On 6 February 2018, the European Parliament took a step towards its goal of achieving a Digital Single Market (“DSM”) by voting to end within the EU “unjustified” geo-blocking and other forms of discrimination based on customers’ nationality, place of residence or establishment. The new Regulation aims to remove barriers to cross-border online shopping within the EU and provide consumers with the opportunity to shop around for the best offers within the single market, prohibiting discrimination between EU customers unless it can be “justified”.
With 557 votes to 89, the European Parliament approved the revised draft of the EU Regulation on measures to break down a variety of perceived obstacles that cross-border e-commerce customers are faced with. A recent survey conducted on behalf of the European Commission found that 63 percent of websites assessed did not allow shoppers to buy from another EU country. The new Regulation is meant to address this perceived barrier to trade. Given that traders presumably have an incentive to service demand wherever it exists, it remains to be seen whether European consumers will respond by unleashing the Commission’s hoped for demand.
The draft Regulation still needs to be approved by the Council of the EU. Given the European Parliament, Council and the Commission reached a political agreement to end unjustified geo-blocking in November of last year, it is anticipated that Council approval will be provided in the coming weeks.
As a last step in the legislative process, the Regulation will be published in the Official Journal of the European Union. It is currently predicted that this publication will take place in March 2018, with the Regulation coming into force nine months later, leaving businesses with little time to prepare.
Who is impacted and how?
The Regulation will apply to all traders offering products or services to consumers in the European Union, regardless of whether they are established in the EU or outside the EU. Essentially, any trader offering products or services in the EU market, which fall within the scope of the Regulation, will need to review and likely change common practices such as:
- not allowing customers from one Member State to purchase goods/ services through channels and on terms directed at other Member States. While the Regulation does not impose an obligation to sell and does not harmonise prices, it will address discrimination in access to goods and services where this cannot be objectively justified (eg by VAT obligations or different legal requirements);
- restricting or blocking access to online interfaces (eg websites and apps) on the basis of nationality or place of residence;
- automatically re-routing customers to country-specific websites without prior explicit customer consent;
- discriminating against customers in terms of payment means;
- including passive sales clauses in distribution or licence agreements. Passive sales restrictions in agreements are already prohibited under competition law. The Regulation clarifies that these will be automatically void to the extent they require traders to act in breach of the Regulation (eg, a contractual restriction preventing a trader from responding to unsolicited requests from individual customers for the sale of goods, without delivery, outside the trader’s contractually allocated territory for reasons related to customers’ nationality, place of residence or place of establishment). Notably, the Regulation does not impose an obligation on traders to sell across borders, however if they do so they may not discriminate.
Scope of the Regulation
The Regulation is subject to important exemptions, including that it does not apply to services in the field of transport, audio-visual services and access to retail finance services. It also does not apply to purely “internal” situations, where all the relevant elements of the transaction are confined within one single Member State. Importantly, the Regulation does apply in a B2B context provided the purchasing business buys a product or service for end-use (rather than resale, renting, subcontracting, etc.).
In addition, crucially, copyright protected content falls outside of the scope of the Regulation. Online television, films, ebooks, downloadable music, online games, and streamed sports are not affected by the Regulation. However, while the EU has refrained from tackling these markets yet, the Regulation expresses a positive intention to do so in due course consistent with the EU’s consistent discomfort with the remaining territoriality of copyright.
While technical means will still be legally used to prevent online access to copyright protected content from users based in another EU country, the EU is under a duty to re-assess whether to narrow the scope of this exception in 2020, with the Commission agreeing to review whether the Regulation should be widened so as to include additional types of content, including audio-visual and transport services (link – review).
What will be prohibited?
The Regulation will prohibit unjustified geo-blocking in the EU and other forms of discrimination, directly or indirectly, based on a customer’s nationality, place of residence or place of establishment. Recital 6 clarifies that the Regulation also seeks to cover unjustified differences of treatment on the basis of other distinguishing criteria which lead to the same result as the application of the criteria directly based on customers’ nationality, place of residence, or place of establishment. According to Recital 6, such other criteria can be applied, in particular, on the basis of information indicating the physical location of customers, such as the IP address used when accessing an online interface, the address submitted for the delivery of goods, the choice of language made or the Member State where the customer’s payment instrument has been issued.
The Regulation sets out the following specific situations where different treatment based on nationality, place of residence or place of establishment will be “unjustified”:
Access to online interfaces. Traders must not for reasons related to the customer’s nationality, place of residence or place of establishment:
- block or limit a customer’s access to the trader’s online interface through the use of technological measures such as location tracking or otherwise (“geo-blocking”); or
- redirect customers without their explicit consent to a version of the trader’s online interface that is different from the online interface to which the customer initially sought access. For example, re-directing of a customer to a domestic website will require consent.
An exemption will apply where such measures are necessary to comply with applicable law. Recital 18 also clarifies that these prohibitions do not oblige traders to engage in transactions with relevant customers.
Access to goods or services. The Regulation lays out three specific scenarios in which traders must allow customers full and equal access to goods or services on the same general conditions (including price and delivery conditions) regardless of their nationality, place of residence or place of establishment. These are the following:
- a trader sells goods (eg, household appliances, electronics, clothes) under general conditions of access, and offers delivery to a Member State or collection by customers in a Member State under those conditions. By way of example, a French customer must be able to purchase a coffee machine through an Italian website but cannot expect delivery to France, if the Italian terms offer delivery to Italy only.
- a trader provides electronically supplied services which do not require a physical delivery, such as cloud services, data warehousing services, website hosting, provision of firewalls, use of search engines and internet directories.
- a trader provides services other than electronically supplied services in a physical location within a territory of a Member State where the trader operates. By way of example, affected are services supplied in the premises of the trader or in a physical location where the trader operates, for instance hotel stays, sports events, car rentals, music festivals or leisure park tickets.
Importantly, the Regulation does not require traders to have just a singe EU shopfront, nor does it prevent traders from having localised versions of their services (whether by language, content, etc.). It also does not prohibit differential pricing. What it does is simply say that you cannot prevent customers in one Member State accessing one of your shopfronts in another Member State and, if they do, you have to treat them equally.
Payment means: Finally, subject to a couple of other conditions, the Regulation provides that traders must not discriminate against customers within the EU by refusing certain transactions, or by applying different conditions of payment in respect of those transactions, for reasons related to customers’ nationality, place of residence, place of establishment, the location of the payment account, the place of establishment of the payment service provider or the place of issue of the payment instrument.
The Regulation does not provide for specific sanctions and EU Member States will be able determine appropriate measures in case of non-compliance by traders. However, the Regulation requires Member States to identify specific bodies responsible for monitoring compliance with the Regulation and its effective enforcement. To ensure effectiveness, the Regulation also provides that consumers should be provided with ‘practical assistance’ through specifically devoted bodies (identified by Member States) in case of disputes with traders. This practical assistance also includes proposing a uniform model form to be used by customers to file their complaints.
The Regulation will be subject to periodic evaluation, after two years from entering into force and thereafter every five years.
Other (related) changes on the horizon
The Regulation is part of a much broader e-commerce package, with similar proposals being suggested in related areas of the market.
In addition, the EU’s Portability Regulation, which will come into force on 1 April 2018, sets out that providers of online portable audio visual content services must enable cross-border portability for their users. This means that when, for example, a resident of France, is temporarily in another Member State (eg, on holiday in Italy), he/she can still access all of the services that he/she subscribes to in his/her home Member State. While copyright law remains a national right, the Portability Regulation creates a “legal fiction” that for AV content, copyright law effectively applies to the residents of a Member State, as opposed to national borders.
Other proposals to watch out for include:
- a proposal for more transparent and affordable cross-border parcel deliveries; and
- a proposal for simpler valued added tax rules for e-commerce.