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Geo-blocking: how will it affect online retailers?

By: Nicky Strong

As part of the European Commission's Digital Single Market Strategy (DSMS), the EU finally published legislation to prevent companies from geo-blocking (the Regulation) in February.

The Regulation applies from 3 December 2018 and is directly applicable in all member states. Companies geo-block when they block or limit a customer's access to their website or have different general conditions of sale for their goods and services for customers in different member states.

This article will explain what these geoblocking rules mean for online retailers.

What is the Commission's aim with the Regulation?

The Regulation is designed to prevent artificial segmentation of the market by traders, thus ensuring that customers on the single market are not directly or indirectly discriminated against on the basis of nationality, place of residence or place of establishment. It is intended to lead to greater choice and transparency for shoppers, and increase cross-border transactions

However, significantly, the Regulation does not require traders to deliver goods to all member states.  They are only required to deliver where they have a presence or already deliver in a particular country.  Companies are still allowed to not sell certain goods or services or apply different conditions for reasons that are not related to the location of the customer, eg stocks or commerciality.  

Although traders are not obliged to harmonise prices across the EU, customers will be able to see the prices charged in other member states so there is a risk that this will put pressure on retailers to move to standardised pricing.

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Key provisions

The Regulation applies to both traders established in the EU and to third country traders selling goods or services in the EU.  Both customers and businesses acting as end-users are protected.  

The main provisions are:

  • Geo-blocking of a website or app based on the nationality, residence or place of establishment of the customer is prohibited.
  • Automatic redirection to a local version of a website is prohibited; customers must be given a choice on redirection (and be free to change their minds later).
  • Conditions of access to goods or services should not be different across member states on the basis of nationality, residence or place of establishment of the customer in three specific situations only:
    • if the trader does not deliver to the customer's member state, the trader must make products available for delivery or collection in their home territory for a customer to collect but is not obliged to deliver to other member states;
    • the sale of electronically supplied services should be available on the same conditions to customers across the EU, eg cloud services and data warehouse services.  This excludes services where the main feature is access to or the use of protected content; and
    • services provided at the trader's premises should have the same conditions for customers from other member states as domestic customers, eg hotels and car hire.
  • Payment conditions cannot be different because of a customer's nationality, residence or place of establishment.

As part of the wider DSMS, the Regulations include exclusions that are either covered by other measures or where the policy has not yet been decided. These are:

  • Audio visual services that are covered by other legislation eg films, television programmes and sports broadcasts.
  • Financial services, healthcare services, certain social services, gambling activities and transport services that are all excluded from the provisions by virtue of their inclusion under Article 2(2) Services Directive 2006.
  • Certain prohibitions do not apply to traders that are exempt from VAT.

The enforcement of the Regulation is for each member state to legislate on. In the UK, draft regulations have yet to be published, but the Regulation also contains a review provision for the impact to be assessed within 2 years of it coming into force, so we expect there to be some pressure on the UK regulatory authorities to monitor compliance. This is particularly in view of the fact that there is a specific provision requiring member states to designate a body to provide assistance to customers in the event of a dispute over the application of the Regulation.

What does this mean for online retailers – practical examples:

  • Automatic/compulsory redirection to a local website: A British customer wants to access an online clothing shop's Italian website. Even though she types in the URL of the Italian version, she gets redirected to the British version.  Under the Regulations such redirection will require the customer's explicit consent. Even if the customer gives consent to the redirection, the original version she sought to visit should remain accessible.
  • Different conditions of access to goods or services - A Belgian customer wishes to buy a fridge and finds the best deal on a German website. The German company does not currently deliver to Belgium. The customer will be entitled to order the product and collect it at the trader's premises or organise delivery himself to his home.
  • Sale of electronically delivered services: A Bulgarian shopper wishes to buy hosting services for her website from a Spanish company. She will have access to the service, can register and buy this service without having to pay additional fees compared to a Spanish customer.
  • Sale of services provided in a specific physical location: An Italian family wants to visit 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 made available to the Italian family.

What online retailers should do now

In advance of 3 December 2018, retailers should:

  • Check your websites and apps to ensure that they comply.  Any customer-facing restrictions on which version of the website or app can be accessed will need to be removed, which could involve a substantial re-design of your platform.
  • Review accepted payment methods and conditions to make sure that they are available to all customers on the same terms.  This may involve charges to make this consistent, which you will need to be prepared for.
  • Review your current VAT arrangements – depending on the circumstances, there may be an additional burden of complying with local VAT rules.
  • Logistics hubs in a member state will be considered a presence there and the company will be expected to deliver within that member state.  This could cause problems where manufacturing is in one place but delivery systems are only set up in other member states.
  • Be aware that even though prices do not have to be harmonised across the EU, customers will be able to see what you charge in other member states and could pressurise you to make prices consistent. The regulation does not prohibit differential pricing, but this cannot be on the grounds of the customer's nationality or place of residence. Promotional offers should be carefully structured to avoid falling foul of this requirement.

The impact of Brexit

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Following recent negotiations, the latest draft withdrawal agreement states that EU legislation will apply to the UK during the transition period (ie to 31 December 2020). As we know, what happens at the end of that period is not yet clear. According to the latest position paper, should the Regulation cease to apply at the end of the transition period, this would mean that UK customers would not benefit from the provisions of the Regulations but UK traders operating in the EU would need to continue to comply with them.

We recommend that UK online traders should work on the basis that the Regulation will apply post-transition, and in any event traders will need to comply with it from 8 December 2018.

 

By: Nicky Strong, Consultant, Womble Bond Dickinson (UK) LLP

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