Executive summary

• Following publication of proposals in 2016, the European Parliament, Council and Commission have reached political agreement to end so called geo-blocking practices for online consumers of products and services within the EU
• In high level terms, geo-blocking includes any measures to restrict or redirect online consumer access on the basis of nationality, residence and/or temporary location
• The new rules seek to enhance consumer access and encourage pan-EU cross shopping through removal of barriers to access, and closer harmonisation of terms of use, across the Union
• The European Commission intends to publish a draft Regulation in early 2018, with the finalised text to become directly applicable across the Union, nine months later
• Developments in this area will be of key interest to all online retailers of goods and services, operating within the Single Market

In brief

If the EU is a true Single Market, findings of a late 2016 European Council (EC) study suggest the Union has some way to go in removing cross-border trade barriers, at least within the online space.

Geo-blocking, or the practice of consumer discrimination in respect of access and/or price based on a customer’s nationality, residence and/or temporary location remains, by the EU’s own figures, a feature of some 63% of ecommerce sites ¹.  Concerns abound across Member States, that these types of access restrictions severely curtail necessary competition, and stifle critical innovation in an EU Single Market eager to address an increasingly digital customer base.

In November 2017, the EC confirmed an agreement to ban unjustified geo-blocking, paving the way for draft regulation in this space. Despite 2018’s likely lively European legislative agenda, the EC has made clear its intention to have draft regulation together towards the start of the year, with finalised text becoming applicable nine months later.

Developments in this space are of key (and pressing) interest to all online retailers of goods and services, operating within the Single Market, and come at a time of dramatically increased transparency requirements for online retailer assessment and profiling of customers (against characteristics including those above) ahead of May’s General Data Protection Regulation (GDPR) introduction.

Background

Introduction of geo-blocking regulation closely follows recent Union efforts to smooth some of the rougher edges of the cross-EU consumer experience (similar moves including those to end cellular roaming charges and legislation to provide cross-border portability of online subscriptions and access to TV programmes). Efforts to alleviate online commercial friction represent a key pillar of the Union’s broader Digital Single Market (DSM) strategy.

Whilst existing EU law (in the shape of Directive 2006/123/EC) provides general, non-specific prohibition of consumer discrimination, the EC appears to have taken the view that online leadership in this area requires more bespoke (and correspondingly direct) legislation.

Cross shopping/ cross-border

Whilst a formal draft remains forthcoming (an early 2016 Proposal for Regulation can be accessed here), the EC has signalled the draft Regulation will define three specific situations “where no justification and no objective criteria for a different treatment between customers from different EU Member States are conceivable from the outset”, being:

• The sale of goods (without physical delivery). e.g. an Austrian consumer wishing to purchase running shoes, finding the most attractive deal (for collection) on a German website.
• The sale of electronically supplied services. e.g. a French consumer wishing to acquire hosting services for a website from an Italian company.
• The sale of services provided in a specific physical location. e.g. a Spanish family wishing to purchase theatre tickets for a performance in France, without being redirected to a Spanish website.

Importantly, the draft Regulation will not require a retailer to sell a product or service, and will not directly mandate price harmonisation. The draft Regulation will however target and prohibit retailer restrictions which cannot be justified by other, objective requirements (e.g. taxation or local laws).

In addition, the draft Regulation will attempt to ease the extent to which EU consumers may make cross-border use of credit cards, by preventing retailers from applying different payment conditions based on a customer’s residence. In effect prohibiting a retailer (under certain circumstances) from accepting only credit card payments from specific Member States. Simplifying (and reducing the cost of) cross-border credit card payments, follows recent EU moves to cap interchange fees for card-based payments (Regulation 2015/751), and is again indicative of a clear direction of travel, under the DSM strategy. This comes in addition to rules introduced under PSD2 (Directive 2015/2366), which, from January this year, banned credit and debit card surcharges for consumer transactions.

Whilst developments in relation to credit cards payments are (and will likely continue) to prove significant here, it should be noted that the draft Regulation will not represent a blanket requirement for retailers to accept any credit card transaction, under any circumstances.  Retailers will continue to be free to decide which means of payment are acceptable, in relation to local vs. other Member State customers.

Impact for retailers – physical goods

Whilst geo-blocking undoubtedly represents a significant compliance consideration, retailers of physical goods should be reassured that neither 2016’s proposal (nor likely 2018’s draft Regulation) make any attempt to:

• directly require pricing harmonisation; or
• require a retailer to ship products cross-border (if this is not a service routinely offered).

The forthcoming draft however will:

• prohibit retailers from denying access or rerouting a customer to a specific regional iteration of an ecommerce site, based purely on factors of nationality, place of residence or geographic location (blocking/ rerouting on other grounds, such as relevant local laws and restrictions will remain valid); and will
• oblige retailers to permit customers from any EU Member State to purchase products from iterations of the retailer’s sites based in any other EU Member State (unless, as above, other relevant local laws or restrictions apply).

In practical terms, this raises an interesting dilemma, cross-border shipping of physical product is not in-and-of itself required under the Regulation, yet a consumer cannot be prohibited from making a cross-border purchase. Therefore, whilst an Austrian customer may be able to purchase running shoes from a German website, how, in practice, would these goods be obtained?

The EC takes a pragmatic approach here, indicating “the customer will be entitled to order the product and collect it at the trader’s premises [if this is a service offered by the retailer] or organise delivery himself to his home [through his or her own shipping arrangements]”. In practice therefore, whilst a committed cross-border cross-shopper could purchase products (sporting or otherwise) from a Member State of choice, practicality (and likely cost) may prove significant barriers.

Interestingly, logistics & distribution providers and the EC appear to have identified a potential market opportunity for pan-EU consumer shipping solutions, with the EC recently bringing forwards a Proposal to simplify cross-border parcel delivery services. As things stand in Q1 2018 however, pan-national Member State shopping for goods at retailers without existing cross-EU shipping provisions seems likely a more attractive proposition on paper, than in practice.

Impact for retailers – digital goods and services

While regulation in this space raises considerations for retailers of physical product, providers of online services are likely to feel a more acute impact (largely if not solely, as a result of the nature of digital goods and services). In simple terms, providing a pan-EU market for digital goods and services, free from access and (most) price restrictions/variations, opens the door to potentially friction free pan-EU (digital) cross shopping.

In respect of digital goods and services, the draft Regulation will likely:

• mandate unification of access arrangements unless variations are not solely based on factors of nationality, residence and/or temporary location; and
• require retailers to provide harmonised terms of use (including pre-tax pricing) to all EU customers.

For the first time, an EU customer, enjoying the same rights of access and pricing arrangements as any local customer will be permitted to cross shop digital music, e-books, video games and software, across the Single Market. Whilst these developments are clearly significant to any retailer of digital product, it is important to recognise the impact of the draft Regulation will be softened somewhat by significant carve outs, namely:

• provision of financial, transportation, electronic communications, healthcare, audio-visual and broadcasting services are entirely excluded;
• the draft Regulation will not alleviate or supersede a retailer’s obligation to obtain appropriate IP and other rights to distribute digital content across the Single Market, as required (e.g. a retailer will still require appropriate licencing to sell a specific e-book or album in a specific Member State); and
• the draft Regulation will not represent a requirement for retailers to comply with local laws and regulations in every Member State, simply as a result of lifting access restrictions to digital goods or service, unless the retailer “pursues…or directs” (read, directly targets) customers in those Member States (a no doubt significant multi-jurisdictional compliance relief).

Despite these restrictions, the draft Regulation represents a significant compliance consideration for all retailers of online goods and services. In time, dramatically improved consumer access, across the EU, may lead to near complete price parity across digital platforms and emergence of pan-EU price comparison providers.

Looking forwards, action points

As with all things DSM, moves to prohibit geo-blocking speak to both core EU values of open access, in addition to more contemporary EC concerns of modernisation, within the Single Market.

In addition, the draft Regulation may prove an interesting compliment to legislation in the privacy space, including the GDPR, which seeks to provide EU consumers with better transparency of and control over circumstances in which profiling (using characteristics including location and/or nationality) significantly impacts upon an individual.

• For retailers, the draft Regulation requires meaningful address of key questions:
• do we engage in geo-blocking practices? (either through re-direction or access restriction);
• if so, how is this technically achieved? (IP location, credit card details etc.);
• can our practices be justified by national law or regulation? (e.g. price variation in accordance with local VAT/ sales tax requirements);
• should changes be required to process, policy and/ or supplier arrangements, how might these be implemented, technically and organisationally?
• to what extent should we consideration the wider privacy, monitoring and profiling implications of our online activities?

 

¹http://ec.europa.eu/consumers/consumer_evidence/market_studies/geoblocking/index_en.htm#related_documents

 

• Share this blog

• Twitter
• Facebook
• Linkedin