According to the Digital Economy and Society Index 2018, 68% of internet users in the EU shopped online in 2017. However, a European Commission survey in 2015 indicated that just 37% of EU shopping websites allow consumers shopping from another Member State to reach the point of confirming their orders. The Commission has also shared that it regularly receives complaints involving cases of different treatment due to a customer's nationality, place of residence or place of establishment in relation to online shopping.
In order to combat these issues of geo-discrimination, the Geo-blocking Regulation (EU) 2018/302 entered into force on 3 December 2018, as part of the Commission's Digital Single Market Strategy, which aims to break down barriers to cross-border online activity.
Geo-blocking in relation to online sales is clearly a key focus for the Commission, with it announcing on 17 December fines for Guess totalling €39,821 arising out of its distribution agreements relating to certain restrictions on cross-border sales (we will report more on this in the next edition of Brand Matters) – a decision which the Commission described as 'complementing' the Geo-Blocking Regulation.
The Regulation aims to widen customer choice and access to goods and services. For traders, the significant takeaways are:
- Traders must not block or limit a customer's access to its online interface due to that customer's nationality, place of residence or place of establishment.
- In certain circumstances, traders must not differentiate the terms of access between customers based on that customer's nationality, place of residence or place of establishment.
- Traders must not discriminate between card-based electronic transactions where the authentication requirements are fulfilled and which are in a currency accepted by the trader.
- Suppliers cannot contractually prevent a trader from accepting sales from outside their own Member State in response to an unsolicited request by a customer in situations covered by the Regulation.
What is geo-blocking?
Geo-blocking refers to e-commerce practices employed by online sellers which restrict online cross-border sales of goods and services based on nationality, residence or place of establishment. These practices include denying access to websites from other Member States, rerouting customers to their 'local' website, and customers being subjected to less favourable treatment.
What falls within the scope of the Regulation?
The Regulation covers:
- Access to online interfaces, such as websites or mobile phone apps
- Access to goods or services
- Non-discrimination for reasons related to payment
- Agreements on passive sales
The Regulation does not apply to:
- Audio-visual services
- Retail financial services
The Commission is obliged to regularly report on the application of the Regulation with the first review due to take place by 23 March 2020 and then every five years subsequently. The Commission will analyse whether any remaining restrictions should be removed in other sectors, including those currently excluded from the scope of the Regulation.
Access to online interfaces
A trader must not block or limit a customer's access to its online interface due to that customer's nationality, place of residence or place of establishment. Traders are also prohibited from rerouting a customer to a version of its website that is different in terms of layout, language, or other characteristics which reflect the customer's nationality, place of residence or place of establishment. However, re-routing will be possible where the trader seeks the customer's explicit consent. In principle, the customer has the right to access all versions of a trader's website.
Access to goods or services
The Regulation recognises three situations in which traders cannot justify applying different conditions of access to goods or services, for reasons related to a customer's nationality, place of residence or place of establishment. These are where the customer seeks to:
- Buy goods from a trader who offers delivery or collection of goods in a Member State. However, the trader is not obliged to deliver cross-border to the customer's Member State, or to set up pick-up points for their goods in other countries.
- Receive electronically supplied services from the trader, for example, cloud services.
- Receive services in a specific physical location within a Member State where the trader operates.
Non-discrimination relating to payments
Traders must not discriminate between card-based electronic transactions where the authentication requirements are fulfilled and which are in a currency accepted by the trader. Traders are still free to decide which means of payment to accept but, once they have selected authentication requirements and currency, they must not then discriminate against customers within the EU by refusing transactions or applying different payment conditions based on the customer's nationality, place of residence or establishment.
However, this does not mean that traders will have to accept all types of cards from other EU countries. For example, simply because a trader accepts debit cards of a certain brand, will not mean they must accept credit cards of the same brand.
Agreements on passive sales
A supplier cannot contractually prevent a trader from accepting passive sales (sales in response to an unsolicited request by a customer) in situations covered by the Regulation. Contractual restrictions of passive sales are automatically void to the extent they fall within the scope of the Regulation.
Does the Regulation apply to you?
The Regulation applies to all traders (including any person acting on behalf of the trader) offering their goods and services to customers (which includes business customers) in the EU. This applies regardless of whether the trader is established in the EU or in a non-EU country. Traders established in non-EU countries that operate in the EU are therefore subject to the Regulation.
What about Brexit?
On 12 October 2018, the UK government published a notice clarifying its plans in relation to the Regulation in the event of a 'No Deal' Brexit. The guidance states that, if no deal is reached, the Regulation will no longer have effect in UK law. This means that both UK and EU traders will no longer be prohibited from, for example, discriminating between EU and UK customers based on nationality.
However, as the Regulation applies to all traders offering their goods and services to customers in the EU irrespective of whether they are established in the EU, UK traders operating in the EU will be subject to the Regulation and will therefore still not be able to discriminate between, for example, a French and a Spanish customer.
Practicality: what do traders need to do?
- While the Regulation is not intended to regulate or harmonise pricing as such, in the circumstances set out above, traders should consider the terms of access they offer to EU customers, in particular pricing models and policies, to check that they do not unjustifiably differentiate between customers within the EU based on location.
- Check whether changes need to be made to the website in order to comply with the Regulation. For example, remove blocks/ limits to customer access based on nationality, place of residence or establishment.
- Review distribution and licensing agreements to ensure they are free from restrictions on passive sales in breach of the Regulation.