On 26 May 2016 the European Commission published a draft proposal to address geo-blocking and other forms of discrimination (the Regulation) where a trader is providing goods or services across the border of one or more EU member state to a customer that does not then resell them. The Regulation has been drawn up as part of the Digital Single Market Strategy, which aims to remove barriers to online trade within the EU and strengthen the Single Market.
The aim of the Regulation is to minimise geo-blocking, which occurs when businesses and online retailers apply barriers and impose restrictions to consumers based on their nationality or place of residence. Examples include blocking access to websites across borders, or denying the possibility to complete an order to purchase goods or download content when accessing a website from abroad. The Regulation also covers temporary visitors to an EU member state.
Will the Regulation have the effect of taking us back to the days before geo-blocking became widespread when we could pick and choose between different country-specific websites to buy airline tickets, clothes, and so on from pan-European traders?
- 6 May 2015: DSM Strategy and a sector inquiry into e-commerce sector launched.
- September 2015: Launch of consultation on barriers to the single market from geo-blocking and other restrictions.
- Late 2015/early 2016: Replies to phase 1 of e-commerce sector inquiry received.
- 18 March 2016: Geo-blocking issues paper released with initial findings of the inquiry. Such findings include that most geo-blocking is implemented by consumer goods retailers unilaterally (usually to avoid the cost of e.g. setting up territory-specific websites) and that around two-thirds of digital content providers apply territory-based geo-blocking (as opposed to e.g. preventing account sign-up).
- 26 May 2016: Publication of the Regulation in draft form.
In addition to Articles 1 and 2, which set out the objective, definitions and scope of the Regulation (to exclude audio-visual services such as films, TV programmes, radio and sports broadcasts), other key Articles specify the following:
- A prohibition on blocking or limiting access to online interfaces (that is, an app or website platform) on the grounds of nationality or place of residence. Redirection to a different version of online interface is also prohibited, unless the customer gives explicit consent and the trader provides clear justification. It is not yet clear what form such explicit consent must take; pop-ups similar to those used when applying cookies may be acceptable. If there is redirection, the original version of the website must remain easily accessible.
- Different general conditions of access to goods and services may not be applied in respect of cross-border supplies. However, businesses that do not already do so will not be required to deliver cross-border. The Regulation also acknowledges that some products may not be available to customers in some member states due to the fact that the trader does not hold the necessary IP rights to sell such product in such states. For example, a publisher of an ebook may not hold the rights to publish such ebooks within the whole of the EU, just the UK. Along with other exceptions set out in the Regulation, for many this marks a retreat from the zero-tolerance line that it was originally thought might be adopted.
- The Regulation requires a level playing field for the terms and conditions that apply to sales; so, terms that apply to one territory and not another may contravene the Regulation (unless one of the exceptions apply).
- Traders cannot apply different conditions of payment relating to the provision of goods or services if electronic payment cards are used. This applies if payment is already accepted by a trader in a particular currency. Transactional charges may be applied, but this has to be on grounds that can be objectively justified, such as the high cost of delivering cross-border.
- Article 6 of the Regulation states that passive (i.e. unsolicited) sales shall automatically be void. Unilateral behaviour by non-dominant companies is not directly addressed by the current competition law regime – although there is overlap with the restrictions of passive sales codified within such framework. More work will need to be done before the Regulation is adopted to ensure that any intended or unintended encroachment of the provisions of EU competition law is proportionate. As currently drafted the Regulation has the potential to undermine certain exceptions in the Vertical Agreements Block Exemption, which allow passive sales restrictions in certain circumstances.
The draft Regulation is currently undergoing review by the European Parliament and the Council of the European Union and may be implemented as early as 2017. In terms of how the timings of implementation might impact the UK following Brexit, at this time it is difficult to know if the Regulation will be adopted at national level either in whole or part (or, if it is implemented prior to Brexit, if it will be repealed either in whole or part following Brexit). As with other EU legislation, the Regulation is designed to apply to EU and non-EU trade - although the question of enforcement is as relevant to non-EU countries as it has been with such other EU legislation.
It may be that businesses operating from a post-Brexit UK (and not elsewhere in Europe) that are not bound to apply the Regulation nevertheless find themselves driven by market forces to compete with businesses allowing their customers the freedom to look at websites in other territories.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at August 2016. Specific advice should be sought for specific cases. For more information see our terms & conditions.