E-commerce is becoming increasingly important. Eurostat reports that about 18 per cent of business turnover in 2016 flowed from online sales, and the Commission estimates the growth of online product sales in the European Union at 22 per cent annually. Internet sales have the potential to enable cross-border transactions, but this is not happening in the EU.
Redirecting online customers to their local website is common practice. There are many reasons why cross-border supply can be unattractive. Uncertainty about the effect of local laws on consumer protection, environmental requirements, labelling and tax can all lead businesses to shy away from selling into other markets. Higher delivery costs and language issues also play a part. And suppliers may also wish to offer different pricing structures in different countries. E-commerce sites can make use of commercially available APIs to make redirections based, for example, on the customer’s IP address. But these practices act as a brake on cross-border transactions and, in the EU, are seen as an interference with the single market.
The new Geo-blocking Regulation will make much of this activity illegal. The Regulation goes a long way towards preventing online traders from restricting supply of their goods or services to customers in other EU countries. It is part of the EU’s ambitious Digital Single Market package that aims to free up cross-border trade, with for example, plans to improve cross-border deliveries and facilitate the availability of copyright material.
Controlling access to websites
The new law rules out practices where traders operating in one member state block or limit access to their online interfaces, such as websites and apps, on the basis of the customer’s nationality, place or residence or place of establishment. The Regulation does not rule out the operation of country-specific websites – these can offer a tailored experience for the customer applying the local language and preferences. But it does prohibit both blocking access to a foreign site, and automatic redirection to the customer’s home website without their explicit consent. Traders may be able to block access where there is a legal reason to do so, but they will have to explain this to the consumer at the time.
Discriminatory Ts and Cs
The basic position is that traders will not be allowed to specify different general terms and conditions for customers from other countries if any of the following three situations apply:
- The customer wishes to buy goods for delivery to a location, or collection from a point, within the trader’s normal offer. The reason for this is a customer might find a better price than is available in his home market from a seller in another EU country, for example, and be willing to organise his own delivery arrangements. Or if the trader does deliver to the country where the customer is based, it cannot refuse to do so if the customer buys through a different national website.
- The customer wants to order an electronically supplied service (excluding copyright protected content). This might include website-hosting, or cloud services.
- The customer wishes to order a service that takes place in the supplier’s home territory. For example the customer might want to book online for a visit to a theme park, hotel or sports venue.
Discriminatory payment practices
Traders will not be able to discriminate against payment methods purely on the basis of where the customer is located. They will not necessarily have to accept any form of payment, but once they have selected acceptable payment means, such as particular credit card brands, they cannot then exclude certain payments for geographical reasons.
Obligations in distribution and licensing arrangements
Suppliers sometimes seek to control their distribution networks strictly through prohibitions in their distribution and licensing agreements. This is often the case with branded goods. Competition law imposes tight restrictions clauses like these. And the Geo-blocking Regulation will add a further layer to this. Clauses that restrict passive sales and that are contrary to the rules outlined above will be automatically void. The time for application of this part of the Regulation is extended to March 2020.
Points to note:
- B2C and B2B: The new law is not restricted to sales to consumers. Business purchasers are covered too, so long as their reason for purchase is end use rather than onward sale.
- Non-EU traders: Suppliers based outside the EU are caught by the new rules, alongside EU-based traders, if they sell to EU customers.
- Sales entirely within one country will not be affected.
- The rules will apply from 3 December 2018, except for the new controls on distribution and licensing agreements.
Will this apply across all sectors?
Some sectors are separately regulated or earmarked for individual consideration. The Geo-blocking Regulation will not apply across the board. Excluded sectors, for example, are:
- Services where the main feature is the provision of copyright protected content, or the sale of copyright works in intangible form, like music streaming, e-books, online games and software. This area is under review for separate legislation.
- Audio-visual services, broadcast sports events and radio.
- Financial services.
- Transport services.
- Healthcare and social services.
What about Brexit?
Timing is important when considering how this will affect UK businesses and consumers. Other than the rule affecting distribution and licensing agreements, the new law is slated to apply from December 2018. This is before the withdrawal date currently under consideration (March 2019) and certainly well before the end of any transitional period. This means that under current proposals, it will become part of the body of EU law that will be grand-fathered by the Withdrawal Bill. Obviously, post-Brexit, nothing is set in stone, and rules like this that are specifically designed to promote smooth cross border trade look vulnerable. But for now, businesses should work on the basis that it will apply in the UK as elsewhere across the continent.
Online suppliers are currently faced with achieving compliance with the General Data Protection Regulation, or GDPR by May 2018. This new set of obligations presents them with a further compliance challenge for 2018.
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