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DSM Watch: Commission publishes geo-blocking issues paper

The European Commission’s newly published geo-blocking issues paper concludes that geo-blocking practices are widespread across sales of both consumer goods and digital content.

The Commission has reconfirmed its intention to look carefully at such practices under the EU competition rules particularly where underpinned by agreements. This suggests a range of distribution and licensing arrangements are likely to be subject to further scrutiny.

However, the Commission has also re-emphasised the principal that unilateral decisions to limit distribution which are not implemented through agreements are not generally concerns for competition law. This suggests that the parallel development of rules regarding content portability may, for now, represent a high water mark in the application of consumer protection principles to geo-blocking and that further developments in the area are likely to focus exclusively on refining the application of traditional competition law principles to the practice.

The Digital Single Market (DSM) strategy is 16 aligned initiatives in a variety of fields such as telecommunications, consumer rights and Big Data, each of which is intended to bring the EU one step closer to a digital single market. It is monitored by our cross practice multi-jurisdictional DSM Watch team.

One focus of the DSM strategy is unjustified geo-blocking. Geo-blocking refers to practices which treat consumers in different Members States in different ways with respect to online services. Consumers may be unable to access a service in another Member States or to buy products or services from it on the same basis as those who live in the “home state” of the service.

The Commission’s DSM strategy suggests that geo-blocking is a significant cause of consumer dissatisfaction and fragmentation of the Internal Market. The Commission accepts that geo-blocking can be justified in some circumstances but considers it may amount to a restriction of competition or an abuse of dominance contrary to Article 101 and 102 of the Treaty on the Functioning of the European Union.

What steps have already been taken?
When the Commission launched its DSM strategy on 6 May 2015, the Commission’s DG Competition started an e-commerce sector inquiry with the aim of gathering data on the functioning of e-commerce markets so as to identify possible restrictions or distortions of competition, in particular in relation to cross-border online trade. The sector inquiry involved information requests to a variety of actors in e-commerce markets throughout the EU both in relation to the online sales of consumer goods (such as electronics, clothing, shoes and sports equipment) as well as in relation to the online distribution of digital content. The position of both retailers and manufacturers/suppliers and rights holders has been examined.

In parallel to this sector inquiry, DG Competition continued its investigation into the cross-border provision of Pay-TV services in the UK and Ireland, with the issuing of a Statement of Objections on 23 July 2015. In this case, DG Competition contested the use of contractual provisions preventing Sky UK from allowing EU consumers located elsewhere to access, via satellite or online, Pay-TV services available in the UK and Ireland. The investigation in this case is still on-going.

From September to December 2015, the Commission ran a public consultation on geo-blocking and other geographically based restrictions, in order to gather views and opinions on the restrictions faced by users, consumers and businesses when they access or provide information, shop or sell across borders in the European Union. The initial results of this consultation were announced on 27 January 2016.

On 9 December 2015, the Commission published three legislative proposals, one of which specifically relates to the cross-border portability  of online content services, thereby tackling at least one aspect of geo-blocking.

Initial findings of the e-commerce sector inquiry
On 18 March 2016, the Commission reported the initial findings of the sector inquiry.
The Commission reported that it had received responses from more than 1400 companies active in the distribution of consumer goods and digital content. According to the Commission, these responses show that geo-blocking is widespread throughout the EU.

As regards consumer goods, 38 % of responding retailers indicated that they use geo-blocking. Refusal to deliver abroad is the main restriction affecting consumers from other Member States but refusal to accept foreign payment methods, and, to a lesser extent, re-routing and website access blocks are also used. While a majority of such geo-blocking results from unilateral business decisions of retailers, 12% of retailers reported contractual restrictions to sell across borders.

As regards digital content, geo-blocking is applied by the majority of online digital content providers participating in the inquiry (68 %) and appears to be largely based on contractual restrictions, with 59 % of respondents indicating that they are contractually required by right holders to geo-block. The techniques used for geo-blocking are mainly the user’s internet protocol (IP) address that identifies and gives the location of a computer/smartphone. There appear to be significant differences in both the extent to which geo-blocking of online digital content services takes place in different Member States, and the extent to which different types of operator implement geo-blocking in relation to different categories of digital content.

Next steps
The Commission has stated that a more detailed analysis of the findings from the sector inquiry will be presented in a preliminary report which the Commission plans to publish for public consultation in mid-2016. The final report is scheduled for the first quarter of 2017.

By May 2016, the Commission also intends to issue another legislative package to address what it sees as unjustified barriers to cross-border e-commerce.