IS IT TIME TO UNBLOCK GEO-BLOCKING?

Transcription

1 BRIEFING IS IT TIME TO UNBLOCK GEO-BLOCKING? APRIL 2016 INITIAL FINDINGS FROM THE EUROPEAN COMMISSION S SECTOR INQUIRY REVEAL WIDESPREAD GEO-BLOCKING THROUGHOUT THE EU ONLINE MARKETPLACE The European Commission (the Commission ) has revealed that companies widely practise geo-blocking in EU e-commerce markets. BACKGROUND This is the initial finding from its e-commerce sector inquiry launched in May 2015, under Article 17 of Council Regulation No. 1/ The Commission began the inquiry to support its Digital Single Market Strategy 2 (the Digital Single Market Strategy ), one of the primary aims of which is to provide better online access to goods and services for EU consumers and businesses. In its Work Programme 2015 (adopted on 16 December 2014) the Commission made the completion of a digital single market a priority. Its subsequent communication (in May 2015) on the Digital Single Market Strategy sets out various actions to achieve a digital single market. 1 Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, OJ L 1, , p Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions "A Digital Single Market Strategy for Europe", COM (2015) 192, final.

2 2 Watson Farley & Williams The Digital Single Market Strategy is directed to achieving three main objectives: better online access to goods and services; creating an environment where digital networks and services can prosper; and maximising the growth potential of the digital economy. Furthermore, the Digital Single Market Strategy aims to define an appropriate e-commerce framework and prevent unfair discrimination against consumers and businesses (with respect to nationality, residence or geographic location restrictions) when they try to access content or buy goods and/or services online. To promote better online access to goods and services (the first objective), the Commission would like to prevent unjustified geo-blocking (among other actions). Geo-blocking refers to commercial practices by which online providers prevent users from accessing and/or purchasing goods (including digital content) offered on their website based on the user s location or country of residence. 3 According to the Commission, by limiting consumer opportunities and choice, geo-blocking is a significant cause of consumer dissatisfaction and fragmentation of the internal market. Geo-blocking can occur at various stages of, or can take various forms in an online transaction for instance, blocking access to websites of users located in other Member States; automatic re-routing of users to another website of the same or a different service provider (usually with a different price); and refusal of payment/delivery based on the location/place of residence of the user. THE COMMISSION S INITIAL FINDINGS Based on more than 1,400 responses from retailers and digital content providers across the 28 Member States, the Commission s initial findings show a widespread use of geo-blocking which prevents consumers from purchasing consumer goods and accessing digital content online in the EU. Consumer goods 38% of the consumer goods retailers that responded to the Commission s questionnaire stated that they collected location-related information from users (for example, IP address, bank card details) and used this information for geo-blocking purposes. The methods used by these retailers for geo-blocking are set out in the figure below 4 : 3 Geo-blocking, however, differs from geo-filtering, which involves online providers allowing users to access and purchase goods cross-border, but on different terms and conditions based on the location of the user. 4 Based on Figure 1of the Factsheet published by the Commission along with its initial findings:

3 Is It Time to Un-Block Geo-Blocking? 3 30% 25% 20% 22% 27% 15% 10% 5% 5% 10% 0% Prevent access to website Re route customer to other EU MS Refuse to accept payment Refuse delivery Geo-blocking methods used by consumer goods retailers in the 28 EU Member States The Commission has also found that, while in the majority of cases in the consumer goods market, geo-blocking was based on a unilateral decision of the parties involved, around 12% of the retailers stated that they had introduced these restrictions based on contracts with their suppliers. Digital Content The situation is quite different in the digital content market. Around 68% of the digital content providers that participated in the Commission inquiry admitted that they geo-blocked users located in other EU Member States mostly by verifying the IP address of users, which identifies the geographic location of the device (computer, smartphone or tablet). 59% of the participating providers responded that they were contractually required by their suppliers to geo-block. The figure below provides a breakdown by category of the agreements requiring content providers to geo-block 5 : News 23% Music 44% Non fiction TV 50% Children's TV 55% Sports 63% Films 66% Fiction TV 74% 0% 10% 20% 30% 40% 50% 60% 70% 80% Proportion of agreements requiring providers to geo-block by category 5 Based on Figure 3 of the Factsheet published by the Commission along with its initial findings:

4 4 Watson Farley & Williams IS COMPETITION LAW THE ANSWER? Geo-blocking, as noted by the Commission may impede the proper functioning of the internal market. In some cases it can be justified, for instance where a seller has introduced it to comply with specific legal obligations. Nevertheless, in many cases geo-blocking cannot be justified and the Commission wishes to prohibit such unjustified geo-blocking practices; the question is: how? One way is to apply competition law, but its use here may be limited: In some cases, geo-blocking appears to be linked to arrangements/agreements between suppliers and retailers. Such agreements or arrangements may in principle infringe Article 101 of the Treaty on Functioning of the European Union ( TFEU ). But this needs to be assessed on a case-by-case basis for instance, even though there may be some restriction of competition it may be possible to justify the arrangement/agreement under Article 101(3) TFEU. Where geo-blocking is based on unilateral business decisions by a company, such behaviour when practised by a non-dominant company falls outside the scope of EU competition law. Furthermore, there are also a number of uncertainties in the application of competition law to certain practices in e-commerce. For instance, the Commission's guidelines on vertical restraints provide that in certain circumstances suppliers (especially of high-end branded products) can lawfully impose strict criteria when selling online including certain restrictions on using third party platforms. The Commission has, therefore, stressed that its initial findings do not amount to a finding of competition concerns, nor will it necessarily lead to opening of a competition investigation. These initial findings will feed into the Commission's on-going sector inquiry and they will also complement wider actions within the framework of the Commission's Digital Single Market Strategy. The Commission has indicated that it will present a detailed analysis of all its findings from the on-going e-commerce sector inquiry in a preliminary report in mid The preliminary report will then be followed by a final report in early The Commission recognises the limits to using competition rules alone to prevent geo-blocking. Therefore, as part of its the Digital Single Market Strategy, it had also proposed to make legislative proposals in mid-2016 to end unjustified geo-blocking these proposals could include targeting changes to the e-commerce framework and the framework set out by Article 20 of the Services Directive. 6 6 Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market. Article 20 requires the Member States to ensure that the recipient is not made subject to discriminatory requirements based on his nationality or place of residence.

5 Is It Time to Un-Block Geo-Blocking? 5 COMMENT Recently, competition authorities in the EU and its Member States have renewed vigour in investigating vertical restraints, especially in online marketplaces. For instance, last August the German competition authority, the Bundeskartellamt, criticised a blanket ban imposed by Asics on dealers using third party marketplaces (such as Amazon). 7 Furthermore, in April 2016 the Bundeskartellamt President, Andreas Mundt, indicated that manufacturers that restrict sales of their products online will find it difficult to convince the German competition authority that the restrictions in question lead to consumer benefits and distribution efficiencies. 8 Similarly, in 2013 the French competition authority, the Autorité de la concurrence, fined Bang & Olufsen for restricting online sales of its products by its approved distributors. And in the UK, earlier this year the Competition and Markets Authority issued a statement of objections to the bathroom fittings supplier Ultra Finishing Limited, and to the commercial refrigeration products supplier Foster Refrigerator (a division of ITW Ltd) for alleged introduction of minimum advertised prices for internet sales; and thereby effectively limiting the ability of their retailers to make online sales below a specified price level. The outcome of the Commission s e-commerce sector inquiry is not yet clear. Equally, it is unclear how useful competition rules would be in reducing the widespread use of geo-blocking on the EU e-commerce market. The Commission, however, is determined to address this issue. As ever, companies need to keep their distribution arrangements particularly in relation to e-commerce under regular review so as to avoid breaches of competition and EU law. 7 It did not have to, however, take a decision on this point as the other online restrictions imposed by Asics were proved to be anti-competitive. 8 See MLex article, German watchdog unpersuaded by 'efficiency' claims in online sales curbs, published on on 7 April 2016 (Author: Lewis Crofts).

6 6 Watson Farley & Williams FOR MORE INFORMATION Should you like to discuss any of the matters raised in this Briefing, please speak with a member of our team below or your regular contact at Watson Farley & Williams. JEREMY ROBINSON Partner London jrobinson@wfw.com CHRISTINE BADER Partner Hamburg cbader@wfw.com VINEET BUDHIRAJA Associate London vbudhiraja@wfw.com Publication code number: v2 Watson Farley & Williams 2016 All references to Watson Farley & Williams, WFW and the firm in this document mean Watson Farley & Williams LLP and/or its Affiliated Entities. Any reference to a partner means a member of Watson Farley & Williams LLP, or a member or partner in an Affiliated Entity, or an employee or consultant with equivalent standing and qualification. The transactions and matters referred to in this document represent the experience of our lawyers. This publication is produced by Watson Farley & Williams. It provides a summary of the legal issues, but is not intended to give specific legal advice. The situation described may not apply to your circumstances. If you require advice or have questions or comments on its subject, please speak to your usual contact at Watson Farley & Williams. This publication constitutes attorney advertising. wfw.com