In the last weeks of 2018, you may have noticed some news reports on the €40 million fine that has been imposed on the clothing company Guess by the European Commission. With headlines like ‘Guess slapped with €40 million fine for geo-blocking’, it may have seemed like Guess was the first company to get fined under the geo-blocking Regulation, which just went into effect on December 3rd, 2018. If you sell products or services online and have no idea what ‘geo-blocking’ is, these headlines might make you nervous. Do you actually need to worry?
What is ‘geo-blocking’?
The Regulation on geo-blocking has been adopted earlier this year. It prohibits traders from discriminating against customers from other Member States. Geo-blocking is a prominent form of such geo-discrimination. If a trader geo-blocks, customers from other Member States are denied access to a website or are being redirected to a website that has been adapted to their location. These techniques are sometimes used to differentiate prices between websites (and ultimately regions or countries). Another form of geo-discrimination is the refusal of foreign debit and credit cards, whereas non-foreign cards of the same type get accepted. These practices might prevent foreign customers from enjoying certain favourable prices or sales that are not available on the version of the website that they are able to access from their location.
The new Regulation prohibits these practices to some extent. However, geo-discrimination is still allowed in some cases, as there may be several legitimate reasons to make distinctions between users from other Member States. For example, online services that provide copyright-protected content (such as streaming services) that rely on territorial licenses are exempted from allowing all European users to access the content that is available in each Member State; although another recent Regulation prohibits them from using a different form of geo-discrimination. Under the ’Regulation on the Portability of Online Content Services’, these content providers are not allowed to prevent subscribers’ access to content that would have been available to them in their country of residence if they try to access it from another Member State.
Traders that have to abide by specific national laws because of the products they are selling (e.g. alcohol) are exempted as well. Furthermore, traders do not suddenly have the obligation to accept all forms of payment; they are just not allowed to geo-discriminate within the range of means of payment they accept. Finally, the Regulation does not oblige traders to deliver products to other Member States. They must however still accept a customer from another Member State to place an order, as long as the delivery address is in the country in which the trader operates.
€40 million fine for geo-blocking: because of the new Regulation?
Back to Guess: did the clothing company violate one or more provisions of the geo-blocking Regulation? Yes, it certainly seems so. However, this is not the reason why the company received a €40 million fine. It got fined under European antitrust law, which does not allow companies to conclude agreements between them that prevent, restrict or distort competition within the EU single market. Guess violated this prohibition by restricting its authorised retailers from advertising and selling cross-border in order to maintain higher prices in a selection of countries.
Guess was not fined for geo-blocking alone, but its geo-blocking practices are prohibited under the new regulation as well. Citing commissioner Margrethe Vestager: ‘’Our case complements the geoblocking rules […] – both address the issue of sales restrictions that are at odds with the Single Market’’. Although the fine was not based on the geo-blocking Regulation yet, the commissioner clearly implied that this would have been a possibility. It is therefore important to know which legal obligations you might have under this Regulation as a trader and what kind of enforcement you can expect. Furthermore, if you operate in a supply chain, you have to find out which party is responsible for compliance.
Who in the supply chain is responsible?
When there are more parties involved in the selling of a product, it might get confusing which party is responsible for the compliance with the geo-block Regulation. According to the Regulation, the party that is acting for purposes relating to its business, whether on its own or through another party, is responsible. This means that if a retailer acts in the name or on behalf of a manufacturer, it is the manufacturer which is responsible. Vice versa, if a retailer acts in its own name and on its own behalf, it is the responsible party itself.
What if your distribution agreement is non-compliant?
According to a Commission report on an e-commerce sector inquiry from 2017, more than one in ten surveyed retailers are obliged through contractual clauses to geo-discriminate by manufacturers. What should you do as retailer when you face such a clause in a distribution agreement? The Regulation stipulates that if a manufacturer imposes passive sales restrictions on a retailer in a contract, these provisions are automatically void. As a retailer, you might point this out to the imposing party, along with the remark that such an obligation might constitute an antitrust violation as well (just like in the Guess-case).
What fines can be expected?
The Regulation stipulates that each Member State shall designate a body that will be responsible for enforcement. The fines applicable to each violation have to be determined by the Member States as well. Germany, the United Kingdom, Denmark, Hungary, Lithuania, Latvia and Estonia have already appointed enforcement bodies and implemented legislation on fines. For example, the maximum penalty for non-compliance in Germany is €500.000. If you are an online trader, you may wish to check whether the use of your website and your contracts with manufacturers or retailers are compliant.
