Measures against geo-blocking in e-commerce: EU Commission presents proposal for a Regulation

After conducting a public consultation (we reported on it here and here), the European Commission submitted a proposal for a Regulation on 25 May 2016 to remove barriers in cross-border e-commerce. The proposal relates to geo-blocking and other types of origin-based discrimination against customers because of their nationality, residence or place of establishment.

The Commission’s aim is to ban unjustified discrimination against customers. For example, in some cases retailers block access completely to their online stores from abroad or only allow orders from their own country. In some cases, users are also automatically diverted to the relevant national store, where they can access a divergent product range, often at divergent prices.

To combat this, the Commission’s proposed Regulation introduces a specific ban on discrimination, which is intended to eliminate the uncertainties of the general provision until now in Article 20 of the Services Directive (2006/123/EC) and thus facilitate enforcement in practice.

The provision is aimed not just at providers based in the EU. The Regulation is also intended to cover third-country providers offering goods or services to customers in the EU. Both consumers and business owners are set to benefit from the rules. However, the latter are only covered if they are not resellers of the goods or services.

The proposal contains four regulatory areas:

Access to websites (known as online interfaces)
Equal treatment when buying goods and services
Equal treatment in payment terms
Enforcement of the measures

Access to websites (known as online interfaces)

The proposal provides for a comprehensive ban on access restrictions to websites, described as online interfaces in the proposed Regulation. This covers websites and applications used for ordering goods and services. In practice, online stores will be primarily affected. Blocking or restricting access to such online offerings and forwarding customers to another country version of the offering without their consent are thus unlawful if done for the aforementioned origin-based reasons (i.e. customer’s nationality or residence or place of establishment). Even if customers have once agreed to be forwarded, the original version should remain easily accessible to them.

The only exceptions are when legal provisions exists, such as for reasons of protecting minors. Such restrictions must then be precisely justified by the provider. By contrast, additional transparency obligations discussed prior to the proposed Regulation or an amendment of the Consumer Rights Directive are not part of the draft.

This rule merely guarantees access to providers’ websites, in other words the option for the customer to view the content without restrictions. There is no related right to place orders.

Equal treatment when buying goods and services

In contrast to mere viewing access to the providers’ websites (see section "access to websites"), the regulatory subject of this area is equal treatment when actually ordering goods and services. However, the scope of application is highly restricted because the provision applies only in the following three types of case:

• The provider of goods is not involved in supplying them to another Member State.
  Example: Customer collects the goods abroad
• The provider offers electronically rendered services not primarily characterised by providing access to copyrighted works.
  Examples: Cloud services, data warehousing or web hosting
• A provider provides its non-electronically rendered services in a country other than the customer’s country of residence.
  Examples: Hotel accommodation, car rental or tickets for music festivals or amusement parks

In the three types of case mentioned, customers are to be entitled to conduct online transactions on the same terms as local customers by having equal access to all goods and services offered. Differences in the general contract terms and conditions are unlawful. This also applies to selling prices. However, individual agreements remain lawful.

This ban on discrimination, too, is not to be applied if there are statutory provisions on the differential treatment of customers from different Member States, such as the sale of fixed-price books.

However, the ban on discrimination explicitly does not oblige the provider to actively orient its activity towards another Member State. Also, merely observing the provisions of the Regulation should not be interpreted as any such orientation, because the provider ought not to fear being bound, because of consumer-protection regulations, to foreign legal systems or overseas jurisdictions.

Equal treatment in payment terms

The third regulatory area concerns equal treatment in connection with payments. Providers are forbidden to apply different payment terms to the sale of goods or rendering of services based on the nationality, residence, place of establishment, location of the payment account, location of the payment provider’s establishment or the issuing location of the payment instrument within the European Union.
However, this only applies to electronic payments by bank transfer, direct debit or payment by a card accepted by the provider, when the payment recipient can request a robust customer authentication within the meaning of the Directive (2015/2366/EU – PSD II) and when the payment is made in a currency accepted by the payment recipient. The provider is also free to charge fees as before for the use of payment methods as long as these fees do not exceed the costs incurred by the provider.

Enforcement of the measures

The substantive bans on origin-based discrimination described in section "Access to websites" and "Equal treatment in payment terms" are to be en-forced using various means. First, the competent authorities are entitled to impose penalties. Complaints offices should also be set up to assist consumers in disputes with providers. There is still the option of consumer organisations applying for an injunction. The Regulation is therefore to be integrated into Annex I of the Directive on injunctions for the protection of consumers' interests (2009/22/EC). It is also to be added to the Annex of the Regulation on consumer protection cooperation (2006/2004/EC). It could also be enforced via cross-border cooperation between authorities if consumer interests are concerned.

Also, agreements in which restrictions on passive sales transactions are imposed on providers breaching this Regulation are to be automatically invalid. Conversely, however, this also means that agreements on active sales remain lawful. As the sale of goods for resale is not covered by the Regulation either, sales systems within the boundaries of competition law would remain lawful.

If the proposed Regulation is approved by the European Parliament and Council, most of the provisions would come into force six months after publication in the Official Journal of the European Union. Only the ban on discrimination in electronically rendered services (see No. 2, second bullet point) would come into force only from 1 July 2018. The Regulation would not need to be implemented in national law; it would apply directly in the Member States.

It remains to be seen whether the Regulation has a major influence on cross-border e-commerce, since the scope of application contains many exceptions. For example, to start with, financial services, certain services and networks of electronic communication, transport services, audio-visual services, gambling, healthcare services and certain social services are not covered by the provisions anyway. Regarding electronically rendered services, consumers’ access to copyrighted works, which is especially relevant, is exempted from the scope of application. A corresponding extension is to be considered only when the Regulation is reviewed two years after it comes into force.

Regarding the shipping of goods, the equal treatment requirement will only apply if the provider does not ship goods abroad itself. Thus it is primarily instances of customer collection which remain in the scope of application, rather than the mass mail-order business, which is much more important in practice. A shipping company that also ships to other European countries would only have to create transparency by letting customers access all national web pages, but it would not be obliged to offer uniform contract terms and especially not uniform prices.

To respond in time to a possible adoption of the Regulation, companies that may be affected by the proposed Regulation such as providers of cloud services, web hosting providers or platform operators, car rental companies, travel and event organisers must take action now. They should review the technical features of their websites and their business and payment terms to see whether these differentiate between customers based on their nationality or residence or place of establishment. These can then be adjusted in good time before the new provisions come into force.

Click here for the full proposal for the Regulation