Out-Law News 2 min. read

'Contractual barriers' behind geo-blocking could breach EU competition rules, says Commission

Consumers are partly prevented from accessing online services and content across the EU by "contractual barriers" put in place by businesses, the European Commission has said.

Where contractual provisions are behind so-called 'geo-blocking' then those agreements might breach EU competition rules, the Commission said in announcing the initial findings of its e-commerce sector inquiry. Geo-blocking refers to restrictions placed on access to online services and content on a geographic basis.

"In some cases, geo-blocking appears to be linked to agreements between suppliers and distributors," the Commission said. "Such agreements may restrict competition in the single market in breach of EU antitrust rules. This however needs to be assessed on a case-by-case basis."

"In contrast, if geo-blocking is based on unilateral business decisions by a company not to sell abroad, such behaviour by a non-dominant company falls clearly outside the scope of EU competition law," it said.

The Commission said it would bring forward legislative proposals in May designed to "address unjustified barriers to cross-border e-commerce" to encourage more businesses to trade across national borders in the EU.

The Commission said that more than 1,400 retailers and digital content providers had engaged with its e-commerce sector inquiry and that the responses showed that geo-blocking of consumer goods and digital content is "common".

The Commission said 38% of retailers selling consumer goods said that they geo-block consumers located in other EU countries from buying those goods and 12% of all the retailers that responded said there are "contractual restrictions" on cross-border selling for at least one type of product they offer.

Geo-blocking is also common among digital content providers, according to the Commission's initial findings. It said that 68% of digital content providers geo-block consumers from some EU countries from accessing the digital content they supply. More than half of the content providers (59%) said they are "contractually required by suppliers to geo-block", according to the Commission.

EU competition commissioner Margrethe Vestager said: "The information gathered as part of our e-commerce sector inquiry confirms the indications that made us launch the inquiry: Not only does geo-blocking frequently prevent European consumers from buying goods and digital content online from another EU country, but some of that geo-blocking is the result of restrictions in agreements between suppliers and distributors."

"Where a non-dominant company decides unilaterally not to sell abroad, that is not an issue for competition law. But where geo-blocking occurs due to agreements, we need to take a close look whether there is anti-competitive behaviour, which can be addressed by EU competition tools," she said.

The Commission said it plans to outline "a more detailed analysis" of the findings from its e-commerce sector inquiry in a preliminary report to be published this summer. That report, which will be opened to consultation, will address geo-blocking and "any other potential competition concerns affecting European e-commerce markets", it said. A final report from the e-commerce sector inquiry is scheduled to be published some time in the first three months of 2017, it said.

The Commission said it could initiate enforcement action against businesses if it identifies "specific competition concerns as regards geo-blocking or other issues".

Competition law expert Michael Reich of Pinsent Masons, the law firm behind Out-Law.com, said: "The Commission's policy on geo-blocking is set out in paragraph 52 of its 2010 guidelines on vertical restraints. The Commission is now actively implementing this policy and is publicly announcing its initiative to inform businesses of the approach it will be taking. Businesses that have implemented geo-blocking measures should very swiftly analyse whether they are in line with the Commission’s policy."

Last autumn, separate to its e-commerce sector inquiry, the Commission opened a consultation on geo-blocking and said that it wanted to see whether geo-blocking leads to "unjustified commercial barriers" which prevent trade of products and services within the EU.

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