EU Regulation 2017/1128: a step forward towards a unified Digital Internal Market

The Regulation dated 14 June 2017 on cross-border portability of online content services in the internal market, is intended to put an end to the current geographical limitations and exclusive territorial licenses for online services based on the realisation of the principle of free movement of persons and services granted by the EU treaties.

As one of its top priorities, the European Commission has always sought to accomplish a Digital Single Market in the EU. With a view to achieving the realisation of the policies comprised in the Digital Single Market, Regulation 2017/1128 has been approved, as an expression of the Digital Agenda for Europe (created in 2010 to improve the digital economy in Europe). In just a few months’ time, on 20 March 2018, this Regulation shall become applicable.

However, this Regulation responds to demands similar to those that had already emerged in cases handled by the Court of Justice of the European Union in 2011 amidst a preliminary ruling (joined cases C-403/08 and C-429/08). The Court understood that due to the free movement of services and competition rules established in the TFEU, the contractual provisions and national laws that prevent viewers in one Member State from importing a satellite decoder device from another Member State to reproduce the services of the same foreign broadcaster should be eliminated. It was also stated that the existing agreements on territorial exclusivity were not justified based on the argument that the holders of the intellectual property rights should be properly remunerated, for which these agreements may not be covered by Article 101.3 of the TFEU as an exception to the application of EU competition rules.

The purpose of this Regulation, as specified by the European Commission, is to broaden access to online content services for travellers in the EU. EU citizens will be able to fully use their online subscriptions to films, sports events, eBooks, video games and music services when travelling across the EU. This should enable all customers in the EU to access their portable online content services when they travel between Member States (for any given reason) in the same way they access them at home (access to the same content on the same devices with the same functionalities, although no service quality guarantees are imposed by the text). The content providers affected would be those who offer paid online content services, while those who offer their content without payment –although they are also addressees-, would have the possibility of deciding whether or not to enable the portability for their subscribers. The main services affected by the Regulation would be video-on-demand platforms, online TV services, music streaming services, or online gaming marketplaces.

The first aspect of the Regulation worth highlighting is that this cross-border portability shall not involve any additional cost to the customer, even if the price born by the company to provide the same service is different, for example, in Spain to that of France. Considering that the application of the Regulation could develop into either the stipulation of unified prices for the same service across all the Member States or the price variation being entirely born by the content provider in order to fulfil the producer’s requirements, this text would have the potential meaning of a turning point in the distribution of digital contents in the EU. Furthermore, if the application of the Regulation “winds up” in the stipulation of unified prices for all consumers across the EU, it may be appreciated as an economic detriment for those consumers living in countries with a comparatively lower cost of living.

Another point to be considered is the concept of subscribers –surprisingly enough, referred to in the Spanish translation as ‘consumers’-. The Regulation defines such a concept as “any consumer who, on the basis of a contract for the provision of an online content service with a provider whether against payment of money or without such payment, is entitled to access and use such service in the Member State of residence“. Thus, from the definition it seems that “subscribers” comprises both customers of an on-going nature and one-off customers (i.e. those who pay for acquiring the right to watch the film on the platform without any time limits). Moreover, the major platforms in the Spanish market usually operate both types of content.

The most concerning change could possibly be that the contractual provisions, particularly those concluded after the actual application of the new regulation by the providers of the services and the holders of copyrights and similar rights, may not be compliant with the Regulation and shall be unenforceable. Curiously, this may significantly steer away from the traditional territorial exclusive licenses that have been used so far. While in the music sector contents are typically licensed on a non-territorial basis -the actual country in which you try to access this content would not be so relevant (a fact that allows the portability intended by the Commission)-, in the audio-visual sector it is very common for premium content to be provided that is distributed through territory-based licenses for a defined period of time.

Moreover, it must be pointed out how these changes would affect the current competitive market in which companies in this sector meet. The Regulation itself states that its application should not affect competition rules and, in particular, those granted in Articles 101 and 102 of the Treaty on the Functioning of the European Union. Nonetheless, these new rules might change the actual level playing field by creating stronger dominant positions of sectorial behemoths (i.e. the elimination of the country-based market may lead to some players being driven out by those that can leverage on their strength in other markets to supply “cheaper” in the EU market).

The Regulation also takes into consideration personal data protection in relation to what data can be processed and in what cases it can be used. It stipulates that customer data shall be used solely for the purpose of verifying their Member State of residence, and it shall be processed in compliance with EU rules on the protection of personal data. Regarding the specific data that may be used, Article 5 regulates the sources of data that providers may use. Only two means can be used to achieve this purpose. The means to verify the subscriber’s Member State of residence should be chosen carefully given that depending on which data is processed, providers may end up reaching the wrong conclusion. For instance, an Italian national could have a bank account in Germany and actually be there temporarily for work purposes (without the need to register as a resident) and if the data used to verify its Member State is the bank account and the IP address it may erroneously lead to the conclusion that this person is a German-based customer.

In conclusion, it is still uncertain how companies will adapt to this new policy of cross-border portability of online content services. It must be taken into account that the Regulation has actually entered into force but it is not yet applicable (it shall be applicable from 20 March 2018). In this regard, we are currently at a stage where companies are preparing themselves to comply adequately with these rules on cross-border portability of online content services.