According to a press release issued on 17 December 2018, the European Commission ("Commission") has fined the clothing company Guess € 39.8 million for infringing Article 101(1) Treaty on the Functioning of the European Union ("TFEU") by imposing various types of resale restrictions on authorised members of its selective distribution system. The decision is further evidence of the priority being given by the Commission to tackling resale restrictions in vertical agreements, including in relation to e-commerce, sparked in part by the results of the E-commerce Sector Inquiry.
According to the press release, the Commission found that Guess' distribution agreements contained a number of restrictions which led to a partitioning of European markets. In particular, the agreements restricted authorised retailers from:
- using the Guess brand names and trademarks for the purposes of online advertising;
- selling online without a prior specific authorisation by Guess (which had full discretion over whether to grant this authorisation as it was not based on any specific quality criteria);
- selling to consumers located outside the authorised retailers' allocated territories;
- cross-selling among authorised wholesalers and retailers; and
- independently deciding the retailer price for the contract products.
The infringement lasted from 1 January 2014 to 31 October 2017. The Commission suggested that the restrictions imposed by Guess allowed it to charge artificially high prices, noting that retail prices for its products in Central and Eastern European markets are on average 5-10% higher than in Western Europe.
This is the first decision in which the Commission has ruled on restrictions on the use of brand names and trademarks for the purposes of online advertising, and comes after potential concerns with such practices were identified by the Commission in the E-commerce Sector Inquiry Report and after they were found to infringe the competition rules in the Asics case in Germany. The remaining elements of the infringement do not appear novel.
The fine imposed on Guess was substantially reduced as a result of the extent of its cooperation with the Commission during the investigation, which went beyond what its legal obligation required. In particular, Guess informed the Commission of the restriction on the use of Guess' brand name and trademarks in online advertising, of which the Commission was not aware. In addition, Guess provided evidence of significant added value and acknowledged the infringements in question. As a result, Guess was granted a 50% reduction of the fine. This appears to be the third time that a substantial reduction of fines has been granted under the Commission's informal "cooperation procedure", following most recently the reduction of fines imposed on four consumer electronics manufacturers in July 2018 (see VBB on Competition Law, Volume 2018, No. 7, available at www.vbb.com).
The case comes just two weeks after the Geo-blocking Regulation entered into force as part of a broader initiative to prevent unjustified cross-border sales restrictions (see VBB on Competition Law, Volume 2018, No. 2, available at www.vbb.com). Acknowledging this, Commissioner Vestager commented that the fine imposed on Guess complements the Geo-blocking Regulation in that "both address the issue of sales restrictions that are at odds with the Single Market". The Commissioner noted that the restrictions on passive sales imposed by Guess would be invalid as a consequence of Article 6 of the Geo-blocking Regulation.
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