The European Commission (the executive of the EU) recently published the initial findings of its e-commerce inquiry, an investigative process conducted to determine whether and to what extent competition is being restricted or distorted in the sector. The inquiry focused on geo-blocking, a commercial practice whereby online providers block user access to the purchasing of goods or digital content services based on that user’s geographical location. Last year we reported on the EU’s strategy for a European ‘digital single market’ (DSM) which included putting an end to what it considered ‘unjustified geo-blocking’. The recent findings are that the use of geo-blocking is widespread throughout the EU, but that there are sometimes valid commercial reasons justifying the practice.
Location related information is gathered by 38% of consumer goods retailers for geo-blocking purposes. Geo-blocking by such retailers can take the form of a refusal to deliver to certain member states, a refusal to accept foreign payment methods, re-routing to (sometimes more expensive) websites and website access blocks. Sometimes the use of geo-blocking reflects a commercial decision; for example, where a business owner does not have the administrative capability to accept a wide variety of foreign payment methods. Furthermore, some large retailers take the view that to sell small quantities of goods to customers in countries where they have no delivery services and where the exposure for legal liability is different makes no commercial sense. The EU however found that contractual territorial restrictions imposed a potential restriction on competition. These restrictions ranged from outright bans on selling goods outside one or more EU member states to more subtle cross-border limitations. As these restrictions were sometimes imposed to maintain price differentials in different member states, the EU raised concerns of compatibility with EU competition law. It is now reviewing whether subsequent enforcement action is required – a decision that will require an analysis of how important territorial exclusive agreements are to market participants.
Digital Content Services
Almost two thirds of digital content service providers implement geo-blocking (usually using IP address verification) to limit the access by users located in other member states to their content. 59% of providers stated contractual requirements in their agreements with suppliers as the reasoning behind their geo-blocking practices. The EU concluded that a case-by-case analysis of licensing agreements was required to determine the presence of any EU competition law issues.
A retailer who unilaterally implements geo-blocking on its own website is unlikely to constitute an EU competition law infringement, especially if that retailer does not have market power. The Commission is mainly concerned with agreements between manufacturers of goods or licensors of digital content and their distributors or retailers which might impose geo-blocking on the distributor or retailer. Rather than producing clear conclusions, the results of this inquiry will help to steer the EU’s on-going analysis of the competition issues in the e-commerce sector. They will also inform the EU on its continued development of the European DSM.