presence.

The impact of the Regulation will be reviewed on 23 March 2020 and every five years afterwards by the Commission as it recognises that there are often justifications for geo-blocking, restrictions and price variations (such as distribution agreements or legal reasons).

To ensure compliance with the Regulation, we suggest that businesses take the following key steps:

  • review their sales model and agreements with suppliers and distributors to ensure they do not geo-block or restrict passive sales;
  • complete an audit to check their website does not automatically geo-block or auto-direct customers without consent. If redirection software is used, a consent mechanism should be implemented;
  • provide an option on the website for customers to collect an order or arrange delivery themselves if they are outside the business’s delivery area; and
  • review their online payment mechanisms to determine if differential treatment is being imposed.  


[1] Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: A Digital Single Market Strategy for Europe, paragraph 2.1

[2] Joint statement by Vice-President Ansip, Commissioners Bienkowska and Gabriel following the European Parliament’s vote to end unjustified geo-blocking, Strasbourg, 6 February 2018.


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