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The European Council bans unjustified geoblocking

The European Council's ban on unjustified geoblocking - what key practical concerns are there and how have they been addressed?

On 28 November 2016, the European Council agreed a draft regulation to ban unjustified geoblocking between Member States (the ‘Regulation’). The Regulation retains all the main features of the draft released by the Council in May last year. However, as Nick Fenner, Partner at TLT LLP explains, a number of practical concerns for online sellers have now been addressed, with the intention of providing increased clarity and assurance for businesses in Digital Business Lawyer. The Regulation is due to be in force by the end of this year.  

Background

The main objective of the proposed Regulation is to prevent discrimination for consumers and companies when purchasing goods or services in another EU Member State based on nationality or place of residence. Peter Ziga, the President of the Council and Minister of Economy of Slovakia announced: “Shopping online from another EU country in the same way as locals do is something that many citizens expect nowadays. The new rules to stop unjustified geoblocking will improve considerably the e-commerce economy and give citizens access to a wider choice of goods and services.” Banning unjustified geoblocking is a central feature of the European Commission’s Digital Single Market strategy (‘DSM’). Negotiations will now start between the Council, the European Parliament and the Commission. The Commission envisages that the Regulation will come into force in EU Member States before the end of 2017. 

Key features

Under the Regulation, traders based in the EU will not be able to block or limit access to their online interfaces even where the business operates country specific online portals. There are also specific situations where traders cannot impose different pricing or payment terms based on nationality or place of residence of the purchaser. Audiovisual content services, including sports broadcasts, remain outside the scope of the Regulation as do retail financial services.

For practical reasons it is anticipated that the rules against unjustified geoblocking will initially be most effective for:

  • services such as car hire, accommodation and event booking where customers may book from abroad but then receive delivery of a service where the trader is located as there is no additional cost for the trader in delivering those services to a cross-border purchaser; and
  • electronically provided services such as cloud services, data services, selling of copyright protected works in intangible form, eBooks and online music where no physical delivery is required and returns and servicing is unlikely to be an issue as the goods are of a uniform quality.

The Regulation published at the end of last year contains a number of clarifications for the benefit of businesses. The key clarifications which will be welcomed by online traders are summarised below.

What remains permissible?

Price differentiation

Unlike price discrimination, price differentiation will not be prohibited. Traders are free to offer different general conditions of access, including prices, and to target certain groups of customers in specific territories. This means an online trader can set up a website targeting promotions at a specific country including different prices and terms, providing those offers may be accessed by all customers regardless of location. In reality language may mean that in practice only those located in the target location take up the offer. 

No obligation for business to support cross-border sales

Traders are not obliged to offer the same after sales services or customer assistance, or to incur additional delivery or returns costs outside the country where delivery is offered. There is no obligation for traders to offer to deliver to every EU country. A customer from a different EU country must be permitted to purchase goods or services if they can arrange collection from a location to which the trader offers delivery. 

Avoiding unintended consequences

Jurisdiction

A trader shall not be deemed, for the purpose of deciding governing law and jurisdiction, to be directing its activities towards a customer in an EU country just by making its website accessible to a customer in that country in compliance with the Regulation. 

Payment methods

The previous draft of the Regulation made it clear that traders were not able to refuse certain methods of payment based on location of the customer. The latest draft of the Regulation makes it clear that the trader can still choose what exact methods of payment to accept. The Regulation does not prevent the trader refusing to accept payment with a card of a different brand from the brand of card it accepts, or refusing a credit card despite accepting a debit card of the same brand.

Enforcement

The previous draft required each EU Member State to provide rules on the ‘penalties’ for non-compliance. This has been softened to a requirement to put in place ‘effective measures’ to ensure compliance, suggesting a lighter touch may be anticipated in some EU Member States towards enforcement. 

Operational issues 

Single opt-out

Traders are permitted to operate different online interfaces targeted at users in different countries. However a customer should not be automatically re-directed to a different country site without their express consent. The latest draft of the Regulation helps businesses by now making it clear that once a customer has consented to the transfer for the first time a further consent is not required each time the customer visits that overseas site.

Authorised discrimination on payment terms 

In recognition that payment authentication is not so strong in some countries traders are entitled to withhold goods or services until the trader is satisfied that a payment transaction has been properly initiated where no alternative form of authentication is available. 

Recognition and clarification of exceptions

Exceptions

The Regulation now refers to the regulation of ‘unjustified’ geoblocking. This change in the title of the Regulation acknowledges the exceptions provided for in the Regulation in which geoblocking is justified and permissible. 

Restrictions on cross-border sales 

EU competition law treats the EU as a single market and does not generally permit terms in a supply chain agreement which restrict a retailer from making passive sales in response to sales enquiries from another country within the EU (i.e. sales where the trader does not actively solicit the customer's business). However in the limited circumstances where such restrictions are made in accordance with EU competition law then the Regulation will not force the seller to offer those goods or services cross-border. 

Cross-border only

The Regulation does not apply to transactions that take place with a single EU country with no cross-border element.

Resale

Geoblocking is justified where goods are being purchased for re-sale, rather than for end use, recognising that businesses often operate exclusive distribution schemes negotiated bi-laterally. 

Packaged services

Where a package of goods and services or a package of services includes a service that is outside the scope of the Regulation such as the supply of audiovisual services, whether such package is exempt shall be determined by its principal purpose or objective. For example, a trader could not claim its cloud storage service was exempt just because it also provided subscribers with some audio visual content as part of the package. 

Summary

The latest draft of the Regulation appears to have been prepared to assist businesses in implementing the new rules against geoblocking and avoiding creating additional administrative or cost burdens. It has been drafted to be more business friendly. By spelling out in the preamble to the Directive certain activities that are specifically permitted and not subject to the Regulation (e.g. transactions that are not cross-border are outside its scope) and by softening the enforcement provisions this latest version of the Regulation should help achieve the desired balance between benefits for the consumer and workable solutions for business.

Originally published by Digital Business Lawyer on 16 January 2017 

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at February 2017. Specific advice should be sought for specific cases. For more information see our terms & conditions.


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