Geo-blocking in e-commerce: EU Commission presents first brief results of public consultation

In order to specifically address customers in national markets, companies often use technical measures in online retailing and on their websites to deny access from other countries (known as geo-blocking). Retailers can either block all access from abroad to their national online shops or only accept domestic orders, for example. In some cases, users are automatically diverted to the relevant national store, where they see a divergent product range with location-specific prices.

These restrictions are usually implemented by analysing the user’s IP address, the country of origin of the payment method used, such as a credit card, or the delivery address.

In this context, the European Commission is considering a ban on geo-blocking as a leading aspect of its Digital Single Market Strategy (COM(2015) 192). After a proposed regulation on geo-blocking of online content services such as Netflix, Amazon Prime, etc., which aims at making such services portable for users when travelling abroad, the Commission is now focusing on geo-blocking in e-commerce too. It considers such restrictions unjustified in most cases. According to the Commission, these would lead to an artificial fragmentation of the internal market and result in higher prices and limited consumer opportunities and choice.

The European Parliament also basically supported the Commission’s path in its resolution on “Towards a Digital Single Market Act” of 19 January 2016, but also highlighted the needs of businesses. In detail, the Parliament called for:

• Targeted action against unjustified geo-blocking and price discrimination, also against certain agreements between companies on selective distribution systems, for example.
• Equal treatment of consumers across the EU, e.g. regarding access to discounts and other promotions.
• Defining concise case groups as regards the exception to the ban on discrimination in Article 20(2) of the Services Directive (2006/123/EC). This rule states that discrimination in granting access to a service based on nationality or country of residence may exist if this is directly justified by objective criteria. The introduction of case groups is intended to provide more clarity about the reach of the exception and thus cater for a better practical implementation.
• Taking into account the principle of proportionality, especially with regard to small and micro businesses in terms of the costs arising.
• No obligation for retailers to sell abroad if they have no interest in doing so, with the result that geo-blocking will probably remain admissible in these cases.

To gather opinions from those concerned, in late 2015 the European Commission carried out a public consultation. The Commission has now presented the first brief results of the consultation. It was primarily consumers and consumer organisations (64% of participants) which took part, as well as companies and business associations (31%) and public bodies of the member states. Additionally, around 60 position papers were received from companies and industry associations.

According to the Commission, the following preliminary trends can be observed from the responses:

• Over 90% of consumers expect that the purchase of goods and the access to services is possible from anywhere in the EU and thus see geo-blocking as a major obstacle. The vast majority support legislative measures against unjustified geo-blocking.
• Many companies see geo-blocking as an important issue and are not principally opposed to granting consumers from other member states access to the offers available to consumers in another member state. But they also emphasise the importance of contractual freedom and advocate not obliging companies to deliver to regions in which they do not want to do business.

The Commission now intends to analyse the consultation findings in more depth and has announced that it will integrate them into a legislative proposal planned for mid-2016. This may include changes to the E-Commerce Directive (2000/31/EC), which provides for fundamental rules on intra-EU e-commerce. In order to enforce the principle of non-discrimination in Article 20 of the Services Directive (2006/123/EC), it is likely that specific rules on the admissibility of using geo-blocking techniques will also be made.

Given the necessary lead time for technical and sales-related changes, companies should follow the state of the discussion and seek information on the possible impacts on their business models, so they can make adjustments to their online strategies at the right time.