Geoblocking Regulation: effects on distribution

The COVID-19 pandemic has given online commerce a powerful boost. At the same time, COVID-19 has repeatedly caused supply bottlenecks, resulting in products being out-of-stock at the customer’s preferred dealer. When looking for alternatives, customers then like to take advantage of offers from foreign traders.

The so-called Geoblocking Regulation (EU Regulation 2018/302) has applied to the cross-border sale of goods and services in the EU since the end of 2018. Its purpose is to ensure the free movement of goods within the EU and to prevent discrimination in trade through unjustified geoblocking. Geoblocking is any technical measure that results in a potential buyer not being able to access or fully access the offers (e.g. of an online store) in another country because of his geographical location.

Broad scope of application: traders in third countries also affected

The scope of the Geoblocking Regulation is broad and covers all providers who sell their goods or services across borders in the EU. The obligations apply regardless of whether the provider is based within the EU or in a third country. The requirements of the Regulation cover both B2B and B2C transactions, as long as the acquirer is the end customer and does not resell or further process the goods or services.

What providers should bear in mind: the "shop-like-a-local" principle

The Regulation’s prohibitions of discrimination are based on the so-called "shop-like-a-local" principle. This means that customers from another EU member state must be able to transact on the same terms and conditions and with the same means of payment as domestic customers.

Providers therefore may not block foreign customers from accessing their website or automatically redirect them to another website without their consent. For example: a customer with a French IP address must be able to access and use a trader’s German homepage in the same way as a German customer. If the trader maintains several country-specific web shops, it must ensure, for example, that the customer is not automatically redirected to another country-specific website without his consent.

In addition, since the entry into force of the Regulation, unjustified unequal treatment in the use of ordering and business terms and conditions has also been prohibited. A violation of such prohibition is often due to technical details. This is already the case, for example, if a French customer cannot complete an order in the German web shop because the entry of his French address as the billing address produces an error message.

However, this does not mean that traders now have to standardise their offer throughout the EU. Different, country-specific offers are still permissible. A provider may therefore, for example, maintain a country-specific online shop with different offers and conditions and use general terms and conditions that comply with the respective national law, as long as all customers of this country-specific online shop - regardless of their location or place of residence - are treated equally. Country-specific price differences are also still permissible if they are offered to customers within the respective territory in a non-discriminatory manner.

The Regulation also does not oblige providers to offer or supply their goods or services in every EU member state. The provider only has to adhere to its own general terms and conditions. If a German trader offers delivery only within Germany, for example, the French customer can also only request delivery to an address in Germany. The trader is also not obliged to enable a foreign customer to collect the goods if, for example, as a pure online shop, it does not offer domestic customers the opportunity to collect the goods. However, the foreign customer may provide the German address of a forwarding service.

The third prohibition concerns discrimination with regard to payment terms and conditions for foreign customers. For example, the provider must ensure that a foreign customer is able to pay using his foreign credit card of a specific brand if the trader fundamentally accepts this brand of credit card as a means of payment.

Impact on distribution contracts between supplier and customer

Although the Geoblocking Regulation only prohibits discrimination against end customers, the Regulation also has an impact along the distribution chain. This is because it orders the invalidity of passive sales restrictions in distribution agreements that oblige the distributor to violate the prohibitions on discrimination. This includes, for example, the frequently agreed territorial or customer-specific sales prohibitions in the form of exclusivity or customer protection clauses. The Geoblocking Regulation can thus influence distribution contracts and entire distribution systems.

When suppliers agree on sales restrictions with their customers, antitrust law always comes into play. As a general rule, the prohibition of cartels and the prohibition of geoblocking run in parallel. This means that sales restrictions prohibited by antitrust law are also invalid under the Geoblocking Regulation and vice versa. However, there are constellations in which antitrust law exceptionally allows certain sales restrictions which are declared null and void by the Geoblocking Regulation. The geoblocking prohibitions can therefore go beyond the prohibitions of antitrust law and, accordingly, must be additionally taken into account when drafting contracts. This applies, for example, in the case of group-based distribution via its own distribution companies: when the parent company wants to allocate certain territories exclusively to its distribution companies and writes corresponding territorial sales restrictions into their contracts, these are generally permissible under antitrust law. However, depending on their design, these intra-group sales restrictions may violate the Geoblocking Regulation and automatically be invalid.

Conclusion:

Violations of the Geoblocking Regulation are usually not conscious business decisions, but the result of carelessness when setting up the ordering process in the web shop or when drafting the contract. Manufacturers and traders therefore not only have to bring the technical design of their online shops into line with the Geoblocking Regulation, but also check their distribution contracts as to their conformity with the Regulation.

Violations of the Geoblocking Regulation can be sanctioned by the competent authority in the respective EU member state. In Germany, this is the Federal Network Agency [Bundesnetzagentur]. Fines of up to EUR 300,000 may be imposed. The authority may also prohibit the conduct for the future, if necessary by imposing a penalty payment of up to EUR 10 million.

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