Introduction
In the context of the EU e-commerce sector inquiry launched by the European Commission (“the Commission”) in May 2015, the latter has recently made public its initial findings on the prevalence of geo-blocking which prevents consumers from freely purchasing and accessing online consumer goods/digital content across the EU.
“Geo-blocking”, “geo-filtering” and their occurrence in the EU
“Geo-blocking” refers to practices whereby online providers prevent a user from accessing and purchasing consumer goods/digital content offered on their websites because of the user’s location in a Member State is different from that of the provider. Geo-blocking may occur by limiting access to websites available only to a user in the territory of the provider, automatic re-routing into a website intended to serve the user’s territory, refusal to deliver goods/services or to accept payments from a user in another Member State.
For online digital content, geo-blocking may also consist of preventing a user from accessing online digital content services which he has subscribed in one Member State or to play digital content previously downloaded in one Member State, whenever the user travels to another Member State.
Whenever access to products/services is not limited on the basis of location but different prices or different conditions are applied depending on the location of the user, the practice is called “geo-filtering”.
Data collected by the Commission regarding e-commerce for consumer goods shows that 38% of the retailers gather information regarding the location of their users with the purpose of engaging in geo-blocking. This percentage is 43% for marketplaces and 34% for price comparison tools.
In respect of geo-filtering only 25% of respondents charge different prices or practice different conditions due to a client’s location.
In what concerns online content, 68% of respondents state they geo-block users located in other Member States. The most commonly used “tool” for verifying location is the IP address of users.
Approach from a competition law perspective
The Commission’s findings highlight the need to differentiate between geo-blocking/geo-filtering based on unilateral business decisions of retailers not to sell cross-border from geo-blocking/geo-filtering adopted in the context of an agreement or practice between the provider/reseller of the content/goods and a third partly (usually, its supplier). Indeed, an undertaking’s unilateral business decision only comes within the scope of EU competition law if the undertaking is dominant. Geo-blocking/geo-filtering based on an agreement between supplier and distributor may be found anti-competitive and be subject to prohibition and sanctioning if it can be established that it has an anti-competitive object (or effect) and that it does not generate pro-competitive effects sufficient to satisfy the legal requirements for an exemption.
The data gathered indicates that the majority of geo-blocking in the sale of consumer goods results from a unilateral decision by the retailer not to expand its business outside its territory. The same goes for geo-filtering. Only 12% of respondents state that they face contractual restrictions directly or indirectly imposing geo-blocking for at least one category of products sold. The most common form of geo-blocking in this case is refusal to deliver into another Member State and the category of goods in which geo-blocking seems prevalent is “clothing, shoes and accessories”.
Some of the contractual restrictions identified by the Commission in this context – limiting sales territories in non-exclusive distribution, restricting passive sales in exclusive distribution, and territorial limitations in sales to end users by authorized distributors in selective distribution – were found serious enough to warrant additional assessment by the Commission in order to check whether any follow up enforcement action is required to ensure compliance with competition law.
As for digital content 59% of respondents engage in geo-blocking based on contract provisions, in particular, in the context of licensing agreements (in which geo-blocking is a requirement by the licensor).
Film content, sports events and TV series are the content categories with the highest percentage of geo-blocking requirements on average in the EU even though differences between Member States can be quite significant. It should be noted that the analysis and conclusions of the inquiry do not cover film content provided via pay-TV services as the latter are currently subject to an investigation for suspicion of restrictive practices in relation to pay-TV services made available in the UK and Ireland.
Final remarks
The Commission’s initial finding shows that geo-blocking (in particular in the area of consumer goods) is mostly associated with unilateral business decisions not to expand, often due to the higher costs of supplying cross-border. In this regard the Commission has set as its key-priority to address unjustified barriers to cross-border e-commerce, and it will do so with legislative actions adopted as part of its Digital Single Market Strategy. Further legislative proposals are expected for May this year.
Competition rules can be a relevant tool in tackling geo-blocking/geo-filtering practices, however, unilaterally geo-blocking is likely to be scrutinized only when carried out by a dominant company (in order to identify and sanction any possible abusive behaviour), and geo-blocking based on agreements between independent undertakings must be subject to a case-by-case analysis in order to assess whether such agreements have as object (or effect) a restriction of competition and to check whether there are efficiencies that may justify an exemption to the prohibition rule.
Finally, the Commission’s commitment to additional analysis of some more serious territorial restrictions may result in the opening of investigations for restrictive practices in the near future.
