Commission makes its first announcement on geo-blocking

The European Commission today issued its ‘initial findings’ on geo-blocking from its e-commerce sector inquiry (see here for more on the inquiry). The Commission found that geo-blocking was “widespread”, with the majority of content providers and many consumer goods retailers geo-blocking their websites.

Importantly, the Commission focused on contractual arrangements between suppliers and distributors, saying “where geo-blocking occurs due to agreements, we need to take a close look whether there is anti-competitive behaviour, which can be addressed by EU competition tools”.

Contractual restrictions

The key focus for Competition Commissioner Margrethe Vestager is where geo-blocks are imposed as a result of a contractual agreement between the distributor and supplier. This is because competition law only catches non-dominant companies where they enter into an anti-competitive agreement. In the Commission’s drive to tackle “unjustified” geo-blocking, competition law is therefore a somewhat limited tool, as unilateral decisions to block a website will not be caught. Reassuringly for businesses, the Commission has also highlighted that “the freedom to choose one’s trading partner remains the basic principle”.

Nonetheless, in emphasising that agreements to geo-block may be anti-competitive, the Commission reiterates its Statement of Objections in the Pay TV investigation, perhaps foreshadowing the outcome in that case.

Impact for businesses

The free movement of goods and services is a fundamental principle of European law, with any restrictions on “passive” cross-border sales (including via the internet) being a hardcore restriction of competition. By saying ahead of the final decision in Pay TV that agreements to geo-block may be anti-competitive, the Commission is sending a clear signal that companies need to look now at their distribution agreements and consider carefully the impact on competition law. Particularly for digital content providers, this may have significant impact on their commercial arrangements.

Next steps

A more detailed analysis of the Commission’s findings will be released in a Preliminary Report in mid-2016, which will cover other potential competition law concerns affecting e-commerce markets. The Report will be issued for public consultation, giving businesses the opportunity to comment.

As we reported in January 2016, the Commission has also published an impact assessment on broader legislative changes to tackle what it sees as unjustified geo-blocking. Competition law is only one tool in the Digital Single Market initiative and we wait to see whether the Commission will take legislative action to address companies’ unilateral decisions to geo-block their websites.

There is no doubt that we will see further developments in the Digital Single Market in the coming months and this could be just the start of changes in the way consumers interact with the e-commerce sector.