Geo-blocking Regulation | What does it mean for your business?

After considerable negotiation and consultation, the final text of the geo-blocking Regulation has now been agreed and published in the Official Journal of the European Union.  The Regulation will stop most companies from preventing access to national versions of their websites within the EU.

Published on 2 March 2018, the Regulation takes effect from 3 December 2018 and addresses “unjustified” geo-blocking and other forms of discrimination based on customers’ nationality, place of residence or place of establishment.

Underlying all the requirements of the Regulation is the principle of non-discrimination; meaning that, where a customer wishes to access and buy services from a national website, they should be treated in the same way as customers physically based in that Member State.

What does it mean in practice for your business?

Does the Regulation apply to you?

On its face, the Regulation applies to all traders of goods and services, including online marketplaces, operating within the EU.  Therefore, this includes companies established in “third countries” (i.e. non-Member States) where they operate a website within the EU.  By way of example, a US-based company’s US website would not be caught by the Regulation, but any EU-based website operated by that same US company would fall within scope of the Regulation and therefore subject to the prohibition on geo-blocking and access for EU-based customers.

That said, the Regulation specifically excludes from its scope the following:

(a)  audiovisual services, including “services the principle purpose of which is the provision of access to broadcasts of sports events and which are provided on the basis of exclusive territorial licenses“.  This would include services providing access to film and television content;

(b)  access to retail financial services, including payment services; and

(c)   services in the field of transport.

These services therefore not caught by the prohibition on geo-blocking, nor discrimination in respect of the right to access the services.

While the Regulation specifically excludes audiovisual services, the position is not clear when it comes to “non-audiovisual electronically supplied services the main feature of which is the provision of access to and use of copyright protected works or other protected subject matter“.  Although the Commission press releases state that these services are excluded from the scope of the Regulation (subject to review), the text of the Regulation suggests that these services are included within the scope of the Regulation, subject to a specific exclusion explained further below.  Therefore, while film and television content would be excluded, services providing access to, for example electronic games, music, e-books would be caught by the Regulation and the prohibition on geo-blocking.

What are the implications for your website?

Traders operating “online interfaces” in the EU must not impose unjustified geo-blocking (i.e. preventing access on the basis of the location, nationality or residence of a customer or automatically redirect them to a different version of their website without explicit consent).

For example, a UK customer must be able to access the French version of the website if they choose.  You must not automatically redirect them to the UK website.

Do you have to sell to customers in a different Member State?

The EU distinguishes between three categories of goods and services.

(a)  Physical goods

Customers must be able to purchase physical goods.  However, there is no obligation on you to deliver cross-border if you don’t already.

For example, an individual in France finds a better deal for a laptop on a German website.  The customer must be able to access the German website and purchase the products in the same way as a German customer can.  However, the German website is not obliged to deliver the products to France if it does not typically offer this delivery service to German customers.  The French customer must be entitled to organise their own delivery, to arrange collection from the trader’s premise or to accept delivery at another place where the German trader offers delivery in its general terms.

(b) Electronically supplied services

Customers must be able to purchase the services.  Such services include, for example, cloud services and data warehousing services.

For example, an Italian customer wishes to access website hosting services from a Dutch company.  The customer must have access to and be able to purchase these services in the same manner as a Dutch customer.

However, this access right is subject to an exception for non-audiovisual electronically supplied services “the main feature of which is the provision of access to or use of copyright protected works“.  This would include e-books and music services.  While access to the online interface for these services cannot be geo-blocked, the trader can apply different conditions for accessing these services based on customer’s nationality and place of residence and therefore could refuse to sell the service cross-border.

(c) Services received at a physical location

Customers seeking access to services provided from a physical location must be able to access and purchase those services free from discrimination.

For example, a Spanish customer seeking to book a hotel in Lisbon on the Portuguese website must be treated in the same manner as a Portuguese customer and must not be automatically re-routed to the Spanish website.

Although traders cannot apply discriminatory conditions of access to goods and services, the European Commission is clear that this does not impose an obligation to sell.  There may be reasons that the trader cannot fulfil the purchase, such as a failed credit check, which are allowed, provided that the refusal to sell is not based on grounds of nationality, place of residence or place of establishment.

What local laws apply?

In the example given above of a French consumer purchasing from a German website, what local law governs the terms of that sale? Is the French consumer entitled to reply on French mandatory consumer law?

Enabling cross-border access to your website does not necessarily mean you are pursuing or directing activities in another Member State.  You do not need to comply with the local mandatory laws in the customer’s jurisdiction.

Customers from outside the Member State of the website must simply be treated in a non-discriminatory manner vis-à-vis customers from within your Member State.  The local mandatory consumer laws of the Member State in which the website is based will apply.

Is differential pricing allowed?

Yes.  Discrimination does not mean differential.  There is no obligation to harmonise prices, meaning that you can charge different prices or offer different general terms and conditions in different Member States or within a Member State.  However, customers must be able to access another Member State and take advantage of those differential prices.

For example, a UK events company may consider that it can charge higher prices on its Austrian website than on its UK website.  This is permissible, provided that Austrian customers are not prevented from accessing the UK website and purchasing the event ticket at a lower price on that website.  In the same manner, the events company may recognise that business customers are willing to pay more for event than leisure customers.  The events company may still impose higher prices for those categories of customers, irrespective of which EU Member State they are based.

What about Brexit?

As the Regulation comes into force pre-Brexit, UK businesses must comply from 3 December 2018.  It is currently not possible to predict what will happen after Brexit and what the terms of the final agreement between the UK and the EU will be.  However, Theresa May has indicated that the Digital Single Market, of which this forms part, is ultimately something that the UK will move away from.

That said, no change is currently expected during the transition period, which is expected to last until the end of 2020.  The UK will continue to be treated as a Member State, subject to EU law.

What happens after the end of the transition period remains uncertain.  We currently consider that, as EU law will be enshrined into UK law, the Regulation will (at least initially) continue to apply to UK traders, who will therefore be unable to geo-block or refuse access to non-UK EU customers.  However, there may be no reciprocity obligation on EU traders, who may therefore be able to geo-block and refuse access to UK customers. Discussions around the applicability of the Regulation in the longer term are likely to be tied in with other consumer-facing aspects of the Digital Single Market such as portability of digital content and the abolition of mobile phone roaming fees within the EU.

If you have any questions on the Geo-blocking Regulation, please contact one of our Digital Single Market experts below or your usual Osborne Clarke contact.