EU Ministers agree geo-blocking Regulation compromise text after “live” negotiation

The proposed Regulation on geo-blocking

The European Commission’s proposed Regulation on geo-blocking was announced in May 2016. The proposed Regulation is largely aimed at addressing unilaterally imposed geo-blocking practices. The draft Regulation broadly prohibits three types of practices by businesses:

• The blocking of access to online interfaces (websites and applications) and the use of automatic re-routing without the customer’s prior consent.
• The rejection or other discrimination by traders in relation to payment instruments (such as debit or credit cards) on the basis of the location of the payment account, the place of issuance of the payment instrument or the place of establishment of the payment services provider.
• The application of different conditions of access to goods or services in three specific scenarios on the basis of the location, nationality or residence of the customer.

Some of these measures were also identified as potentially problematic by the Commission, where they are the result of anticompetitive agreements or concerted practices, in its recent Preliminary Report on its e-commerce sector inquiry (see our full article).

The compromise text agreed by EU ministers

The compromise text agreed by EU ministers on 28 November 2016 followed “live” negotiations between EU ministers. Such negotiations typically involve ministers discussing the details of a legislative file without any pre-determined outcome.

The compromise text makes the following important clarifications to the proposed Regulation on geo-blocking:

• Geo-blocking should not be prohibited where it complies with competition law rules (in the context of distribution agreements) on passive sales made to a customer that isn’t the seller’s target. For example, in the context of a selective distribution system, a supplier can prevent an online distributor from selling to another territory which has been reserved by the supplier for itself.
• The compromise text also states that a website should not be considered to be targeting customers in another country where customers are simply allowed to access the site. Moreover, such access should not be viewed as a submission by the online trader to the country’s consumer and commercial laws.

In relation to the blocking of access to online interfaces (websites and applications) and the use of automatic re-routing without the customer’s prior consent, the text presented to the EU ministers for discussion stated that traders should not be under the obligation to require the customer's explicit consent each time the same customer visits the same online interface. Once the customer’s explicit consent has been given it should be deemed valid for all subsequent visits of the same customer to the same online interface. It remains to be seen whether this language will survive the next round of review by the European Parliament. It also remains to be seen whether the prohibition on geo-blocking in relation to electronically delivered services (such as firewall services, data warehousing, cloud services or website hosting) will be extended to cover the selling of copyright protected works or protected subject matter in an intangible form (eg e-books or online music).

Commentary and next steps

The proposed Regulation will now enter the third stage of the EU legislative process which will involve a trilogue between the European Parliament, the Commission and Member States. It appears that the proposed Regulation is on course to become law in 2017 (as announced by the Commission in May 2016). It will be interesting to see whether online traders will be obliged to sell to customers in territories that they are not targeting and whether a “one-time” consent by a customer to be re-routed to a local website will be enough to satisfy the obligation on companies to seek explicit consent. Other matters that still require clarification before the proposed Regulation is finalised include how the law will apply to bundles of services which include the sale of two products, one inside the scope of the proposed Regulation and the other not, and whether online music service and e-books providers will be covered by the new rules.

Once the proposed Regulation becomes law, affected businesses will be required to make changes to their distribution policies and practices. The ban on website access blocks and automatic re-routing without consent could also lead to pressure for some larger companies to move towards greater harmonisation of prices and/or services offered between different Member States. Moreover, we could see a system of measures for violations of the Regulation come into force at a national level, as set out in the current draft of the proposed Regulation.