On 3 December 2018, the EU Regulation on measures against unjustified geo-blocking and other forms of discrimination on the grounds of customers’ nationality, place of residence or place of establishment (“the Geo-blocking Regulation”) became applicable. The key aspects of the Regulation and the way in which it may affect companies is described below.
What is geo-blocking?
Geo-blocking, or geographic blocking, is when a particular web site or information source is not made available in a particular geographical area. All types of restrictions based on nationality, place of residence or geographical location of the connection is thus a form of geo-blocking.
The underlying purpose of the Regulation
Geo-blocking and other geographically-based restrictions undermine online shopping and cross-border sales by limiting the possibility for consumers and businesses to benefit from the advantages of online commerce. The problem equally affects consumers and businesses as end users of products and services and exists both in the online environment and in real-world situations.
The Geo-blocking Regulation is part of a series of new rules on e-commerce aimed at boosting cross border online sales in the EU, both for the benefit of the consumer, who will have a wider range of possibilities and options in the online commerce arena as well as for those conducting online business within sales.
Examples of unjustified geo-blocking
There may be justified reasons for online sellers not to sell cross-border, such as the need to register at the tax authority in the country, higher shipping costs or costs arising from the application of foreign consumer law. Even though outside barriers can create additional complications and extra costs for the seller, differences in the treatment of customers in these situations are based on objective criteria.
However, discrimination between EU customers based on the desire to segment markets along national borders, in order to increase profits to the detriment of foreign customers, is considered as unjustified geo-blocking. Some examples are:
- blocking access to websites across borders;
- denying the possibility to complete an order, to purchase goods or to download content when accessing a website from abroad;
- using different types of payment and sales conditions for cross border purchases;
- providing different prices and conditions depending on nationality, country of residence or location of the customer.
The Geo-blocking Regulation does not prohibit companies from having different pricing for the same products in different countries within the EU. Companies may use different prices for the same product on different websites or in stores in different countries, but customers within the EU, not depending on which member state, must be given access to the various offers in a non-discriminatory way. However, this does not mean that companies are obliged to deliver goods and services to any and all member states throughout the EU. The customer has to provide for the shipping or deliverance of the product on their own account. To exemplify, if a person in the Netherlands makes a purchase of a product that the seller only delivers within the borders of Austria, the customer has to arrange for the continued deliverance after the seller has delivered in accordance with their applicable terms, as long as these terms applies to all customers within the EU.
Furthermore, the Regulation does not apply to individually negotiated agreements and not when something is purchased for resale. Additionally, the Regulation is not applicable for all sales and services, i.e. financial services and audiovisual services are exempted.
According to the proposition for the Swedish Act with complementary provisions to the Geo-blocking Regulation (Prop. 2018/19:26), companies that violate the Regulation may be required to pay fines of up to SEK 5 million, but a maximum of 10 percent of their revenue for the previous financial year. Other member states may choose other sanctions for companies that violate the rules of those countries.
What will happen next?
The Geo-blocking Regulation entered into force on 22 March 2018 but became applicable from 3 December 2018, to allow in particular small companies to adapt. It is difficult to comment on the importance of the Regulation at this early stage, but it is of course welcome with more general rules for the online commerce in the EU.
Within two years after the entry into force of the new rules, the Commission will carry out a first evaluation of the Regulations impact on the internal market. The evaluation will include a possible application of the new rules to certain electronically supplied services which offer copyrighted content such as downloadable music, e-books, software and online games as well as of services in sectors such as transport and audio-visual.