EU Moves Against Geo-Shielding: A New Era for Product Distribution

The territorial compartmentalisation of the European single market, a strategy used by many manufacturers to protect their margins and adapt their trade policies, is coming under unprecedented regulatory pressure. From the European Union’s point of view, these practices pose a direct obstacle to the objective of internal market integration, and both competition law and new legislative tools are making progress to limit their use.

What is meant by market compartmentalization?
This is the geographical segmentation of the European market through agreements or business practices that seek to restrict the free movement of products between Member States. A typical example is the exclusive assignment of territories to distributors, preventing other operators from making active sales in those areas. Although these strategies respond to a legitimate economic logic, such as price differentiation or adaptation to local preferences, European regulations require that they respect clear limits: the so-called “passive sales” cannot be restricted.

Increasingly demanding regulatory developments
Regulation 2022/720 has significantly strengthened the legal framework, prohibiting contractual clauses that limit the use of the internet as a distribution channel and consolidating the protection of passive sales. This regulation reflects the jurisprudence of the Court of Justice of the EU in cases such as Coty Germany and Pierre Fabre, and constitutes the new standard for assessing the compatibility of exclusive distribution systems with competition law.

In addition, in recent years, new regulatory instruments have been adopted, such as the Geo-Blocking Regulation (2018/302), which prohibits certain discriminatory practices in online commerce, including automatic redirection to local pages or refusal to sell on the basis of nationality or place of residence.

Recent cases: millionaire fines for restricting parallel trade
The European Commission has intensified its sanctioning activity in this area. In 2024, it imposed a fine of almost €340 million on Mondelēz for implementing measures that hindered the resale of products between member states. Likewise, the manufacturer Pierre Cardin and its licensee Ahlers were fined 5.7 million euros for restricting cross-border sales of clothing.

These actions reflect a clear message: the free movement of goods in the European single market cannot be conditioned by practices that, although commercially justifiable, violate the fundamental principles of EU law.

New demands and sectoral pressure
Beyond the existing regulations, the EU has initiated an exercise to collect evidence on territorial restrictions in strategic sectors. At the same time, large European distributors, through entities such as EuroCommerce or Independent Retail Europe, are pushing for the adoption of specific legislation against these barriers. One of the objectives is to eliminate unjustified price differences between countries by means of clear and homogeneous regulations at Community level.

What should companies take into account?
In this new context, strategies based on territorial segmentation must be thoroughly reviewed. Regulatory pressure and jurisprudential developments indicate a strong trend towards the elimination of barriers to parallel trade. Manufacturers are faced with the challenge of designing distribution models that are compliant with regulatory requirements, especially in digital and pan-European environments.

Market compartmentalisation, although still legally possible in certain cases, is at the heart of the political, legal and economic debate in the EU. And everything indicates that their margin for action will be increasingly reduced.

By Marimón Abogados, Spain, a Transatlantic Law International Affiliated Firm.

For further information or for any assistance please contact spain@transatlanticlaw.com

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