What does the impending Geo-blocking regulation mean for retailers?

4th October 2018

The Geo-blocking Regulation, which is part of the EU’s Digital Single Market Strategy, comes into force on 3 December 2018. The new regulation will prevent businesses from discriminating between customers visiting their online sites in terms of access to prices, sales or payment conditions where the discrimination is based on their nationality, place of residence or place of establishment within the EU.

Currently businesses are able to block customers from accessing online shops and refuse to sell to them. This will change with the regulation, and provide customers with better cross-border access to goods and services within the EU.

Geo-blocking prevents customers from accessing and purchasing a product or service from a website based in another EU Member State, automatically re-routes a customer to a local site or a practice that refuses delivery or payment based on the location or place of residence of the customer.

Which businesses are subject to the Regulation?

The Regulation is relevant for retailers selling goods or services in any EU member state, whether the business is an individual or a corporate entity and irrespective of whether the business is public or privately owned. It applies to all businesses offering their goods or services in the EU, regardless of whether that business is established in the EU or in another country. Online marketplaces are also covered if they act as a trader, rather than acting on behalf of another business.

Which transactions are covered?

The Regulation applies to business-to-consumer transactions where the consumer is an EU national or a non-EU national resident in the EU. It also applies to a limited extent to business to business transactions if they take place on the basis of general conditions of access and the transaction is for the sole purpose of end use by the business customer.

What is outside scope?

Some activities are excluded from scope of the Regulation, such as audio-visual, retail financial services, healthcare services or other social services and transport. Other activities are subject only to some of the Regulation’s prohibitions and not to others.

What does the Regulation prohibit?

Access to websites

The Regulation prohibits retailers from:

  • blocking access to their websites to customers for reasons related to their nationality, place of residence or establishment
  • redirecting customers to a version of their website that is different from the website that the customer originally tried to access, unless the customer gives explicit consent prior to redirection.

The aim is to increase price transparency by allowing customers to access different national websites. However, it does not apply where the blocking, limiting access, or if redirection is necessary in order to ensure compliance with a legal requirement in EU law - which the business seller’s activities are subject to. Retailers must provide a clear and specific explanation to customers why their access is being blocked.

Businesses remain allowed to differentiate offers and targeting activities to specific Member States or certain groups of customers.

Use of discriminatory general terms and conditions

When buying online, foreign customers should have access to the same general terms and conditions as local customers and therefore businesses will not be able to discriminate between customers with regard to their general T&Cs, including prices[1]. However, this does not prevent businesses from offering general conditions of access which differ between Member States or within a member state, provided they are offered to customers in a specific territory or to specific groups of customers on a non-discriminatory basis.  Any differences must be justified and if not, the business will have to provide uniform terms to all cross border EU customers in their general T&Cs.

The Regulation does not apply to T&Cs that are individually negotiated between a business and its customer.

Payment discrimination

While retailers remain free to choose their preferred payment methods, they will not be able to reject or otherwise discriminate against customers throughout the EU with regard to payment conditions based on:

  • nationality
  • place of residence or establishment
  • location of the payment account, the place of establishment of the payment service provider or the place of issue of the payment instrument.

Differential treatment is also prohibited if three conditions are met:

  • payments are made through electronic transactions by credit transfer, direct debit or card-based payment instrument within the same brand and category
  • strong authentication requirements are available
  • the payments are in a currency that the trader accepts.

Current proposals are that EU regulations already in force in the UK at the date of exit from the EU will become UK domestic law. However, amendments will need to be made for the Regulation to make sense as a stand-alone domestic UK regulation.

Delivery obligations

The Regulation doesn’t require retailers to deliver anywhere in the EU. A business who has decided to only deliver domestically can continue to do so but customers from other member states must still be able to order goods if they can provide a delivery address in the business’s member state or agree to pick up the goods there (if the business offers this option).

Passive sales clauses

Passive sales restrictions in supply arrangements will be affected by the Regulation. If these agreements stipulate that a business must not sell goods to customers located beyond an agreed territory, thereby imposing restrictions on passive sales, this provision will be void under the Regulation. This is to catch geo-blocking that arises as a result of contractual obligations placed on a business (eg when it is appointed as a distributor or licensee) as well as geo-blocking that arises because of actions by that business when it sells to its own customers. 

In practice this means that restrictions on passive sales need to be assessed not only from a competition law perspective but also as to whether they amount to geo-blocking under the Regulation. 

Impact of Brexit?

Current proposals are that EU regulations already in force in the UK at the date of exit from the EU will become UK domestic law. However, amendments will need to be made for the Regulation to make sense as a stand-alone domestic UK regulation.

Current negotiating proposals are for a transitional period to follow from date of exit, from 30 March 2019 until 31 December 2020, during which time all EU law will continue to be fully applicable to the UK. If these proposals are agreed and duly ratified by both the UK and the EU, the Regulation will continue to apply to the UK until 31 December 2020.

Post transition, compliance of the Regulation will depend on what arrangements are agreed between the UK and the EU in terms of a free trade agreement. A free trade agreement with all goods on a zero tariff basis which would mean that cross border activities between the UK and the EU would need to comply with EU rules on non-discrimination in order to maintain a level playing field.

If no such agreement is reached, then the position would be:

  • an EU 27 retailer could block, limit or redirect UK customers to specific versions of their  website;
  • UK customers will not be able to benefit from the “shop like a local” principle of the Regulation and therefore not be able to benefit from the same prices and conditions relating to delivery as EU locals. EU 27 retailers would be able to apply different conditions for a payment transaction from the ones offered to EU 27 customers
  • as the Regulation applies to all traders operating within the EU, regardless of whether they are established in the EU or another country, the European Commission has stated that a business established in the UK which offers its goods or services to customers in the EU will continue to be bound by the Regulation in respect of those activities.

What should retailers do before 3 December 2018?

There a number of activities retailers should start to consider to ensure they are compliant to the Regulation by 3 October. These include:

Review access to websites: review current online interfaces to check that they do not need modification, for example auto-forwarding. Technical adaptations may be required to allow EU customers to purchase goods from any local version of a retailer’s sales website.

Review current general terms and conditions: review these for any terms that might be discriminatory under the Regulation. Consider whether new terms are needed that distinguish between business customers who are end users of the product (and therefore subject to the Regulation) from business customers who are not end users.

Review distribution and other supply arrangements: check these for any passive sales restrictions that might be made unenforceable by the Regulation.

For more information about the Geo-blocking regulation and to discuss what steps your business needs to take please contact Tom Bridgford.

[1]  These are (1) where the customer seeks to buy goods from the business and either those goods are delivered to a location in a member state to which the business offers delivery under its general terms and conditions of access or those goods are collected at a location agreed between the business and the customer in a member state in which the business offers such an option (2) where the business sells electronically supplied services or (3) where the business sells services other than electronically supplied services to be supplied at a physical location within the member state of the business.

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