14 December 2017

Straightjacket on cross-border sales restrictions further tightened

Recent developments at EU level seem to make it harder for companies to impose cross-border sales restrictions. Companies still have some flexibility, but dominant suppliers should be cautious, while non-dominant companies may be curbed by the proposed geo-blocking regulation when trying to restrict cross-border sales. All the more reason for businesses to keep close track of which rules apply to them and in what situation.

Geo-blocking refers to commercial practices by retailers and digital content providers to prevent online shoppers from purchasing consumer goods or accessing digital content services based on the shopper’s location or country of residence. For consumer goods, geo-blocking normally means a refusal to deliver abroad by, for instance, not accepting payment, or by re-routing and employing website access blocks.

Competition authorities have been actively tackling territorial restrictions such as geo-blocking. The European Commission has launched several investigations into the potential geo-blocking practices of certain video games sold online, pay-TV, clothing brands, licensed merchandise and hotel accommodation agreements allegedly discriminating between customers based on nationality or country of residence.

AB InBev’s conduct on the Belgian beer market is currently also under investigation. The Commission’s preliminary view is that AB InBev abused its dominant position in the Belgian beer market by hindering cheaper imports of two of its most popular brands of Belgian beer, Jupiler and Leffe, from the Netherlands and France into Belgium. If AB InBev’s practices are found to be unlawful on the basis of the abuse of dominance prohibition, this would significantly limit the possibility for dominant manufacturers in Europe to control cross-border sales. Sourcing products from the cheapest EU member state, which is a tactic mostly large multinational retailers will be able to adopt, will become much easier as a result. The Commission is particularly concerned about AB InBev’s following business practices:

  • changing the packaging of Jupiler and Leffe beer cans in the Netherlands and France to make it harder to sell them in Belgium, for example, by removing French text from its cans in the Netherlands, and Dutch text from its cans in France.
  • limiting access of Dutch retailers to key products and promotions to prevent them from bringing less expensive beer products to Belgium. AB InBev may have denied retailers in the Netherlands certain promotions where it suspected that the products would be exported to Belgium. Moreover, AB InBev may have limited the volumes supplied to those retailers for the same reason.

Cross-border sales restrictions can only be tackled by EU competition law if they either relate to a contractual restriction – and are thus linked to an agreement between a supplier and a distributor – or are based on a unilateral decision by a dominant company. Non-dominant companies with wholly-owned EU-wide distribution networks may therefore escape scot-free.

However – maybe not for long, due to a proposed regulation to combat unjustified geo-blocking. The proposed regulation would apply to the supply to end-users only, so the supply of goods or services by companies for resale purposes would remain subject to EU competition rules only. The regulation distinguishes between the following three situations where a supplier may not discriminate between end-users within the EU:

  • it sells goods to be delivered in a member state to which it already offers delivery, or the goods are collected by the end-user at an agreed location;
  • it provides to end-users electronically supplied services such as cloud services, data warehousing services, website hosting and the provision of firewalls;
  • it provides services which are received by the end-user at the supplier’s premises or at a physical location where the supplier operates; for example, hotel stays, sports events, car rental, entry tickets to music festivals or leisure park tickets.

Once confirmed by the EU Council and European Parliament, the regulation will enter into force nine months after its publication in the EU’s official journal.