IMCO Working Group on the DSM

On November 14, the IMCO Working Group on the Digital Single Market held a meeting on Completing the Digital Single Market for European Consumers and citizens: Tackling Geo-Blocking in the EU. 

By Jenni Kortelainen

15 Nov 2016

The focus of the Working Group was on the legislative environment of the geo-blocking regulation and the scope of the regulation. Please find below a summary of the discussion.

Róża Gräfin von Thun und Hohenstein (EPP, PL) opened the 10th meeting of the Digital Single Market Working Group by thanking the people present. She noted that geo-blocking is a very complicated piece of legislation with multiple perspectives. Ms Thun und Hohenstein emphasised that the Commission proposal needs to be clarified so that the rules are clear and that SMEs are not put under the risk of having to follow 28 sales regimes and so that companies will be encouraged to sell online. She then presented the speakers noting  that Dr Stuyck will first discuss the interplay between the regulation and Rome I after which the discussion will move to the scope of the regulation which is now restricted to services that are under the services directive thus excluding some major sectors such as AVMS and transport.

Jules Stuyck, Emeritus Professor Consumer Law, KU Leuven, discussed the interplay of the Geo-Blocking proposal with the Rome I Regulation. He noted that the basis for the Commission proposal comes from the Services Directive according to which discrimination based on nationality or place of residence is not allowed except when directly justified by objective criteria (Article 20.2).

He then explained the relevant provisions of the Commission proposal and of Rome I. The proposal forbids traders from applying different conditions due to nationality, place of residence of place of business of the customer, without the obligation to deliver cross-border. However, the proposal does not define the place of residence and of business. Dr Stuyck assumed that the Rome I definition of habitual residence could be taken as the definition here as well.

With regards to Rome I, Dr Stuyck said that according to Rome I, contracts shall be governed by the law of the country of the consumer’s habitual residence. Under Rome I, passive consumers are protected.

Dr Stuyck wondered about the proposal noting that the Regulation shall not affect acts of Union Law such as Rome I, but Rome I relates to any contract between a trader and a ‘passive’ consumer irrespective of whether goods or services are delivered cross-border.

With regards to alternative ways of looking at the consumer-trader relationship and deciding which law is applicable, he mentioned freedom of choice in cases where the trader cannot refuse to conclude a contract and the application of the trader’s home law if the consumer expressly agrees with it. However, he noted that even after solving the problem of the applicable law, IP rights remain territorial and the interaction with the Unfair Contract terms Directive 93/13 would need to be figured out.

To conclude, Dr Stuyck reiterated that Article 6 of Rome I only related to the law applicable in the case of consumer contracts with passive consumers. He also asked that if Rome I will be affected in any case by the geo-blocking regulation would it not be better to provide for a clear derogation from Rome I.

Dr Luís Miguel Poiares Maduro, European University Institute, Florence, explained the legislative landscape related to the regulation and the extent to which the existing set of rules could address the problems generated by geo-blocking. By defining this, it would be important for the European Parliament to decide whether or not the scope of the regulation as it is now is defined or not. Dr Maduro noted that if the geo-blocking restrictions were to result from state action, then current legislation would probably be enough.  

He noted that the application of non-discrimination based on nationality is established in Article 18 of the Treaty on the Functioning of the European Union. In case law, it is clear that discrimination on the basis of residence amounts to indirect discrimination on the basis of nationality. However, he reminded the audience that Article 18 is only applicable within the scope of application of EU law which in this context means that it is largely dependent on the scope of the free movement provisions.

Free movement provisions and competition rules are aimed at protecting market participants by empowering them to compete on equal terms and at promoting a functioning market. Dr Maduro noted that the Court of Justice of the European Union has acknowledged that these rules can be invoked with respect to the actions of private individuals, including limiting their private autonomy.

On the scope of the free movement provisions the Court has limited its application depending on whether it is state action or private action. He argued that the Court has not extended the application to private action as such, because that would increase the workload of the Court too much. As a result, the free movement provisions cannot be applied to most cases of geo-blocking. Dr Maduro said that even if they were applicable, litigation and information costs would make it very difficult for consumers to take advantage of that. For these reasons, Dr Maduro argued that geo-blocking is better addressed through secondary legislation.

Another issue to consider, he pointed out, is the balance between the rights of consumers not to be discriminated against on the basis of nationality and the private autonomy of traders. According to the Court, the right not to be discriminated on the basis of nationality should in principle prevail over the freedom to conduct a business.

To conclude, Dr Maduro said that legislation on geo-blocking is needed despite the provision of the Treaty because there is economic data to show that competition and competition law have not been effective in eliminating geo-blocking, many traders are path-dependent and fearful to change their business models, and unfair trade practices, which include geo-blocking, are not limited to anti-competitive practices.

Dr Giorgio Monti, European University Institute, Florence, said that he will look how competition law might address geo-blocking and what the gaps are there. The main gaps are to be found in the scope of the regulation and the alternative instruments. He noted that it is important to differentiate between goods under copyright rules and those that are not.

With regards to copyrighted goods, the issue of direct or indirect geo-blocking is more difficult, because of national copyright protection, but the European Commission (DG COMP) has attempted to address geo-blocking via competition law (e.g. Paramount commitments). Thus, competition has some potential to address geo-blocking, but its reach is weak and its enforcement is not a priority for the authorities.

On the scope of the proposed regulation, Dr Monti noted that incremental proposals, such as the portability proposal, could be used to address some of the exclusions included in the proposal. He said that one of the major issues with the scope is that copyrighted products are excluded. He also wondered about the exclusion of transport from the scope.

Dr Monti posed the question that even if the Regulation were to apply to the exclusions, could it in fact be circumvented or could the market overtake the Regulation as legislation often runs behind market solutions.

He emphasised that any change to the Commission’s proposal will need to consider what impact it will have on the broader legislative context and any spill-overs that may exist.

On the drafting of the proposal, Dr Monti said that a single article with all the exclusions would be better than multiple articles. He also noted that awkward exceptions (e.g. Article 4.2) and overlap with competition law (Article 6) should be avoided, and the usefulness of prohibitions should be ensured (e.g. Article 3 seems useless or contradictory).

Lastly, Dr Monti mentioned the role of enforcement in ensuring that geo-blocking is stopped.

Dr Georgios Petropoulos, Research Fellow, Bruegel, talked about the potential economic gains from extending the scope of Article 4 of the Proposed Regulation to non-audiovisual services with copyrighted content. To start, he noted that online sales are becoming more and more important (22% annual growth rate despite the economic crisis), but that domestic online sales is still much larger than cross-border, both inside and outside of the EU. Despite this, he said that consumers see geo-blocking as an important issue.

On the Commission proposal, Dr Petropoulos noted that 33% of online trade by individuals is excluded from the proposals, which is an important amount.

Lifting geo-blocking restrictions would bring positive impacts on consumers (lower prices and greater variety of products) and producers (more potential consumers), but the impact would vary greatly between Member States. He called for an impact assessment on non-audiovisual services.

With regards to the music industry, he noted that in 2015 digital buying surpassed offline purchases. Lifting geo-blocking restrictions in music would have annual gains of €19 million for consumers and €10 million for producers (EU13+Norway+Switzerland). Dr Petropoulos noted that it may not be a win and win situation for all, but on average the impact will be positive.  

In terms of E-books, the penetration of digital content is not as striking as in the music sector. The market is still concentrated on a few players. Big EU markets are still restricted according to nationality and consumers are often directed to the US, but availability of items is still high (above 95%). 

In computer games, mobile games require a lot of portability. This is an important factor when taken into consideration that the annual growth of mobile phone gaming is 23.7%.

To conclude, Dr Petropoulos noted that there are a lot of copyright and legal issues that need to be dealt with and that there needs to be cooperation between this proposal and other initiatives such as parcel delivery and online payments that deal with geo-blocking.

Pascal Arimont (EPP, BE) said that it would be necessary in terms of geo-blocking for equal rights online and offline to be taken as a given, but he was not sure whether this would be possible because of disagreements between the European Parliament and the Council. As a result, the discussion is now on very technical issues with regards to different legal frameworks. If a conflict of law rule will be introduced, then that conflict of rule itself would be super-ordinate to any national rules that the trader would be subject to in national legislation, Mr Pascal remarked. He said that this basic provision would have to apply and that that principle should not be questioned later down the line by the courts.

If you are interested in reading the full briefing, please sign up for a free trial of the Dods EU Monitoring service.

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