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Digital Content Distribution: the EU Commission Inquiry

A few weeks ago the EU Commission published the preliminary report of its inquiry on the e-commerce sector launched in May 2015, in the context of the Digital Single Market Strategy, DSM Strategy. The Inquiry is investigating both online sales of consumer goods and sale / license of digital content, and the latter is the subject of this post. Read more below and its’ worth noting that stakeholders have until the end of October to send their contributions.

A. The Inquiry. Background and Next Steps.

In the early of May, 2015, the EU Commission unveiled its DSM Strategy. Objectives include:

(i) simplify rules on online purchases, for the benefit of consumers;

(ii) modify copyright rules, to reflect new technologies;

(iii) ensure content portability (i.e., the possibility to join the same online content and services regardless of the EU Member State consumer is located).

The Inquiry is aimed at contributing to the regulatory steps necessary in order to reach such objectives. Its main phases can be summarized as follows:

(a) May 2015: launch of the Inquiry;

(b) March 2016: publication of the EU Commission issues paper, containing the initial findings of the Inquiry;

(c) September 2016: the current phase, started with the publication of the EU Commission preliminary report;

(d) November 2016: expiration of the 2-month public consultation period on the preliminary report (and publication of the stakeholders’ contributions);

(e) 2017, first quarter: publication of the EU Commission final report.

B. Anticompetitive Constraints Arising From Geo-Blocking of Digital Content.

Online delivery of digital content, such as films, TV series, broadcasts of sport events and music, is one of the biggest e-commerce sector in the EU. According to the EU Commission, 33% of online trade by individuals pertains to such goods / services.

The most relevant issue is represented by geo-blocking. Most (68%) of the digital content providers apply geo-blocking (mainly IP-based) against users located in different Member States. Such behavior, according to the most part of respondents (59%), is imposed by “wholesalers” (i.e., original producers / right owners). In addition, types and relevance of geo-blocking systems are often very different, depending on the Member State under scrutiny.

In this respect, we should note the following:

(i) geo-blocking does not constitute per se an anticompetitive conduct. Any provider may choose to distribute digital content only in one or more Member States;

(ii) however, in certain circumstances geo-blocking is the result of distribution agreements / arrangements between undertakings, under which the retailer is obliged not to sell abroad. Such agreement may determine a distortion of competition and so it can be declared null and void pursuant to Section 101 of the Treaty on the Functioning of the EU;

(iii) geo-blocking may also result from a joint behavior of a group of companies, holding a dominant position in the relevant market; such conduct, therefore, may imply an abuse of dominance pursuant to Section 102 of the same Treaty.

It should be noted that geo-blocking includes another (possibly anticompetitive) restriction, i.e. geo-filtering. Geo-filtering measures imply the redirect of a user to a website offering the same (or similar) digital content in a different Member State.

By way of example and according to the EU Commission, a user located in the Member State A may be prevented from accessing a Member State B based-website (“mere” geo-blocking); but he could be also directly re-routed to the company’s Member State A website, without the possibility to revert to its initial choice (geo-filtering).  Furthermore, the user could face a refusal of his / her payments, as credit card is linked to a specific Member State domain name (geo-blocking of e-payment services).  In addition, geo-filtering arises even when the cross border sale is allowed, but at different pricing depending on the Member State involved.

C. Concluding remarks. The Inquiry and the Overall DSM Strategy.

As said above, the Inquiry constitutes one of the main instruments aimed at achieving DSM Strategy objectives. However, e-commerce of digital content is analyzed – and regulated – by EU institutions through various means, also judicial.

The Inquiry is directly connected, inter alia, with:

(a) the implementation by Member States of the Barnier Directive (Directive no. 2014/26/EU) on “collective management of copyright and related rights and multi-territorial licensing of rights in musical works for online use in the internal market“. Such Directive enforces the freedom to provide services in the collecting societies market, as well as at fostering multi-territorial licensing on music within the EU;

(b) the EU Court of Justice case law on digital content. By way of example, the Court (C-110/15, judgment of September 22, 2016) very recently stated that Italian system of private copying levies is not compliant with EU law, to the extent it applies also to B2B transactions and does not give any remedy to the original right holders for the claim of the sums not due from the main Italian collecting society (Società Italiana degli Autori ed Editori);

(c) the review of the audio-visual media services Directive, which should ensure a level playing field among (traditional) broadcasters and OTT operators, especially as regards (i) EU works; (ii) advertising thresholds; and (iii) minors’ protection;

(d) the General Data Protection Regulation (Regulation no. (EU) 2016/679), which will enter into force on May 25, 2018. Such Regulation could have a huge impact on the processing of users’ personal data collected in the context of cross border sell and purchase of digital content.

We will keep you posted on next steps. Feel free to contact me (saverio.cavalcanti@dlapiper.com) if you want to discuss the above.



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