13 December 2018

New regulation bans geo-blocking and discrimination in online EU sales

As of 3 December 2018, online customers can “shop like a local” throughout the EU, thanks to the new Geo-Blocking Regulation. “Foreign” online customers must be able to take advantage of both the same prices and conditions for the delivery of goods and services, as well as the same payment options available to local customers in the trader’s home member state. It has been estimated that 68% of online shoppers in the EU will benefit from the new rules. This will affect how businesses sell their goods and services online across national borders. While questions about the precise interpretation and application of the new rules remain, national legislatures will soon have to determine the level of sanctions applicable to those companies that side-step the rules, and to allow national authorities to investigate any complaints. We take a deeper look at the potential impact on online businesses.

According to the European Commission, geo-blocking is a discriminatory practice that prevents online customers from purchasing products or services from a website based in another member state. Geo-blocking can take various forms. Its most prevalent form is denying customers located in another member state from accessing a web shop, or redirecting the visitor to the visitor’s “own national” website based on the visitor’s IP-address. The Geo-Blocking Regulation prohibits this. However, where a trader delivers goods or provides services via a site targeted at a different country than that of the cross-border customer, the situation differs. The Geo-Blocking Regulation prohibits different treatment of customers for reasons related to the nationality, place of residence or temporary location of the consumer, but does not require traders to deliver goods across borders if they only offer national delivery or pick-up points. The regulation implies that access to equal conditions also extends to all general terms and conditions and that it includes the net sales price. While the aim of the regulation is not to harmonise prices, it remains to be seen whether this will be its effect in practice. The new rules also target any form of discrimination arising by virtue of payment method restrictions.

While the new regulation is an outcome of the Commission’s increased efforts in the digital sector, it also affects brick-and-mortar shops. Geo-discrimination may also take place “offline”, when consumers are physically present at the trader’s location but are either prevented from accessing a product or service or are offered different conditions due to their nationality or residence. It may also take place when online and offline channels are integrated, also known as “omni-channels”, where products or services may be bought in advance online or in-store. Services in the field of transport, retail or other financial services, and audio-visual services are excluded from the scope of the regulation.

The regulation is directed at traders. The question of how to interpret the term “trader”, however, remains. According to the definition in the regulation, every separate legal entity could be regarded as a separate trader, even if two or more legal entities are affiliated and belong to the same group. Based on that interpretation, two affiliated companies are two separate traders if they both operate their group’s web shop under the same trademark name and with the same products, delivered only in their “home” country. For example, a German GmbH exploiting the trademark.de-domain and only delivering in Germany and a Dutch B.V. exploiting the trademark.nl-domain only delivering in the Netherlands, would not be required to deliver to a customer in the Netherlands if the order was placed on the German website. The same traders would be under such an obligation if a “trader” is interpreted as the group as a whole.

The regulation does not specify which sanctions or penalties apply to traders infringing its provisions, nor which agencies are tasked with enforcing them. It is entirely up to each member state to ensure that effective, proportionate and dissuasive measures can be taken against infringing traders. In the Netherlands, a bill has been put forward which proposes appointing the Authority for Consumers and Markets (ACM), the Dutch competition authority, as the enforcement agency under Dutch consumer protection legislation. On the basis of that legislation, the ACM can fine an infringer by the greater of EUR 900,000 or 1% of the infringer’s worldwide turnover. Although the regulation is already in force, the bill is still pending in parliament.

After Brexit, it is likely that UK residents or undertakings will not be able to benefit from the Geo-Blocking Regulation and be able to “shop like a local” in the EU, whereas UK traders operating within the EU will have to comply with the regulation.

Sitting at the crossroads between competition regulation and consumer protection, the Geo-Blocking Regulation is the EU regulator’s answer to what it perceives as a high degree of fragmentation of the internal digital market. The estimated costs to the EU economy of this practice exceed EUR 415 billion per year. A two-year investigation of the e-commerce sector has found that only 37% of websites allow customers from another member state to reach the final step of the ordering process (in 2015). The Commission has presented the new rules as part of a bundle of legislative proposals covering topics like cross-border parcel delivery services and a rehaul of the consumer protection cooperation regulation. But the full extent of the EU’s efforts to harmonise the digital sector reach further and include the new General Data Protection Regulation, the abolition of roaming surcharges and the portability of digital content.

The Commission will carry out a first evaluation of the new rules’ impact on the internal market before March 2020. The evaluation will focus on working out a possible expansion of the rules to cover certain electronically supplied services which offer copyrighted content, such as downloadable music, e-books, software and online games, and services in sectors such as transport and audio-visual.

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