On 17 December 2018, the European Commission (the "Commission") imposed a fine of €39.9 million on Guess for restricting authorised retailers from advertising online and selling cross-border to consumers in other Member States, in breach of Article 101 of the Treaty on the Functioning of the European Union ("TFEU").
| what you need to know - key takeways |
- The Guess decision confirms the Commission's determination to continue to pursue online distribution restrictions.
- This decision categorises absolute bans on the use of trademarks and brand names for online sales advertising as an "object" restriction under Article 101.
- This is the first instance that the Commission has reached an infringement decision in relation to online search advertising restrictions.
- Consistent with the scope of the 2018 EU Geo-blocking regulation, the decision states that restrictions on passive sales to end-consumers are prohibited, and that any restrictions on active cross-border sales or advertising must be compliant with competition law.
- This is another notable example of the Commission recently applying an informal settlement discount (i.e. settling outside its formal settlement procedure, which is reserved for cartel conduct) provides some guidance on obtaining a fine reduction for cooperation outside cartel cases.
|
In June 2017, the Commission opened a formal antitrust investigation into the distribution agreements and practices of Guess, a branded clothing company, which operates a selective distribution system in the EU. The case follows up on the results of the Commission's e-commerce sector enquiry.
After an 18-month enquiry, the Commission's decision found that from 2014 to 2017, Guess restricted its retailers from:
- using Guess' brand names and trademarks for online search advertising purposes;
- selling online without Guess' prior authorisation;
- selling to consumers located outside the retailers' allocated territories;
- cross-selling between authorised wholesalers and retailers; and
- independently deciding their retail prices for Guess products.
These restrictions effectively allowed Guess to protect its own online sales business and partition the EU market, resulting in 5-10 per cent higher prices in Central and Eastern European countries as compared to Western European countries. On this basis, the Commission concluded that Guess' practices were illegal under Article 101 TFEU.
This is the first instance that the Commission has reached an infringement decision in relation to online search advertising restrictions.
The decision also complements the 2018 EU Geo-blocking regulation (Regulation (EU) 2018/302), under which a supplier cannot contractually prohibit "passive sales" by retailers to customers. The Commission specifies that Guess' practices which restricted such sales to end-consumers are also prohibited. In addition, while the Geo-blocking regulation does not prohibit restrictions on active sales, the Commission confirms that such restrictions need to be compliant with EU competition rules.
Moreover, the decision is a notable example of the Commission rewarding the investigated company's cooperation (Guess obtained a 50 per cent fine reduction) in non-cartel cases. In particular, the Commission published a fact-sheet providing guidance as to how it assesses cooperation in cases to which the (cartel) leniency guidelines do not apply. Relevant factors which contributed to the 50 per cent discount in this case included the fact that Guess:
- disclosed to the Commission, before the issuance of the SO, restrictive conduct which was not known to the Commission;
- provided additional valuable evidence;
- acknowledged the infringement; and
- waived certain procedural rights which led to a shorter investigation.
With thanks to Schéhérazade Oozeerally of Ashurst for her contribution
