Geo-blocking: Consequences for agency, distribution and franchise

As from 3 December 2018, there will be a ban on geo-blocking by websites within the EU. Due to this ban, agreements made on geographical sales territories of distributors, agents and franchisees on the Internet can no longer be maintained. This blog will provide tips for maintaining agency and distributorship and the protection of your sales territory.

Geo-blocking prevents customers from ordering products from websites based in other Member States. This way, the owner of a website can, among other things, fulfil agreements concerning sales territories of agents, distributors and franchisees.

Companies use different techniques to partition their sales market and to charge different amounts per location. Sometimes customers will be redirected to a domestic website or to the international website of the supplier. In other cases, the customer is prevented from ordering, for instance, because:

• Registration on a website is precluded because its place of residence is not included in a drop-down menu.
• Payments from a foreign bank or foreign credit card are not possible.
• Shipping isn’t possible, even if the product is picked up in the country where the online shop is physically located.

New regulations

As from 3 December of 2018, geo-blocking of EU citizens within the EU will no longer be allowed. This is another move forward towards a “Digital Single Market”, free movement in e-commerce, without borders. The ban does not apply to:

• Copyright protected products, such as e-books, music and films
• Financial and audio-visual services
• Transport and healthcare services
• Social services.

Online sellers are not allowed to refuse orders by EU-citizens, but they are not required to ship their goods abroad. They are required however to enable customers from other Member States to pick up goods at the physical location of their online shop. In the event that sale or possession of a product is not allowed in a Member State, the online shop may refuse to sell a product to customers from this Member State. However, the buyer has to be notified of the reason for the refusal.

Together with the geo-blocking ban, measures will be introduced to make the costs of international shipping more transparent and paying VAT for international online sales will be made easier.

Consequences

The geo-blocking ban will have consequences for agency, distribution and franchise. A characteristic feature of agency and distributorship is geographical demarcation, the parties agree on a contract area where the agent, distributor or franchisee is active. The Dutch agent of a certain brand will be allowed to represent the brand in the Netherlands, but not in Germany.

After the ban on geo-blocking such a geographical demarcation will no longer be possible on the Internet. A distributor in the Netherlands will have to serve German customers if they order goods in a Dutch online shop. However, many present distribution agreements contain a provision that requires a distributor to only distribute goods within an agreed territory.

Due to the ban on geo-blocking, such a provision cannot be maintained. Therefore, it is crucial to update contracts and to include provisions that will ensure the continuation of agency, distribution or franchise.

Tips

A complete sales ban to inhabitants of other Member States will no longer be allowed. But what will be allowed?

• Suppliers can make arrangements with agents and distributors that they will not actively search for customers outside their own countries. This might discourage buyers to order from online shops abroad because it only ships products domestically.
• Another possibility would be to agree on the language of a website (national languages only).
• The manufacturer is not allowed to require distributors and agents to set a minimum price, so that they will not be able to compete with each other or the website of the manufacturer. Agreements on price-fixing of products will not be allowed, except for maximum prices.
• Though redirecting to a website in another country will no longer be allowed, it will be allowed to notify customers using a pop-up that there is also a special domestic website.

Action

• Check whether the geo-blocking ban will have consequences for your company and, if necessary, adapt your online shop. Keep in mind your duty to provide information and the consumer’s right of withdrawal and the general rules for Internet resale. Specific rules might apply to luxury goods.
• Change your current distribution, agency or franchise contract if it violates the geo-blocking ban.
• Add convenient provisions from our tips to your contract.

More information

Would you like to update your agency, distribution or franchise contract? Or do you have any questions concerning online sales via online shops? Please contact us: