The Geoblocking Directive, a major problem for price diversification for E-commerces
By Brian Fabregue, EternosCorp partner.
On the 28th February 2018, Regulation (EU) No 2018/302 ”to counter unjustified geographical geoblocking and other forms of discrimination based on nationality, place of residence or place of establishment of customers in the internal market “(hereinafter “Regulation (EU) No 2018/302”), also known as the Geoblocking Regulation, was adopted.
The regulation, which is part of the European Union’s (the “Union”) drive to promote e-commerce in a digital single market ensuring that all customers in the Union have equal access to goods and services throughout the Union, will require traders to review a number of e-commerce practices.
Geoblocking, a normal business practice made illegal.
Geoblocking is the practice of preventing an online buyer from accessing and/or acquiring products or services offered on a website established in a Member State other than that of the buyer’s residence or location. This may include blocking access to online content because of the user’s location or redirecting the user to another site available in his or her state of residence, preventing the customer from completing the purchase or requiring the customer to pay with a debit or credit card .
“Geoblocking is achieved through purely technical manipulation, but is not a disloyal commercial practice per se ” commented Adam Thiry, a partner at Eternos Corporation. Before the directive , by manipulating URLs and IP addresses, an EU trader could prevent consumers from accessing a website located in an EU country other than their own. “This geographic blocking did not allow a French consumer, for example, to buy a product on the trader’s Spanish platform. Automatic redirection of the buyer to the version of the website corresponding to his place of residence was also allowed. This practice is now prohibited. Opening a pop-up window or displaying a message requesting the consumer’s permission to redirect him remains possible. ”.
This regulation also has no impact on the determination of selling prices. “A retailer in France is not obliged to charge the same prices as in Italy,” says Maitre Thiry “Their standardisation by regulation (including Community regulation) is not possible : this would run counter to the fundamental principle of free competition. ” From now on, a European consumer will be able to visit all the seller’s European websites and choose the most advantageous one. However, the regulation includes a limitation : it does not oblige traders to deliver their products throughout the EU. Access to all the online interfaces on a single site does not guarantee that the goods will be delivered to the customer’s home.
According to Article 1 of Regulation (EU) n°2018/302, geoblocking can be defined as discrimination “based, directly or indirectly, on the nationality, place of residence or place of establishment of clients”. Regulation (EU) n°2018/302 concerns any trader, i.e. “any natural or legal person, whether public or private, who is acting, including through another person acting in the name or on behalf of the trader, for purposes relating to the trader’s commercial, industrial, craft or professional activity “.
All professionals offering goods or services online in the EU will therefore be obliged to apply these new provisions.
Who will be protected by these new provisions?
It should be noted that Regulation (EU) n°2018/302 is not limited to the relationship between a consumer and a professional but that the European legislator has rather opted for a reference to the relationship between a “client” and a professional.
The reference to this notion of “client” thus implies the application of the provisions of Regulation (EU) n°2018/302 to a wider circle of persons. Indeed, Regulation (EU) n°2018/302 defines the notion of customer as: “a consumer who is a national of a Member State or has his place of residence in a Member State, or an undertaking having its place of establishment in a Member State, and who receives a service or purchases a good, or attempts to do so, within the Union, for the sole purpose of its end use”.
Thus, geoblocking will be prohibited not only in B2C relationships but also in B2B relationships when the professional acquires a good or service online for the sole purpose of its end use. The professional acquiring a good or service for the sole purpose of its end use will therefore also benefit from the protection conferred by Regulation (EU) n°2018/302.
Will the ban on geoblocking be absolute?
Regulation (EU) n°2018/302 makes a distinction according to whether geoblocking consists of restrictions on access to online interfaces or restrictions on access to goods and services offered on these online interfaces.
Regulation (EU) n°2018/302 absolutely prohibits the professional from blocking or limiting a client’s access to a website or other site on grounds of the client’s nationality, place of residence or place of establishment. It is also prohibited, except with the express consent of the client, to redirect the client to a version of the online interface which is different from the version the client originally wanted to access.
However, these prohibitions shall not apply when blocking, limiting access or redirecting the client is necessary to satisfy a legal obligation applicable to the professional’s activities. However, those limitations are written in the Europeans directive and concern mainly regulated professions, not commercial activities, such as Legal and accounting professions or banking companies. .
Regulation (EU) n°2018/302 also provides that a professional CANNOT apply general conditions of access to the goods or services he offers that differ according to the nationality, place of residence or place of establishment of the client, in cases where the client seeks to:
(a) purchase goods from a trader and either those goods are delivered to a place in a Member State to which the delivery is offered in the trader’s standard terms and conditions of access or those goods are collected at a place agreed between the trader and the customer in a Member State for which the trader offers such an option in the standard terms and conditions of access;
(b) obtaining services provided by a professional by electronic means (e.g. cloud services, data storage, website hosting),
(c) obtaining services from a professional, other than services provided by electronic means, at a place situated in the territory of a Member State in which the professional pursues his activity (e.g. hotel accommodation or car rental provided in the Member State of establishment of the professional).
However, it should be noted that services provided by a professional by electronic means, the main characteristic of which is to provide access to or use of copyright works or other subject-matter, including the sale in intangible form of copyright works or other subject-matter, are excluded from the scope of these provisions. Purely domestic transactions, i.e. transactions between a professional and a client located in the same Member State are excluded from the scope of application of Regulation (EU) n°2018/302 .
Will a trader still be free to determine where he wishes to deliver his goods?
Yes, Regulation (EU) No 2018/302 imposes an obligation on the trader to allow access to his goods, but not an obligation on the trader to deliver to a Member State where he does not normally offer delivery.
A foreign customer should therefore be able to acquire the goods offered by traders established in the Union on the same conditions as a resident of the Member State where the trader is established, but he will not be able to require the trader to deliver the goods in his State of residence and may have to arrange to collect them himself or at a place agreed with the trader.
In order to avoid any discussion on this point, professionals are nevertheless strongly advised to clearly indicate on their website the countries to which they deliver.
Will a trader still be free to determine the payment terms he accepts for cross-border transactions?
Regulation (EU) No 2018/302 does not oblige merchants to accept all means of payment.
However, the means of payment accepted by the merchant must be available and offered on non-discriminatory terms and conditions to all customers, irrespective of their nationality, place of residence, place of establishment of the customer, location of the payment account, place of establishment of the payment service provider or place of issue of the payment instrument. It is also to be noted that banking companies application of this rule is currently under study by the EU Commission.
For more info, you can contact our banking consulting specialist, Mr. Fabregue, at our mail contact (at) eternoscorp.com.
First condemnation last June, Guess.
The free movement of goods is one of the fundamental freedoms of the European Union. Except that when the Treaty of Rome establishing the customs union was ratified in 1957, e-commerce had not yet made its appearance. The completion of the single market is not possible without the regulation of e-commerce, which generates around €415 billion a year. This is one of the priorities of the Commission, which, through a decision like this, guarantees equal access to goods and services online. Just a few days after the decision implement, Guess became the first company to be sanctioned by the European Commission to a fine of almost €40 million for violating the rules banning geoblocking. The penalty came just ten days after the new rules came into force.
Since June 2017, the Commission has been conducting a survey of the entire e-commerce sector across all industries. The practices of around 2 000 companies had been examined and no details have been given on the choice of Guess as the subject of the first conviction. In its decision, the Commission criticised Guess for several violations of traditional competition law, such as the prohibition on its distributors to freely decide the retail price of its products and to engage in cross selling1 between authorised wholesalers and retailers. And, on the other hand, to contravene the principles of Regulation 2018/302. Adam Thiry confirms : “The only novelty in the decision concerns geoblocking. Even though the investigation lasted a year and a half, the decision is surprising because it came only a few weeks after the regulation came into force. Guess’ cooperation with the Commission, however, justifies these short delays. As the fashion company acknowledged the infringements it was accused of, it was granted a 50% reduction in its fine.”
It is important to note that the provisions of any EU Regulation are directly applicable in all Member States of the European Union without the need for transposition into national law. EU principles require that fines should be proportionate to the infringement, but do not determine their amounts, “so this was mainly a way to indicate how the Commission wants to work”, added Adam Thiry.
But the biggest fine just came a few days ago, last February. Five video game publishers and the operator of Steam (the world’s leading online gaming platform) were fined by the European Commission for setting up a contractual system to partition markets (and thus control prices).
Valve doesn’t mean anything to you but maybe “Steam” means something (your children certainly do). Steam is 35,000 games offered worldwide, one of the largest online PC gaming platforms in the world. It allows users, after authentication, to download or stream video games directly to their PC. It also allows users who buy PC games through other channels, either in physical shops (e.g. DVD) or digitally by downloading from third-party websites, to activate and play them on Steam.
Early in 2019, the European Commission announced that it would open an investigation against Valve and five other companies.
At the heart of the survey: the ‘activation keys’ that Steam distributes to game publishers and which are necessary to allow consumers to play games purchased elsewhere on the platform (either as a download or on physical media).
The Commission expressed particular concern that:
- Valve and the five PC game publishers, in breach of EU antitrust rules, have agreed to use geoblocked activation keys to prevent cross-border sales, preventing consumers from buying cheaper games in other Member States;
- Bandai Namco, Focus Home, Koch Media and ZeniMax violated EU antitrust rules by including contractual export restrictions in their agreements with several distributors other than Valve. These distributors were prevented from selling the PC games concerned outside their allocated territories, which could cover one or more Member States. These practices may have prevented consumers from buying and playing the PC games sold by these distributors either on physical media, such as DVDs, or by downloading them.
The Commission’s investigation confirmed a complex contractual scheme whereby Valve provides publishers with activation keys which it controls and which publishers include in the copies of games sold, and publishers decide with Valve the countries in which these keys can be used to activate the game concerned on Valve’s platform.
As a result, a consumer who lives in country A but buys a game in country B will not be able to use the Steam activation key on the purchased copy: the system will refuse to authorise on the Steam platform a product purchased in a country other than his own.
The Commission found that by bilaterally agreeing to geo-block certain PC games outside a specific territory, Valve and each of the publishers had partitioned the EEA market in violation of EU rules on anti-competitive practices.
In particular, the decisions adopted conclude that Valve and the publishers have engaged in the following geographic blocking practices:
- bilateral agreements and/or concerted practices between Valve and each of the five PC game publishers, implemented by means of geo-blocked Steam activation keys, which prevented the activation of some of the PC games of these publishers outside the Czech Republic, Poland, Hungary, Romania, Slovakia, Estonia, Latvia and Lithuania, in response to unsolicited requests (so-called “passive sales”). These lasted between one and five years and were implemented, as appropriate, between September 2010 and October 2015;
- geographic blocking practices in the form of bilateral licensing and distribution agreements between four of the five PC game publishers (namely Bandai, Focus Home, Koch Media and ZeniMax) and some of their respective distributors of PC games in the EEA (other than Valve), containing clauses which restricted cross-border (passive) sales of the PC games concerned in the EEA, in particular in the above-mentioned Central and Eastern European countries. These clauses generally lasted longer, between three and 11 years, and were implemented, depending on the bilateral relationship, between March 2007 and November 2018.
The cooperating publishers received a reduced fine, while Valve, which chose not to cooperate, was fined €1,624,000. This bigger fine shows the intention of the European Commission to block all kind of geoblocking.
For more info, you can contact us at our contact email : contact (at) eternoscorp.com.
 Article 2 paragraph 18 of Regulation (EU) n°2018/302.
 According to Article 2 of Regulation (EU) n°2018/302, an online interface is defined as “any software, including a website or a section of a website, and applications, in particular mobile applications, operated by or on behalf of a trader and allowing customers to access the goods or services he offers in order to carry out a transaction relating to those goods or services”.
 Article 3 of Regulation (EU) n°2018/302
 reminder, the notion of “consumer” is different from the notion of “client” used in Regulation (EU) No. 2018/302. Indeed, European legislation defines a consumer as: “any natural person who is acting for purposes which are outside his trade, business, craft or profession” (Article 2 of Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights).
 Article 1 paragraph 2 of Regulation (EU) n°2018/302.
 Article 5 of Regulation (EU) n°2018/302