The EU Digital Single Market: are companies allowed to geo-block their own websites?

A key work programme for the European Commission is its “Digital Single Market Strategy” – the pursuit of a pan-EU market in which, in the Commission’s words, “the free movement of goods, persons, services and capital is ensured and where individuals and businesses can seamlessly access and exercise online activities under conditions of fair competition”. We have a collection of articles looking at the implications of the Digital Single Market for your business here.

As part of the strategy, the Commission is focusing on the use of geo-blocking of online content (such as films and electronic games) as well as on the retailing of electronics, clothing and shoes.

One of the Commission’s drivers for the Digital Single Market initiative is to “create an area where citizens and businesses can seamlessly access and exercise online activities under conditions of free competition, irrespective of their nationality or place of residence”. While agreements between manufacturers and distributors clearly fall squarely within the realms of competition law, the e-commerce sector inquiry (see here) recognises that some of the barriers to cross-border trade “are put in place by companies themselves”.

This raises the question: are companies allowed to geo-block on their own websites when selling direct to consumers, where the usual competition rules typically don’t apply?

In short, no.

A manufacturer’s direct online selling activities would fall under the more general consumer protection laws stemming from the free movement of goods and services principles of EU law.

In the UK, the Provision of Services Regulations 2009 (“Services Regulations”), which implements the EU Services Directive (“Directive”) into UK law, impose an obligation on “service providers” not to discriminate on the grounds of nationality or place of residence in the general conditions of access to the service (which must be made available to the public), unless the differences in the conditions can be justified by objective criteria. Guidance confirms that this non-discrimination obligation prohibits offering different terms and conditions, or different prices, to equivalent customers.

“Services” and “service providers” are defined widely and include the retail and wholesale of goods and services as well as other ancillary services relating to goods, such as maintenance and the after-sales service. Moreover, guidance from the UK Government suggests that retail premises will be providing a “service” where the activity is not exclusively concerned with the sale of goods, e.g. where they provide customer advice or an after-sales service.

This means that a manufacturer operating a retail website may well be considered a “service provider”, particularly if it provides guarantees and support through the website. If so, the manufacturer is obligated not to discriminate between consumers on the grounds of their nationality or place of residence.

It follows that, by geo-blocking and refusing to supply products to consumers located in another EU member state, or by selling the products at different prices to consumers located in different EU member states, a manufacturer may be falling foul of its obligations under the Services Regulations, particularly when considered in light of the Commission’s desire for consumers to be able to purchase products online freely throughout the EU.

How is this enforced?

Enforcement of the Directive falls on individual Member States through their national laws which implemented the Directive. In the UK, breaches of the Services Regulations can be enforced by a number of consumer enforcement bodies (such as the Competition and Markets Authority as well as by individuals who are harmed by the breaches).

Individuals concerned also have the right to bring an action in the courts for the harm suffered as a result of the discriminatory treatment.

To assist individual consumers, each EU member state has its own national European Consumer Centre (“ECC”), which provides general information on consumer laws and rights when buying a service in another EU Member State. Although the ECCs have no formal enforcement powers, there is evidence of ECCs supporting consumers’ complaints and contacting companies who have breached the Directive.

What next under the Digital Single Market initiative?

When launching the Digital Single Market initiative, the Commission expressed its concerns that geo-blocking amounts to unjustified discrimination against consumers shopping online and segments the EU market along national borders. The Commission considers that addressing “unjustified geo-blocking” will increase the choice of products and services available to consumers at lower prices.

The Commission has stated that it “is planning to make legislative proposals in the first half of 2016 to end unjustified geo-blocking. Action could include a targeted change to the e-commerce framework, and to the framework set out by Article 20 of the Services Directive (on non-discrimination of recipients of services)”.

The Commission appears to be keen to eliminate geo-blocking by companies on their own websites when selling to consumers, in addition to agreements between undertakings under competition law scrutiny in its e-commerce sector inquiry. This would give the Commission greater powers to act against unilateral geo-blocking, without relying on member states to enforce the Directive. However, without a clear definition of “unjustified geo-blocking”, we do not yet know how far the Commission’s proposals will reach.

In the meantime, companies doing business online should be aware of their obligations under the Directive. For more detail on the geo-blocking of your websites, please speak to one of Osborne Clarke’s competition law specialists listed below.