Digital Single Market: The Evidence
There are two common types of market practices and territorial restrictions which differentiate between consumers within the Internal Market: geo-blocking, i.e. simple refusal to sell or automatic re-routing and geo-filtering, i.e. unjustified diversifying of sale conditions. These practices are commonly based on the location of the consumer, which is for instance determined by means of the IP address used by the consumer, the country which is registered for the customer's means of payment or the postal or delivery address indicated by the consumer. Companies tend to apply geo-blocking for three reasons: (a) compliance with legislation, (b) contractual arrangements, and (c) unilateral commercial decisions.
(a) Compliance with legislation
Certain companies use geo-blocking to comply with applicable legislation. For instance they might restrict access of consumers to betting websites when they come from a Member State where online betting is prohibited, or access to certain content might be limited in order to comply with the law on protection of minors.
(b) Contractual arrangements
Companies may block consumers’ access to online content or simply refuse to deliver to consumers across borders because of the contractual agreements in place between rightsholders / manufacturers and distributors. This applies equally to copyright-protected content online and to sale of goods and services online. This may include arrangements which effectively partition the market on the basis of distribution agreements, which are then enforced in practice by goe-blocking.
(c) Unilateral commercial decisions
An individual company may also decide not to sell to a customer from another Member State (refusal of passive sales). This qualifies as discrimination based on the place of residence but, in some cases, can be justified under so-called “objective criteria” (Article 20(2) of the Service Directive). Again, this may apply to copyright-protected content online and to the sale of goods and services online. Traders can invoke various “objective criteria” when discriminating between consumers based on the latter’s place of residence. Such justification include (1) legal obligations (i.e. the copyright licence is not cleared for the territory of the recipient of the service), (2) factual impossibility (i.e. under certain circumstances it is impossible to deliver fresh food to long distances), (3) references to public policy objectives (i.e. protection of the environment) and (4) economic considerations (additional operational costs or costs of compliance with diverging national contract and consumer laws for the company).
The e-Commerce Directive lays down the country of origin principle for information society services with the aim of dismantling barriers to online activities on the Single Market. However, it does not contain any provision related to geo-blocking. EU competition law can tackle vertical agreements for the sale and purchase of goods or services which are entered into between companies operating at different levels of the production or distribution chain that create barriers to cross-border e-commerce. However, competition law can only address restrictions that are imposed through agreements and not unilateral business decisions of non-dominant companies to apply geo-blocking for certain territories. Under competition law companies with a dominant position are prohibited from abusing their dominant position. More generally, the Service Directive prohibits discrimination based on nationality or place of residence in the provision of services, including online services, unless there are objective justifications (Art. 20). This provision has proven difficult to enforce effectively because of the broad range of objective justifications. Finally, there are transparency requirements about geo-blocking vis-à-vis the consumer. The Consumer Rights Directive obliges traders to inform about delivery restrictions clearly and legibly at the latest at beginning of the ordering process (Article 8(3)).