On 6 February 2018 MEPs finally approved the geo-blocking regulation (Regulation on addressing geo-blocking and other forms of discrimination based on customers' nationality, place of residence or place of establishment within the internal market the wording approved by the European Parliament is available at this link). The geo-blocking regulation aims to ban geo-blocking and other geographically-based restrictions, which, in the Commission's view, undermine online shopping and cross-border sales within the EU and thus the Digital Single Market.
Pursuant to the regulation, traders serving end-customers (including both B2C and B2B customers) within the EU must not discriminate in their general terms and conditions (GTCs) for reasons related to the nationality, place of residence or place of establishment (geo-factors) of the customer in specific situations. These situations refer to:
- the sale of goods without physical delivery (ie retailers will not be forced to offer cross-border deliveries);
- the sale of electronically supplied services (such as cloud services, web hosting, excluding, copyrighted content like films, music etc); and
- the sale of services provided in a specific physical location (eg event tickets).
The regulation also:
- makes it mandatory for traders (including marketplaces) to grant cross-border customers access to country-specific sites and refrain from automatic re-routing without the consent of the customer; and
- limits the possibility for traders (of both goods and services) to apply different conditions for a payment transaction, for instance if the trader accepts payment by credit card, it will (under certain conditions) not be lawful to accept only credit cards issued in a certain member state.
Aside from the non-discrimination rules described above, the regulation also affects passive sales clauses, for example in distribution/licensing agreements. Passive sales clauses imposing obligations on traders to act in violation of the non-discrimination rules described above are automatically void. Further sanctions may be imposed by the member states.
Pending formal approval by the Council, the new rules will start to apply by the end of 2018. Businesses are well advised to make use of this rather short transition period to carefully assess whether geo-blocking practices are in place and if they require adjustments.
Main elements of the regulation and practical implications
The geo-blocking regulation prohibits geo-based discrimination at different stages of commercial transactions:
- The geo-blocking regulation protects access to information. Customers must not be discriminated when accessing (country-specific) websites and may only be redirected to other websites if consent is given by the customers.
- The geo-blocking regulation further prohibits the application of discriminatory GTCs and payment terms when selling goods/services to end-users. Traders shall not apply different GTCs (including net sales prices) or different conditions for a payment transaction for reasons related to geo-factors. However, services aimed to provide access to content protected under copyright laws (e.g. Netflix, Amazon, Sky, Spotify etc) are not covered.
- Aside from these non-discrimination rules, which address unilateral geo-blocking measures, the geo-blocking regulation also addresses bilateral geo-blocking measures: It renders passive sales clauses automatically void, if these clauses impose obligations on traders to act in violation of the regulation’s non-discrimination rules.
What action do businesses need to take?
The geo-blocking regulation raises a number of questions.
- Are geo-blocking practices in place (eg auto-forwarding of customers in online shops, application of different pricing or refusal of foreign credit cards based on the customer’s nationality, place of residence or temporary location) or agreed to (eg passive sales clauses implementing geo-blocking obligations in distribution agreements)?
- If yes, are these practices and/or obligations covered by the respective laws on geo-blocking (eg addressed to end-user within the EU)?
- If yes, can these practices be justified under the current and new legal regime (eg blocking of users from access to websites due to EU/national law)?
- If not, is it necessary to modify the online interface mechanisms and processes (blocking/auto-forwarding on websites/online shops), respective terms and conditions and/or distribution agreements?
Pending formal approval by the Council, the new rules will come into force by the end of 2018. Thus traders are well advised to make use of this rather short transition period and carefully start to assess whether geo-blocking practices falling under the scope of the regulation are in place or agreed to, and, if yes, readjust their terms and sales organisation accordingly.