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Comment: Geoblocking, eCommerce and Brexit

The vote on 23 June 2016 to leave the European Union (EU) has provoked a number of uncertainties about how the UK can cooperate economically with the EU following its exit. This is an issue that impacts every sector to varying degrees, and eCommerce is no exception.

Suppliers and retailers have been coming under particular scrutiny from the European Commission (EC) and from the UK's national competition authority, the Competition Markets Authority (CMA).

They are focusing on two types of restrictions to which retailers are sometimes subject. First, resale price maintenance clauses, whereby manufacturers and suppliers agree that the retailer may not sell below a certain price. Secondly, so called 'geoblocking' provisions – the process of blocking access to eCommerce websites based on the visitor's country of access.

Geoblocking can be brought about for several reasons, including where some suppliers demand that retailers use technology to prevent cross-border online sales within the European Economic Area (EEA). Subject to limited exceptions, an agreement between a supplier and retailer to use geoblocking technology within the EEA is treated under EU and UK competition law as a hardcore restriction of competition. If uncovered, the restriction can result in substantial fines on both the retailer and the supplier

In the past 18 months, many UK retailers have been contacted by the EC as part of its sector inquiry into eCommerce. The EC's interim findings, published in September this year, highlighted the prevalence of geoblocking. The EC has indicated that if supplier and retailers do not end geoblocking agreements, they can expect competition infringement enforcement action. In parallel, the CMA continues to investigate online sales restrictions imposed on retailers.

The EC opposes geoblocking because it leads to a partitioning of the EU single market, raising barriers between member states. The EC has argued that being able to buy products online benefits consumers as it gives them more choice. By the same token, selling products and services online is good for companies, big or small, as it enables them to reach a wider customer base. 

Surely a win-win situation for suppliers and consumers. So, why do suppliers like geoblocking?

Some suppliers and retailers argue that geoblocking prevents low cost providers from other territories free-riding on the promotion and brand building efforts of the retailer. It also enables the brand owner to maintain a certain cachet around its brand by exerting greater influence or control over the consumers' retail experience in each territory in which it sells its products or services.

Unsurprisingly, the Brexit vote has raised questions regarding what's ahead for geoblocking restrictions.

If the UK leaves the EU internal market, there is likely to be scope for UK competition law to diverge from that of the EU. It could become lawful for suppliers to agree for UK retailers to use geoblocking technology to prevent consumers from outside the UK from buying products on that retailer's website.

Suppliers may wish to do this for a number of reasons.  For example, they may wish to protect their resellers within the EU from competition from UK retailers, which is an increasing concern given the recent devaluation in the pound against the euro and many other European currencies. 

The UK may also become a more attractive European territory for international brand owners looking to try different promotional and distribution techniques when launching new products in Europe. It could become a crucible for pricing and brand promotion at the start of a new brand launch in Europe, without any risk of the product in question becoming available in EU states via eCommerce from UK retailers. Suppliers could therefore stagger product launches, perfecting their offering in the UK before rolling the products out across Europe more generally.

Such outcomes may well benefit UK consumers. Conversely, UK retailers may find that they can raise prices, protected from competition from their counterparts in the EU. Clearly cost increases would not be so welcomed by consumers.  

In short, Brexit may well lead to a new legal environment regarding the application of UK competition law to the relationship between suppliers and UK retailers. If and when the UK moves towards leaving the EU internal market, brand owners and retailers could explore their options for protecting themselves from continental European competition. For them, Brexit may bring new opportunities.

The views and opinions set forth herein are the personal views or opinions of the authors. They do not necessarily reflect views or opinions of the law firm with which they are associated.

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Jones Day