Documents considered by the Committee on 6 July 2016 Contents

3Digital Single Market: Tackling unjustified geo-blocking

Committee’s assessment

Legally and politically important

Committee’s decision

Not cleared from scrutiny; further information requested; drawn to the attention of the Business Innovation and Skills Committee

Document details

Proposal for a Regulation on addressing geo-blocking and other forms of discrimination based on customers’ nationality, place of residence or place of establishment within the internal market

Legal base

Article 114 TFEU; ordinary legislative procedure; QMV

Department

Business, Innovation and Skills

Document Numbers

(37818), 9611/16 + ADDs 1–2, COM(16) 289

Summary and Committee’s conclusions

3.1Online sellers may—for a variety of commercial reasons—deny consumers based in another EU country access to their websites and content, re-route traffic to a country-specific or local website or apply different pricing or other practices according the consumer’s nationality or residence (collectively known as ‘geo-blocking’). This contrasts to practices for ‘offline’ sales—sellers are unlikely to ask for consumers’ nationality or residence when they purchase products in person from a seller. Geo-blocking can therefore be detrimental to consumers if they can only access their ‘national offer’, and not products available to other consumers in a different EU country or on more favourable conditions.

3.2This draft Regulation aims to address unjustified geo-blocking and discrimination based on nationality or place of residence, imposing an obligation on companies to ‘sell like at home’ and not discriminate against non-home EU Member State consumers in terms of access to prices, sales or payment conditions, unless justified for certain ‘objective’ legal reasons (such as VAT or certain public interest legal provisions).

3.3It is part of a wider e-commerce package aimed at breaking down barriers to cross-border online trade, which also includes a legislative proposal on cross-border parcel delivery services designed to increase the transparency of prices and improve regulatory oversight, a legislative proposal to strengthen enforcement of consumers’ rights by reviewing the Consumer Protection Cooperation (CPC) Regulation, and revised guidance on the Unfair Commercial Practices Directive (which are each the subject of separate Report chapters).

3.4The Parliamentary Under-Secretary for State at the Department for Business, Innovation and Skills (Baroness Neville-Rolfe) notes that the Government supports the proposal in principle, but is assessing its detail and will update the Committee on the Government’s position in due course.

3.5We thank the Minister for her Explanatory Memorandum. As it was submitted before the outcome of the Referendum, we would be grateful if the Minister could respond in due course to these Brexit-related questions:

3.6Turning to the substance of the proposal, we note that the Government is still considering the detail of the proposal. We ask that the Minister address the following issues, as part of her response:

3.7In the meantime, we retain the proposal under scrutiny. We look forward to a response on the issues set out above and the progress of negotiations by the end of September. We draw it to the attention of the Business, Innovation and Skills Committee in the light of their inquiry on the UK Digital Economy.

Full details of the documents

Proposal for a Regulation on addressing geo-blocking and other forms of discrimination based on customers’ nationality, place of residence or place of establishment within the internal market: (37818), 9611/16 + ADDs 1–2, COM(16) 289.

Background

How the proposal fits within the wider Digital Single Market Strategy and Single Market Strategy

3.8One of the key political priorities of Commission President Juncker is the completion of a Digital Single Market (DSM), with the aim of dismantling barriers to online trade in the Internal Market.

3.9In May 2015, the Commission adopted its DSM Strategy, which proposed three ‘pillars’, comprising 16 measures ranging from areas such as consumer contract rules and parcel delivery to audiovisual media services and telecoms rules.

3.10Under the first pillar—aimed at ensuring better access for consumers and businesses to online goods and services across the EU—the Commission committed to “make legislative proposals in the first half of 2016 to end unjustified geo-blocking”.

3.11In June 2015, the European Council supported action to “remove the remaining barriers to the free circulation of goods and services sold online and tackle unjustified discrimination on the grounds of geographic location”.

3.12In its Single Market Strategy of October 2015, the Commission also proposed introducing legislative action “to fight unjustified different treatment of customers on the basis of residence or nationality in terms of access, prices or other sales conditions by: identifying and banning specific forms of residence-based discrimination not grounded on objective and verifiable factors; making it easier for consumers and consumer associations to know if and how there is discrimination, including through transparency tools; and improving enforcement by national authorities through the reform of the Consumer Protection Cooperation Regulation”.

Interaction with other EU policies

Geo-blocking, cross-border online trade and consumer protection

3.13Under the e-Commerce Directive,49 Member States may not create barriers for the taking up and pursuit of information society services provided from another Member State. However, the ‘country of origin principle’50 must be complied with by Member States, not individual economic actors.

3.14The principle of non-discrimination is set out in Article 20(2) of the Services Directive,51 which requires Member States to ensure that companies do not treat customers differently according to their nationality or their country of residence. However, ‘differences in the condition of access’ are permitted where these differences are ‘directly justified by objective criteria’. The Services Directive does not, however, define ‘objective criteria’. The recitals list a wide range of justifiable reasons for differential treatment of consumers.

3.15Article 8(3) of the Consumer Rights Directive is complementary to Article 20 of the Services Directive. It imposes a transparency obligation on distance sellers, requiring them to give information to their consumers on delivery restrictions to be indicated clearly and legibly at the latest at the beginning of the ordering process on the website. The Consumer Rights Directive in general has been designed to offer better information to consumers for contracts concluded at a distance (including online contracts) but not to address whether territorial restrictions are actually justified.

3.16The Unfair Commercial Practices Directive specifies that omitting information or discriminatory practices could lead to unfair commercial practices, but applies to business to consumer (B2C) situations only.

3.17The Consumer Protection Cooperation (CPC) Regulation is the subject of a separate, linked legislative proposal, with a view to strengthening enforcement of consumer rights across borders.

Geo-blocking and EU competition law

3.18In May 2015, the Commission launched a competition sector inquiry into the e-commerce sector, to investigate restrictions of competition that create barriers to cross-border e-commerce. Its preliminary findings suggest that the practice of geo-blocking is widespread across the EU: 38% of retailers and 68% of digital content providers geo-block consumers located in other Member States. The Commission notes that unilateral decisions by (non-dominant) companies not to sell abroad would not breach competition rules. However, geo-blocking restrictions arising from contractual obligations or distribution agreements for online trade of tangible goods and also in the licensing of audiovisual and online content services may, in certain cases, breach EU competition laws. The Commission states that further analysis is required before it can decide whether any follow-up enforcement action is necessary. The final report is expected in the first quarter of 2017.

Geo-blocking and copyright law reform

3.19One of the consequences of geo-blocking is to limit cross-border portability of content, meaning that consumers who have lawfully subscribed to online services in a certain Member State are not allowed to access the same service when moving, even temporarily to another Member State. This aspect of geo-blocking is being addressed via a separate proposal, under the copyright modernisation strand of the DSM Strategy.52

Other initiatives

3.20Restrictions linked to delivery options above 20kg are being addressed in the linked initiative on parcel delivery (see chapter 5 of this Report).

3.21The legislative act will also be added to the annex to the Consumer Protection Cooperation Regulation (see chapter 4 of this Report).

The draft Regulation

3.22This proposal is part of a wider e-commerce package announced on 25 May, designed to improve cross-border online trade across the EU. Its objective is to provide better access to goods and services for customers in the internal market by preventing unjustified discrimination.

Scope

3.23The draft Regulation covers the sale of goods and the provision of services in the EU in circumstances where the customer is not a national of or not residing in or established in the Member State in which the provider is established.

3.24It does not apply to activities referred to in Article 2(2) of the Services Directive activities, including audiovisual and gambling.

3.25Electronically-delivered non-audiovisual content services subject to copyright protection (including music, e-books, software and games) are currently excluded from the scope of the ‘general non-discrimination obligation’ (see below). However, Article 9 of the draft Regulation mandates that two years after the Regulation has come into force a review shall be carried out to assess whether such services should be included in the prohibition in Article 4(1)(b) (subject to the trader having the rights for the relevant territories). Small businesses which fall under their national VAT threshold will be exempted from Article 4(1)(b).

Key provisions

Prohibition on automatic blocking of access to online interfaces or re-routing

3.26Article 3 prevents companies from blocking access to their online interfaces on the basis of customers’ residence or automatically re-routing customers to another online interface (for example the customers’ home country’s website) without their explicit consent, unless there are clear legal reasons for doing so. It also requires sellers to provide a clear justification for automatic blocking or re-routing, and the the original version of the online interface must remain accessible to the consumer, should they wish to go back to it.

Prohibition on applying different ‘general conditions of access’

3.27Article 4 prohibits companies from applying different general conditions of access to their goods and services (including outright refusal to sell goods or services or offer different prices or terms) based on the nationality or place of residence/establishment of a consumer, in three specific situations:

3.28However, recital 17 of the draft Regulation states that “the prohibition applicable in those situations should not be understood as precluding traders from directing their activities at different Member States or certain groups of customers with targeted offers and differing terms and conditions, including through the setting up of country-specific online interfaces”.

Prohibition on discrimination for reasons related to payment

3.29Article 5 prevents companies from blocking a sale for reasons related to payment. Companies that choose to accept a particular payment method (e.g. a particular credit card) will not be able to reject transactions with that payment method on the basis of the residency of the customer or where the payment card/account is located. To address fraud risks, this will only apply where the transaction uses two-factor authentication (e.g. chip and pin).

Agreements on passive sales

3.30Article 6 prevents suppliers from enforcing contracts stopping traders from selling across borders.

Subsidiarity

3.31The Commission considers that EU action is necessary because the implementation and enforcement of the principle of non-discrimination (set in various pieces of EU legislation, as set out above) is not comprehensive, and it can only be tackled effectively at an EU level given the cross-border nature of geo-blocking.

The Minister’s Explanatory Memorandum of 15 June 2016

3.32The Minister agrees with the Commission’s assessment that the proposal complies with the principle of subsidiarity on the basis that:

“Access to goods and services on a non-discriminatory basis within the Single Market is essentially a cross-border issue. The Commission therefore considers EU intervention necessary to prevent discrimination based on residence in cross-border commercial transactions, and legislative intervention by Member States not sufficient to ensure non-discrimination in cross-border situations. The Commission also believes that only an EU intervention can ensure that conditions for customers’ access to goods and services do not vary across the Union, and that action at EU level will ensure greater legal certainty by clarifying the situations in which different treatment on the basis of residence is deemed discriminatory and therefore prohibited.”

3.33The Minister notes that the Government is still developing its position on the proposal, but appears broadly supportive of tackling geo-blocking in principle. She notes that in the Government’s response to the Commission’s consultation last September on tackling geo-blocking,53 the Government “welcomed the Commission’s initiative to tackle the differential treatment of customers based on their nationality or geographical location” and considered that “Internet Protocol, payment card addresses or other means of geo-blocking should not be used to block access to special offers and lower prices where there is no justifiable reason for doing so”.

3.34The Minister promises a detailed assessment of the initiative and update to Parliament on the Government’s position in due course.

3.35On timing and next steps, the Minister notes the proposal will be taken forward by the current Dutch Presidency and that the incoming Slovakian Presidency is aiming for agreement for a General Approach within the Council by the end of this year.

Previous Committee Reports

None.


48 The recitals of the draft Regulation state that it does not affect EU competition law, but the draft Regulation (Article 6) nevertheless states that agreements imposing on traders obligations in respect of passive sales to act in violation of the Regulation would be automatically void.

49 Directive 2000/31/EC on electronic commerce.

50 The country of origin principle enables online service providers to operate their services on a cross-border basis without the need to seek different or alternative authorisation from another Member State.

51 Directive 2006/123/EC on services in the Internal Market.

52 See Report chapters on ‘Copyright in the Digital Single Market: Cross-border portability of online content’: HC 342-xvii; HC 342-xxiv; HC 342-xxviii and HC 71-i.




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11 July 2016