knowledge 25 May 2016 |

Blocking Geo-Blocking in the EU Bloc - Current Enforcement and Policy Developments in the Online Single Market

What is geo-blocking?

It is a form of discrimination between consumers based on a consumer’s location. It is carried out through means of:

• blocking access to certain websites or site content;
• allowing website access but refusing to sell or deliver cross-border; or
• re-directing foreign internet browsers to their local provider’s website.

Current developments

E-commerce sector inquiry

On 6 May 2015, the European Commission launched its investigation into the e-commerce sector in the European Union. This was launched because, although more goods (physical and digital) and services are traded over the internet than ever before, cross-border online sales in the EU are growing slowly. The intention behind the investigation is to get a broad view of the types and extent of geo-blocking in cross-border online sales.

On 18 March 2016, the European Commission announced the initial findings of its investigation. The European Commission received replies to its questionnaires from more than 1,400 retailers and digital content providers from all 28 Member States. The initial findings are that 38% of consumer goods retailers that responded engaged in geo-blocking in the EU (of whom 31.5% did so under contractual agreements). Notably, 68% of digital content retailer providers that responded engaged in geo-blocking in the EU (of whom 86.7% did so under contractual agreements).

Cross-border Pay-TV antitrust investigation

On 13 January 2014, the European Commission opened an investigation into the agreements between six Hollywood film studios and Sky UK concerning the UK and Ireland. The investigation identified clauses in licensing agreements between the film studios and Sky UK which require Sky UK to block access to films through its online Pay-TV services or through its satellite Pay-TV services to consumers outside its licensed territory of the UK and Ireland (ie geo-blocking).

In the European Commission’s preliminary view, these clauses restrict passive sales of online and satellite broadcasts. The investigation also identified clauses precluding the studios from allowing any other broadcasters to make passive sales into the UK and Ireland (ie reciprocation of the passive sales ban). On 22 April 2016, Paramount Pictures proposed certain commitments in exchange for the European Commission closing its investigation into Paramount (the commitments include Paramount committing to cease blocking its distributors from making unsolicited sales of Paramount content cross-border in the EU). These proposed commitments will be subjected to public consultation. The European Commission, meanwhile, will continue its work regarding the other studios and is expected to make a final decision in the coming months.    

Digital Single Market Strategy

The European Commission’s e-commerce sector inquiry is being undertaken in connection with its “Digital Single Market Strategy”, which is expected to result in legislative proposals in a number of areas. For example, the European Commission is assessing if the scope of the Satellite and Cable Directive needs to be enlarged to include broadcasters’ online transmissions.

Further, in December 2015 the European Commission proposed a cross-border portability regulation for adoption by the EU legislature - the intention being that where a person purchases digital content, their rights will be the same throughout the EU. This means that a person who buys a digital content subscription in Ireland (eg to Netflix) would be entitled under the legislation to watch all of the same shows wherever they travel throughout the EU (whereas currently when you go to another country, you can only watch the shows offered, by, for example, Netflix, in that country). On 13 May, the Council of the European Union reached broad agreement on a regulation in this respect, subject to two matters being finalised prior to the regulation’s adoption. The proposed regulation is one of 16 envisaged measures that would help harmonise EU copyright laws.

Legal issues involved

• Under Article 101 TFEU, an agreement between undertakings which has as its object or effect the restriction, prevention or distortion of competition within the EU by sharing or dividing markets between competitors is prohibited. The initial view of the European Commission is that geo-blocking by agreement may amount to anti-competitive behaviour prohibited by EU law. In this regard, the European Commission appears encouraged by the decision of the Court of Justice of the EU on 4 October 2011 that geo-blocking provisions of certain broadcasting distribution agreements had as their object the partition of national markets within the EU and, therefore, the unlawful restriction of competition.
• Under Article 102 TFEU, an undertaking that is dominant in a relevant market within the EU (or a substantial part of the EU) must not abuse that position. The initial view of the European Commission is that geo-blocking could constitute such abuse, for example, by way of unlawful discrimination between customers based on their Member State of residence within the EU.
• Separately, under EU and national intellectual property laws, even where cross-border sales are not restricted by agreements, such sales may infringe the copyright of owners or licensees of the content that would be sold cross-border. Therefore, the European Commission is considering whether intellectual property laws should be amended to prevent such laws restricting cross-border sales.

What are people saying?

The digital market competition and legislative actions have sparked many lively debates. Some have commented that this is merely the application of the agreed European Union goals of a common and competitive market into the rapidly developing and increasingly important online world. However, others have suggested that the extension of competition enforcement to, for example, Pay-TV distribution across the EU is going too far and others argue that the EU rules and guidance on passive sales restrictions are not suited to the reality of internet sales. It remains to be seen how these issues will be addressed by the European Union legislature and the Court of Justice.

What’s next?

The European Commission expects to release a preliminary report in the e-commerce sector inquiry in mid- 2016. That report will then be followed by a public consultation. The European Commission currently predicts that its final report in the e- commerce sector inquiry will be published during the first quarter of 2017. Separately, as part of the Digital Single Market Strategy legislative developments, draft legislation will come before the European Parliament and Council and may become law.

The European Commission intends to open antitrust investigations into the geo-blocking practices of specific industries and undertakings identified by its current investigations as potentially contravening EU antitrust law. As a starting point, the European Commission may investigate agreements for the distribution of “fiction TV”, since 74% of such agreements entered into by respondents to its questionnaires involved geo-blocking. Each case would be investigated on an individual basis, including analysis of justifications for the geo-blocking (eg efficiency increases). As EU Competition Commissioner Margrethe Vestager said in a speech on 11 September 2015, “if it is agreements between companies that are restricting e-commerce across Europe’s national borders, then you can expect competition enforcement to follow. … Property rights never give you a carte blanche for exemption from regulatory obligations.” In this context, the European Commission will continue with its investigation into the Hollywood studios’ Pay-TV content.