GEOBLOCKING AND VERTICAL RESTRAINTS

Online purchase is increasing within the European Union (EU) with an annual growth rate of 22% and reaching a market share of 7% in the retail sector(1) . The e-commerce reduced the geographical barriers and led to a broader geographic scope for trade. Hence, internet distribution channels increase the access to consumers for retailers. 

The e-commerce sector inquiry of the European Commission in 2017(2)  noted that price transparency increased with on line trade as well as price competition, both online and offline sales. The monitoring of the prices becomes easier and the online environment requires closer management and a consistent strategy for the positioning of theirs brands by the suppliers.

In order to achieve the EU’s Internal market with a goal to remove impediments of cross-border e-commerce and in line with its Digital Single Market Strategy(3) , the European Commission continues to propose new legislation to facilitate transactions at the European level, including the strengthening of consumers protection or the prohibition of undue geo-blocking.   

The scope of the Geo-blocking Regulation 

Geo-blocking is widespread in Europe(4)  and can be found when trading online. The aim of the new geo-blocking Regulation (“the Regulation”) is to prevent barriers on e-commerce based on the nationality(5)  or residence of customers and the re-routing without the customer prior consent. In particular, this new Regulation (6), entering into force on 3 December 2108, will ensure that customers are not subject to prices or offered products, services or payment conditions that differ depending on the Member state where they are located.

The Regulation will apply to online sales between traders and end-user consumers or businesses (including SME’s and micro enterprises) and the transaction is for the sole purpose of end use. It does not concern goods that are for resale to end users. Customers should mainly be allowed to access freely to websites of the e-businesses (manufacturers or retailers) so that they can purchase products or services from whichever website they want in the European Union.

While price discrimination is prohibited, price differentiation remains however possible which means that suppliers will still be able to offer different commercial conditions and to target specific customers in the different EU Member states. 

As regards territorial application, traders established outside the European Union will only be concerned to the extent they sell (or intend to sell) to customers established throughout the European Union.

The existing EU legal framework on Vertical Restraints and passive sales

Even though suppliers and distributors (or wholesalers) are formally excluded from the scope of the EU Regulation(7)  prohibiting geo-blocking, their relations will be impacted as geo-blocking is a discriminatory practice preventing on-line customers from purchasing products or services from websites in other Member states because of their nationality, place of residence or establishment.

In this respect, traders have to take into account this new Regulation together with the existing EU legal framework, especially the EU Block exemption Regulation on Vertical Restraints(8)  and its Guidelines(9)  which set up specific rules applying to on-line sales(10) .

Both of them consider that restrictions on “passive sales”(11)  are “hard-core restrictions(12)  violating EU competition rules as they are regarded blocking or restricting access to websites whereas suppliers should be free to respond to unsolicited orders from customers outside exclusively territories or customers groups. Their inclusion in a supply agreement removes the benefit of an automatic exemption.

The Regulation makes specific reference to agreements restricting passive sales with regard to access on-line interfaces and does not affect the application of Article 101 TFEU(13) . Passive sales restrictions that infringe the Regulation prohibiting geo-blocking are therefore automatically void(14). 

While this Regulation does not concern goods for resale, it is expected to impact distributors directly with their customers (end-user consumers or businesses) and indirectly in respect of their obligations under their exclusive agreements.

Selective distribution

Hence the use of selective distribution agreements by the manufacturers has significantly increased with the growth of e-commerce insofar they can set the criteria that the retailers must meet to become part of the distribution network and where the unauthorized retailers are prohibited.

Such practice is exempted by the Block exemption Regulation on Vertical Restraints and its Guidelines to the extent it can be justified(15) . If the distributor must be allowed to use the internet, the suppliers may require quality standards for the use of the internet site to resell its products just as the supplier may require quality standards for a shop or for selling by catalogue or for advertising and promotion in general(16) .

The Case Law of the Court of Justice

Since a long time, the EUCJ has recognized that the limitation of the number of authorized distributors and the possibilities for resale of the contract goods by the selected distributors is counterbalanced by the required criteria(17) .

More recently, the EUCJ reaffirmed its position on the use of internet, from Pierre Fabre(18)   in 2011 which prohibits an absolute ban on internet imposed by the supplier on authorized distributors in a selective distribution system to Coty(19)  in 2017 which prohibits a ban on the use by authorized distributors of third party platforms for internet sales of the contract goods whatever the nature of the products(20) . 

Conclusion

The high speed growth of e-commerce and technology has already “enlarged” the EU Internal Market despite geo-blocking, parallel trade restrictions, market segmentation and other new type of restrictions to sell on line.

On-line sales can be found and selected by a large number of consumers which could benefit for more price transparency and price competition. 

From a business standpoint, the new geo-blocking Regulation will require companies to review their existing trading terms and conditions (including payment requirements) and their logistics and distribution policies in order to ensure compliance with non- discrimination rules and online commerce.

The new guidelines for vertical agreements that will be adopted in 2022 should provide for  clarifications (and guidance) so that suppliers and buyers (distributors and retailers) operate in a more secure and transparent online market environment and should take into account that e-commerce makes the separation between active and passive sales more difficult. 
 

Marc Picat

[1] Duch-Brown & Martens, JCR, 2015.
[2] European Commission (2017): final report on the e-commerce sector inquiry, 154 final, May 2017.
[3] European Commission (2015): Communication on digital market strategy for Europe COM (2015) 192 final
[4] 63% according to a a European Commission mystery shopping survey.
[5] Nationality is a fundamental principle of EU Law.
[6] EU Regulation 2018/302 of 28 February 2018 on addressing unjustified geo- blocking and other forms of discrimination based on customers’ nationality, place of residence or place of establishment within the internal market which will be applicable as of 3 December 2018. This Regulation does not apply to certain types of services yet like music streaming services, e-books, online games and software, or financial services, audio-visual, transport, healthcare and social services which are regulated under the EU Services Directive of 12 December 2006.
[7] EU Regulation 2018/302 of 28 February 2018.
[8] EU Regulation 330/310 of 20 April 2010 on the application of Article 101 (3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices.
[9] Guidelines on Vertical Restraints of 19 May 2010.
[10] Point 52 of the Guidelines: the internet is a powerful tool to reach a greater number of and variety of customers than by more traditional methods which explains why certain restrictions on the use of internet are dealt with as (re)sales restrictions. The Guidelines mention 4 examples of hard core-restrictions of on line passive sales.
[11] Sales responding to unsolicited requests from individual customers, including delivery of goods or services to such customers.
[12] Article 4 b) of the Block Exemption Regulation considers hard core restrictions to fall under Article 101 (1) TFEU.
[13] Article 6 of the Regulation
[14] This rule relating to agreements compliant with Article 101 TFEU concluded before 2 March 2018 is differed to 23 March 2020 when the Regulation is reviewed (and every following 5 years).
[15] Point 176 of the Guidelines.
[16] Point 54 of the Guidelines.
[17] CJEU, C-26/76 of 25 October 1977, Metro.
[18] CJEU, C-439/09 of 11 October 2011, Pierre Fabre.
[19] CJEU, C-230/16 of 6 December 2017, Coty.
[20] DG Comp Policy Brief, April 2018.

14-09-2018
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