Following the GDPR hassle, next on the line for companies conducting business online within the EU comes the Regulation (EU) 2018/302 on addressing unjustified geo-blocking and other forms of discrimination based on customers’ nationality, place of residence or place of establishment within the internal market (the “Regulation”). The Regulation shall apply as from 3 December 2018. Its main purpose is to reinforce the internal market by prohibiting unjustified geo-blocking, i.e. practices of blocking or limiting access to online interfaces, such as websites and apps, by customers from other Member States wishing to engage in cross-border transactions.
Here are some of the things you should know about the Regulation if your business involves online transactions or online offering of goods and services in the EU.
Scope of the Geo-Blocking Regulation
The Geo-Blocking Regulation applies to both B2C and B2B sales of goods and/or services. When B2B relations are involved, the applicability of the Regulation is narrowed down to purchases made by a company for its own end-use.
Outside of the Regulation’s scope are services in the field of transport, audiovisual services provided on the basis of exclusive territorial licenses and retail financial services.
The main goal: Free access to goods and services
The Regulation aims to ensure that consumers within the EU are generally free to access online goods and services offered in other Member States without being discriminated based on their nationality, place of residence or place of establishment. Discrimination may occur if customers from other EU member states are being offered different conditions to access a product or a service (such as different net sale price or delivery terms) than the ones offered to local customers.
The Regulation covers 3 main types of sales of goods and/or services:
- Online sale of goods – an important condition for the non-discrimination rules to apply is that such goods should be either delivered to a location in a Member State to which the trader offers delivery pursuant to its general conditions of sale or the goods are collected at a location agreed upon between the trader and the customer. This means that EU-based traders should provide all EU customers with the same (not equal) delivery terms and conditions. For example, if you are a Bulgarian online retailer and a customer established in Germany orders certain goods from you, ensuring free access would not necessarily mean that you should deliver the goods to Germany. Instead, if pursuant to your general terms of sale you offer delivery only to locations in Bulgaria, the German customer may have to organize delivery to Germany herself/himself or collect the goods from a pre-agreed location as/if specified in your general terms.
- Electronically-supplied services, i.e. services delivered over the Internet or an electronic network the nature of which renders their supply essentially automated and involving minimal human intervention, and impossible to ensure in the absence of information technology (e.g. cloud services and website hosting).
- Services received by the customer in a physical location in the country where the trader operates (e.g. hotel accommodations, car rental, events).
The non-discrimination rules in practice
The Regulation explicitly prohibits the following discriminatory practices:
- Blocking or limiting access to online interfaces (e.g. websites, mobile applications) based on the users’ nationality, place of residence or place of establishment – for example, customers may not be blocked due to their IP address or based on other geographical or nationality criterion from opening an e-shop or redirected (without their explicit consent) to another version that is different in terms of its layout, use of language etc. In the event of redirection with the customer’s explicit consent, the version of the trader’s online interface to which the customer initially sought access should remain easily accessible to that customer, to be able to return to it.
Other discriminatory practices such as (i) automatic re-adjustment of displayed prices and/or other terms of access based on the visitor’s IP address, and (ii) making ordering and delivery technically impossible through the design of the online purchase form (e.g. by not accepting billing addresses from specific countries) will be also prohibited. However, traders remain free to offer terms that differ across the EU-based versions of their websites as long as the access to those websites is not blocked or restricted to EU customers, meaning that each EU customer should be free to choose the lowest price. Promotions and other types of price campaigns may be also limited to only certain versions of an e-shop (e.g. only on the .com and .fr versions, but not on the .ro one), if all EU customers can access and benefit from them in a non-discriminatory way.
Access to online interfaces may still be blocked or limited to the extent necessary to ensure compliance with a legal requirement laid down in EU law, or in the laws of a member state in accordance with EU law, to which the trader’s activities are subject. In such instances, the trader shall provide a clear and specific explanation to customers regarding the reasons for the blocking/limitation/redirection in the language of the online interface initially sought.
- Discrimination for reasons related to payment – traders should apply same payment terms to all EU customers without discriminating on the grounds of nationality, place of residence or establishment, location of the payment account, the place of establishment of the payment service provider or the place of issue of the payment instrument within the EU. This means that traders remain free to decide what payment instruments to accept and in what currency as long as the requirements are applied non-discriminatory. For example, if you decide to accept payments in EUR by a credit card or a VISA card on your website, you should do so for all customers from all EU countries.
Where justified by objective reasons, traders may withhold the delivery of the goods or the provision of the service, until they have received confirmation that the payment transaction has been properly initiated. This may be the case, for example, if you find difficulties in assessing a customer’s creditworthiness in a large cross-border transaction. Furthermore, traders may charge additional fees in amount necessary to cover the costs borne in relation to the use of a payment instrument for which interchange fees are not regulated by the existing European laws (e.g. commercial cards) and unless prohibited or limited by local law to request such charges.
Impact on distribution agreements
The Regulation is without prejudice to existing restrictions on active sales imposed by suppliers under distribution agreements.
Contractual restrictions on passive sales within the meaning of the Block Exemption Regulation (Regulation (EU) 330/2010) will be considered to be automatically null and void if imposing an obligation on the dealer/distributor to act in violation of the Regulation. Pursuant to the Block Exemption Regulation, it is permitted to:
- Restrict a wholesaler from passively selling to end customers. The EC’s Guidelines on vertical restraints state that “[t]his exception also covers allowing the wholesaler to sell to certain end users, for instance bigger end users, while not allowing sales to (all) other end users”. However, to the extent that such restriction, as developed by the Guidelines, may lead to a discrimination between end users in different EU member states, it now risks falling within the prohibitions of the Regulation and being void.
- Restrict an appointed distributor in a selective distribution scheme from selling to unauthorized distributors.
- Restrict a buyer of components, to whom the components are supplied for incorporation, from reselling them to competitors of the supplier.
The EC’s Guidelines on vertical restraints note that in exceptional cases passive sales may be prohibited for a term of up to 2 years where a supplier wishes to provide an absolute territorial/customer protection to an exclusive distributor in a new market where supplier’s goods are still not present. Although there may be a strong rationale behind such approach (incentivizing the distributor by protecting it from free riders in cases where substantial initial investments are necessary), absent a derogation in the Regulation, such restrictions may be regarded as discriminatory and thus be considered null and void.
Risks: compliance with local laws
Article 1, par. 6 of the Regulation provides that the mere compliance with the non-discrimination rules set out in the Regulation does not, in itself, mean that the trader is directing its activities to the member state where the consumer has the habitual residence or domicile. In such cases, traders would be under no obligation to comply with non-contractual national legal requirements (e.g. consumer laws) relating to the respective goods and services of the Member State of the customer or to inform customers about those requirements.
Essentially, this means that traders are not obliged to ensure that the goods meet any specific technical and safety requirements or are labelled in accordance with the laws of the consumer’s country if that country is not targeted by the trader. However, going beyond a mere compliance with the Regulation (e.g. by ensuring customer support in the consumer’s local language and helping with/arranging for delivery to that member state) may risk being interpreted as targeting the consumers in a specific member state and thus requiring to comply with its local consumer and other relevant laws and potentially being sued by the consumer in that member state under the jurisdiction rules of Regulation (EU) 1215/2012.
The Regulation is without prejudice to other consumer-related EU rules (Recital 28 of the Regulation), such as the right of withdrawal within 14 days under the EU Consumer Rights Directive and the obligations of the trader in case of defective goods under the EU Sales Directive (Directive 1999/44/EC).
Determining the relevant penalties for failures to comply with the Regulation has been left at the discretion of each member state and thus may be determined at different times and vary in the different jurisdictions.
This publication is for informational purposes only and is not a legal advice. This overview commentary is not comprehensive in any aspect and may be incomplete – and may need to be amended or updated subject to competent authorities’ and courts’ future practices and case-law and/or changes in the applicable legislation.