Newsletter: The new EU Geoblocking Regulation
Cologne, 10th December 2018
Since 3 December 2018, the new EU Regulation 2018/302 against unjustified geoblocking applies directly in all EU Member States (the text of the Regulation can be found HERE). From now on the principle "shop like a local" applies: Customers may not be discriminated against in cross-border purchases of goods and services on the grounds of their nationality, place of residence or place of establishment.
1. What is geoblocking?
Geoblocking is any (technical) measure which results in an internet user not being able to access or to fully access the offers of a website in another country due to his geographical location in one country (recognisable by the IP address). Common forms of geoblocking are, for example, redirecting to a website that corresponds to the location of the user's IP address, or refusing to deliver or accept payments from customers in another country. Geofiltration is also a form of geoblocking: although the user can access the offers of a foreign website, this can be done only - usually unnoticed - under different conditions than the internet users of another country.
2. Who is the addressee of the Regulation and where does it apply?
The Regulation applies to all providers (natural or legal persons) who sell their goods or services cross-border in the EU. It is irrelevant whether the providers are established in an EU Member State or in a third country.
It applies to transactions with both consumers and businesses. However, in transactions with businesses, the customer must conclude the transaction for the purpose of final use, i.e. he must not resell or process the goods or services.
The Regulation applies to all goods and services that are not excluded from its scope. Excluded from the scope are in particular financial, transport and health services, streaming or download offers for copyright works such as music, films, e-books, as well as social services, gambling, temporary work, telecommunications and private security services. The Regulation is also without prejudice to the rules applicable to copyright and related rights, including the Copyright Directive. This means that geoblocking, for example, remains permissible where the provider has only territorially limited licences.
The scope of the Regulation is not limited to the pure online distribution of goods and services. Discrimination in physical cross-border distribution is also prohibited (e.g. hotel accommodation, sports events, car rental or tickets for music festivals or amusement parks).
3. What is prohibited? What is permitted?
The aim is to eliminate unequal treatment based on nationality, place of residence or establishment. The Regulation contains three prohibitions of discrimination, which may only be derogated from if a national legal regulation which is in conformity with EU law or Union law allows a restriction (e.g. in the case of a legal prohibition of advertising or due to provisions for the protection of minors):
- Providers may not block access to online user interfaces or redirect the end customer to another website without his consent. The end customer must be able to visit the different websites of a provider in order to compare offers in different countries.
- Offering goods or services at discriminatory terms and conditions is prohibited. A consumer from the EU must be able to conclude a transaction under the same conditions as a customer who lives in the country to which the web shop is linked. However, different, country-specific conditions remain permitted. A merchant may therefore also continue to maintain country-specific online shops with different offers and conditions, using terms and conditions that comply with the respective national law, as long as he does not do so in a discriminatory manner. Even country-specific price differences remain possible if they are offered to customers within the respective territory in a non-discriminatory manner.
- The Regulation does not oblige a provider to offer or supply his goods or services in any EU Member State. However, if a customer orders from an EU Member State where the company does not offer goods or services, the customer must either be able to collect the goods from the provider or the provider must ship them to an EU Member State where he delivers (at the customer's expense). The possibility to collect or ship the goods must therefore only be offered in the EU Member States where the supplier is active.
- Providers remain free to choose the payment methods they wish to offer. However, if a provider has certain payment methods on offer (e.g. payment via a particular electronic transaction platform or with a particular credit card company), the payment terms for electronic transactions must be the same for all final customers in the EU. As a result, for example, a customer from Germany who orders in a French web shop must have the same payment methods and conditions as a customer from France.
4. What impact does the Regulation have on distribution agreements?
The Geoblocking Regulation also has an impact on the design of distribution agreements. According to this Regulation, provisions on passive sales which violate one of the three prohibitions of discrimination are null and void. The Regulation also extends the prohibition of restrictions on passive sales. While EU antitrust law allows restrictions on passive sales in individual cases subject to strict conditions, the Geoblocking Regulation no longer leaves any room for manoeuvre in the case of passive sales restrictions affecting sales to end customers.
5. What are the legal consequences of an infringement?
Violations of the provisions of the Geoblocking Regulation can be sanctioned. The sanctions are determined autonomously by the respective EU member states. Germany has already included violations of the Geoblocking Regulation in the list of administrative offences under § 149 Telecommunication Act [Telekommunikationsgesetz]. According to this, infringements can be punished with a fine of up to € 300,000. The Federal Network Agency [Bundesnetzagentur] serves as the competent authority for the enforcement of the Regulation. The Federal Network Agency may also impose a penalty payment of up to € 500,000 to enforce the Regulation. Furthermore, Consumer federations will be able to raise cease and desist actions against suppliers, who offend against the Geoblocking Regulation.
6. What are the consequences of the Brexit?
The impact of the Brexit on the Geoblocking Regulation depends on whether or not an agreement is reached between the EU and the UK.
- In the case of a "deal" based on the draft agreement of 14 November 2018 (HERE you can find the draft agreement), the UK would continue to be bound by all EU regulations, including the Geoblocking Regulation, until the end of the transitional phase agreed there on 31 December 2020. This may also apply for a longer period if the EU and the UK agree on an extension of the transitional phase. For the period after the end of the transitional phase, the validity of the EU laws in the UK depends on whether and how the EU and the UK agree on this aspect in a later trade agreement.
- In a "no deal" situation, the Geoblocking Regulation would remain in force in the UK until 30 March 2019. Thereafter, customers in the UK would no longer benefit from the Regulation, i.e. EU traders would be able to discriminate between UK customers through geoblocking measures when selling goods or services in the UK. Also, UK traders would be allowed to treat EU customers who wish to purchase goods or services in the UK differently from UK customers.
- However, irrespective of a deal or no deal, UK-based companies must always comply with the Geoblocking Regulation when selling goods or services within the EU. This is because the Regulation applies to all companies doing business within the EU, whether they are established in an EU Member State or in a third country.
7. What to do?
The regulation has an impact on the sales organisation of companies. General terms and conditions should be reviewed and order and customer forms should be adapted. Different sales, payment and delivery conditions for orders from different EU member states can only be maintained in exceptional cases, e.g. due to legal requirements or differing postage costs. Manufacturers and distributors should also create the conditions for customers from other EU Member States to receive their orders - either by allowing customers to collect the order from them, or by shipping the orders to an address in an EU Member State they supply.
However, the economic impact of the Geoblocking Regulation remains to be seen. It is not uncommon for customers to refrain from cross-border orders because of language barriers. The regulation, actually, does not force providers to operate their online presence in a particular language or even in all (official) EU languages.
Dr. Daniel Dohrn
Telephone: +49 221 2091 441
Telefax: +49 221 2091 333
Dr. Simon Spangler, LL.M.
Telephone: +49 69 707968 183
Telefax: +49 69 707968 111