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Geo-blocking: businesses must act to ensure compliance

Out-Law Analysis | 02 Apr 2019 | 5:14 pm | 7 min. read

ANALYSIS: Businesses should check whether they need to make changes to their online sales methods to account for new 'geo-blocking' rules that came into force late last year.

The review is one of a number of actions businesses need to take to ensure their cross-border sales practices comply with the EU's Geo-blocking Regulation.

Although MPs have voted to revoke the EU rules in the event of a 'no deal' Brexit, the Geo-Blocking Regulation remains relevant to UK-based businesses operating across European borders.

Geo-blocking and the new rules

The Geo-Blocking Regulation has direct effect across the EU. It took effect with little fanfare on 3 December 2018, but it is a central part of the European Commission's digital single market reforms and impacts many businesses.

The Regulation protects online customers against unjustified discrimination by traders by virtue of their nationality, place of residence or place of establishment. It means, for example, that where businesses purport to make their services generally available online, they must ensure that EU-based customers enjoy equal rights of access to those services and that it is not more difficult for customers in certain countries to access those services than those in others.

The rules apply equally to business-to-business transactions as they do business-to-consumer, but only where the transaction involved is for the sole purpose of end use. The rules do not apply to individually-negotiated terms of access, only general conditions on access.

There are four main geo-blocking practices that businesses might engage in which are generally prohibited under the new rules:

Blocking or redirecting customers

The geo-blocking rules generally prohibit traders from blocking or limiting a customer's access to their 'online interfaces' for reasons related to the customer's nationality, place of residence or place of establishment. Similarly, those reasons cannot generally be cited to redirect customers to local versions of their interfaces, unless they have those customers' explicit consent.

The term 'online interfaces' applies to websites, mobile apps and any other customer-facing software that facilitates access to traders' goods or services.

However, the rules allow blocking or limitations on access, or redirections to be applied where the measures are necessary to meet legal obligations the traders are subject to in the EU. In those cases, traders must nevertheless "provide a clear and specific explanation to customers regarding the reasons why the blocking or limitation of access, or the redirection is necessary in order to ensure such compliance", and this must be "given in the language of the online interface that the customer initially sought to access".

There is limited guidance available to businesses on when blocking or limitations on access, or redirections would be considered necessary under law, but one example is contained in guidance published by the European Commission last year, which explains how the new geo-blocking rules apply in practice. It concerns trade mark law.

"Example: A French website is subject to an order issued by the French courts that prevents access to parts of or all of its website in light of litigation on the use of registered trade marks in that country," the guidance said.

This suggests a trader may geo-block its website based on the customer’s nationality or place of residence where it has to in compliance with a court judgment, for example where it cannot show the content to such customers without being in breach of intellectual property rights.

Actions for businesses:

  • Check if any changes are needed to the website or mobile apps;
  • Can customers, wherever located in the EU, access and complete an order? Check the website does not automatically geo-block or auto-direct customers without consent;
  • If redirections take place, is there a justified legal requirement to do so – if so, make sure this is documented;
  • If redirection software is used, a consent mechanism should be implemented with records in place to monitor such.

Discrimination on access to goods or services

Traders are also prohibited from applying "different general conditions of access to goods or services, for reasons related to a customer's nationality, place of residence or place of establishment" in three scenarios under the geo-blocking rules.

The scenarios in which those rules apply are: to the sale of physical goods without delivery; to the supply of electronic services; and to the supply of all other types of services at physical locations where the trader operates.

An example of when the sale of physical goods without delivery rules will apply is where a Belgian customer wishing to buy a refrigerator finds the best deal on a German website. To comply with the geo-blocking rules, the German trader must ensure the Belgian customer can order the product and collect it at the trader's premises or organise delivery themselves. The German trader cannot block the sale.

In relation to the supply of electronic services, an example might be where a Bulgarian consumer wishes to buy hosting services for her website from a Spanish hosting provider. The Bulgarian consumer should have levels of access to the service, and rights to register and buy this service without paying additional fees comparable to a Spanish consumer.

The sale of services at physical locations might arise at a theme park. If an Italian family visits a French theme park and wishes to take advantage of a family discount on the price of the entry tickets, the discounted price must be available for the Italian family in the same way they are to families from other countries.

For businesses, the main point of action arises in relation to sales of physical goods without delivery.

Action for businesses:

  • Businesses should ensure they provide an option on their website for customers to collect an order or arrange delivery themselves if they are located outside the usual delivery area.

Discrimination based on means of payment

Traders are free under the geo-blocking regime to select the types of payment they will accept in return for supplying goods or service. However, the rules prohibit them from applying conditions on the location of payment accounts, the place of establishment of payment service providers or the place of issue of payment instruments where those conditions are based on the customer's nationality, place of residence or place of establishment.

These rules apply to electronic credit transfers, direct debit payments and card-based payments within the same payment brand and category, as well as authentication requirements applicable under EU payment services laws, and to transactions in a currency that the trader accepts too.

Action for businesses:

  • Businesses should review their online payment mechanisms to determine if differential treatment is being imposed, such as requiring customers to have a local bank account to complete a sale, and remove such restrictions where identified.

Agreements on passive sales

Sometimes businesses enter into agreements relating to the goods they sell. Those agreements sometimes set out limitations and restrictions on the types of sales businesses can make, including in relation to the types of customer businesses can sell to and the geographic markets in which they can sell to.

The geo-blocking rules explain that 'passive sales' clauses set out in those agreements that require a trader to breach the Geo-blocking Regulation are automatically void and unenforceable.

Passive sales concern sales that businesses make when customer sales are of an unsolicited nature. These are different from 'active sales' which is a term that applies when businesses target sales from particular customer groups.

In practice, therefore, traders must set aside restrictions on passive sales set out in distribution agreements that breach the Geo-Blocking Regulation so as to avoid falling foul of the geo-blocking rules.

The provisions on passive sales set out in the Regulation do not come into force until 23 March 2020.

Action for businesses:

  • Businesses should review their sales model, supplier, licencing and distribution agreements to ensure they do not geo-block or restrict passive sales that could breach the Regulation.

Brexit

The Geo-Blocking Regulation is a piece of EU legislation and it has direct effect in all EU member states.

The UK government has explained that, in the event of a 'no deal' Brexit, the UK version of the Geo-Blocking Regulation would be repealed, meaning it will cease to have effect in the UK. The Geo-blocking Regulation (Revocation) (EU Exit) Regulations 2019 were approved by MPs in the House of Commons on 2 April. No equivalent national legislation is envisaged.

The EU's Geo-Blocking Regulation will continue to apply to UK businesses that continue to supply goods and services into EU countries, regardless of the outcome of Brexit.

Customers who are resident in the UK would, though, cease to come within the definition of "customer" under the rules. Traders from the UK, EU and third countries would therefore not be prohibited from discriminating between EU customers and UK customers under the rules.

Sanctions

The Geo-Blocking Regulation is not prescriptive about the type of sanctions that should be available to regulators in the event that businesses breach the rules. It leaves it open to each EU member state to decide their own effective, proportionate and dissuasive measures to address cases of non-compliance.

Member States must designate one or more bodies responsible for adequate and effective enforcement of the Regulation. In the UK, the Competition and Markets Authority (CMA) has been tasked with this duty.

The Geo-Blocking (Enforcement) Regulation provides the CMA with the ability to utilise all of the existing powers it has to enforce UK consumer rights law in respect of the geo-blocking regime.

Those powers are set out in part 8 of the Enterprise Act and include the ability to obtain a court order requiring trader to stop breaching the Geo-Blocking Regulation where the breach of its terms harms the collective interests of consumers. Similar powers let the CMA obtain undertakings from traders that commit them to end non-compliant practices.

In addition, if a customer suffers a loss as a result of a trader breaching the Geo-Blocking Regulation, that customer can bring a claim directly against the trader in relation to that loss.

Samantha Livesey is an expert in e-commerce regulation at Pinsent Masons, the law firm behind Out-Law.com.