Unlocking e-commerce via the Geoblocking Regulation

On 3 December 2018, another important building block of the European Commission’s Digital Single Market was put in place: the Geoblocking Regulation (2018/302) came into force throughout the EU.

In many ways, the regulation is an antidiscrimination measure, designed to safeguard the EU’s ‘internal market freedoms’.

It attempts to “realise the full potential of the internal market” (recital 1), with particular emphasis on the free movement of goods and services.

This will give a timely boost to e-commerce within the EU and, simultaneously, foster growth and increase consumer choice throughout the internal market (recital 2).

Increased e-commerce should also create “wider choice and optimal conditions” for EU consumers (recital 2).

Discriminate

Geoblocking refers to various practices whereby businesses discriminate against online customers based on their location.

For example, an e-trader operating in one EU member state may block or limit access to their ‘online interfaces’ (in essence, websites and apps) for customers from other member states wishing to engage in cross-border transactions.

Geoblocking also occurs when traders apply different general conditions of access to their goods/services to customers from other member states, both offline and online. Geo-filtering is another form of geoblocking.

Rerouted

There, a customer is rerouted from the ‘targeted’ website to a ‘local’ website, often with different content, offering, and prices.

In short, geoblocking encompasses commercial practices whereby a customer is being treated differently based on ‘geo-factors’, – that is, nationality, place of residence, or temporary location.

Unilateral decision

Geoblocking frequently occurs following a unilateral decision by a trader, but sometimes it is the result of a bilateral arrangement. This might occur in the context of distribution/licensing agreements.

For example, there may be a clause in such an agreement that restricts cross-border distribution of goods/services.

Besides potentially infringing the regulation, such a clause may also fall foul of EU competition law, in particular, article 101(1)(b) of the Treaty on the Functioning of the European Union, which refers to markets being limited by provisions in an agreement.

Geoblocking is achieved through technologies that determine the physical location of a customer.

This may be achieved either through the tracking of that location by means of an internet protocol (IP) address or coordinates obtained through a global navigation satellite system.

Objective and scope

The objective and scope of the regulation is set out in article 1. This provision states that the purpose of the regulation is “to contribute to the proper functioning of the internal market by preventing unjustified geoblocking and other forms of discrimination based directly or indirectly on the customer’s nationality, place or residence, or place of establishment”.

Unjustified geoblocking denies or limits access to goods or services by customers wishing to engage in cross-border transactions. Article 1(2) stipulates that the regulation only applies to transborder geoblocking.

In other words, it will not apply to “purely internal situations”, where all the relevant elements of the transaction are confined within a single member state.

Interestingly, unjustified geoblocking perpetrated by traders established in third countries (that is, non-EU countries such as Turkey) is also caught by the regulation, provided that customers within the EU are being affected by the trader’s actions (see recital 4).

Why geoblock?

Recital 2 of the regulation is illuminating in terms of why companies geoblock. It explains why microenterprises, and SMEs in particular, engage in geoblocking. Some reasons include:

• Divergent legal environments,
• The legal uncertainty of dealing with consumers from a different member state,
• The associated risks of dealing with the consumer protection laws of other jurisdictions,
• Catering for foreign environmental or labelling laws,
• Taxation and fiscal issues,
• Delivery costs, and
• Language considerations/requirements.

Rationale for the regulation

There is a strong nexus between the regulation and the Services Directive (2006/123/EC). The latter aims to realise the full potential of services markets in the EU by removing legal and administrative barriers to trade.

In particular, article 20 of the directive requires that EU member states ensure that service providers established within the EU do not treat recipients of services differently on the basis of nationality or place of residence.

However, recital 4 of the regulation makes clear that article 20 has not been fully effective in combating discrimination.

Nor has it sufficiently reduced legal uncertainty. One of the aims of the regulation is to further clarify article 20 by defining situations where different treatment based on nationality, place of residence, or place of establishment cannot be justified.

Where there is a conflict between the provisions of the regulation and the provisions of the directive, the former shall prevail.

The final European Commission Report on the E-Commerce Sector Inquiry (10 May 2017) is revelatory.

It helps explain why the regulation was needed. The report states that 36% of respondent retailers reported that they do not sell at least one of the relevant product categories in which they are active across their member state’s borders.

More pertinently, 38% of retailers collect information on the location of the customer in order to implement geoblocking measures.

The report established that the most common form of geoblocking in the EU was the refusal by traders to deliver goods to customers in other member states.

The second most common form was a refusal to accept payments from such customers.

Key terms

The regulation is relevant to cross-border e-commerce involving a ‘trader’ and a ‘customer’. These two important terms, along with that of ‘consumer’ are defined in the Regulation as follows:

• A ‘trader’ is defined as meaning “any natural person or any legal person, irrespective of whether privately or publicly owned, who is acting, including through any other person acting in the name or on behalf of the trader, for purposes relating to the trade, business, craft or profession of the trader”,
• A ‘customer’ is defined as “a consumer who is a national of, or has his or her place of residence in a member state, or an undertaking which has its place of establishment in a member state, and receives a service or purchases a good, or seeks to do so, within the union, for the sole purpose of end use”,
• A ‘consumer’ means “any natural person who is acting for purposes that are outside his or her trade, business, craft or profession”.

The main prohibitions are contained in articles 3 and 4 of the regulation.

Article 3 prohibits traders from using technological measures or otherwise to block or limit a customer’s access to the trader’s website for reasons related to the customer’s nationality place of residence or place of establishment.

In addition, traders are not permitted to redirect a customer to a different version of the trader’s website (for example, a different language version) unless the customer has explicitly consented to such redirection.

Under article 3(3), the prohibitions shall not apply where the blocking or limitation of access or the redirection is necessary in order to ensure compliance with a legal requirement laid down in union law or in the laws of a member state that accord with union law, to which the trader’s activities are subject.

Where such a situation occurs, the trader must provide a clear and specific explanation to customers regarding the reasons why the blocking or limitation of access or the redirection is necessary in order to ensure compliance.

The explanation must be in the language of the website (or other online interface) that the customer initially sought to access.

Access

Article 4 concerns access to goods or services. Article 4(1) prohibits traders from applying different general conditions of access to goods or services for reasons related to a customer’s nationality, place of residence, or place of establishment. The prohibition applies in three situations:

• Where the customer seeks to buy goods from a trader, these must be goods that are either deliverable to or collectable from a location within a member state to which the trader offers delivery or collection in the general conditions of access,
• Where the customer seeks to receive electronically supplied services from the trader, other than services the main feature of which is the provision of access to and use of copyright protected works,
• Where the customer seeks to receive services from the trader (other than electronically supplied services) in a physical location within the territory of a member state where the trader operates.

However, there are exceptions to the prohibition in article 4. Under article 4(2), traders may offer differing general conditions of access, to include net sales prices, between member states or even within a single member state.

But they must be offered to customers in a specific territory or to specific groups of customers on a non-discriminatory basis.

Enforcement

Article 7 requires each member state to designate a body responsible for enforcement of the regulation. In Ireland, the Competition and Consumer Protection Commission will take on that responsibility.

Article 7 also requires member states to adopt measures to counteract infringements of the regulation.

These measures must be “effective, proportionate, and dissuasive”. Article 8 requires member states to designate a body to provide practical assistance to consumers in the case of a dispute between a consumer and a trader arising from the application of the regulation.

In Ireland, the designated body is the European Consumer Centre.

Traders

Solicitors who act for traders engaged in cross-border e-commerce need to advise them to examine their online interfaces (websites and mobile applications) to ensure that they are not discriminating against customers based on their nationality or location.

In addition, solicitors need to be proactive and move to review clients’ commercial agreements (including terms and conditions of sale) to, once again, ensure that there is no discrimination against customers based on their nationality or location.

There are certain exceptions to the prohibitions contained in articles 3 and 4 of the regulation.

These exceptions provide solicitors with an opportunity to offer added value to their clients. Solicitors can take on a key role here by advising clients how to avail of the exceptions or how to ensure their commercial activities fall within the scope of one or more of the exceptions.

Guide

Last year, the European Commission helpfully published a practical ‘Questions and answers guide on the Geoblocking Regulation in the context of e-commerce’.

While this document is aimed principally at traders, customers/consumers, and the authorities in the member states who will enforce the regulation, it will also prove of use to lawyers, as it provides many practical examples of commercial activities that either come within or fall outside the scope of the regulation.

The guide also sets out the package of measures proposed by the commission to boost the potential for cross-border e-commerce in the EU.

One such measure is Regulation (EU) 2017/1128 on cross-border portability of online content services in the internal market.