European Commission fines Guess EUR 40 million in its ongoing crusade against geoblocking agreements
On 17 December 2018, the European Commission (‘Commission’) announced that it had imposed an antitrust fine of EUR 40 million on clothing company Guess for illegally restricting its resellers from using the Guess brand names and trademarks for the purposes of online search advertising and making cross-border sales of Guess products.
In its press release, the Commission clarifies that its final report on the e-commerce sector inquiry from 10 May 2017 enabled it to target EU antitrust enforcement on the most widespread and problematic business practices in e-commerce.
The fining decision also illustrates the Commission’s new focus on prohibited vertical agreements (rather than classic horizontal cartels) in the online retail sector. In the summer of 2018, the Commission had already imposed fines on four manufacturers of consumer electronics for attempts to influence the resale prices of their online distributers.
Guess fined for anticompetitive agreements to block EU cross-border sales
The Commission investigated the distribution agreements and practices of Guess to assess whether it illegally restricted retailers from making cross-border sales to consumers within the EU. Guess had set up a selective distribution system, by which it appointed authorised resellers to sell its products. The Commission found that Guess had infringed the cartel prohibition by prohibiting its resellers from (i) using Guess brand names in online search advertising, (ii) independently setting their own prices, (iii) conducting online sales without prior permission, (iv) selling outside of their allocated territories and (v) cross-selling to other authorised resellers in the Guess network. The Commission found that in doing so, Guess was able to partition the European market as a result of which it was able to maintain artificially high retail prices in Central and Eastern Europe. These restrictions applied from 1 January 2014 to the 31 October 2017.
Says EU Competition Commissioner Margarete Vestager: "Guess' distribution agreements tried to prevent EU consumers from shopping in other Member States by blocking retailers from advertising and selling cross-border. This allowed the company to maintain artificially high retail prices, in particular in Central and Eastern European countries. As a result, we have today sanctioned Guess for this behaviour. Our case complements the geoblocking rules that entered into force on 3 December – both address the issue of sales restrictions that are at odds with the Single Market."
The Commission reduced the fine by 50%, because Guess had cooperated in the investigation to a further extent than it was legally obliged to do. In particular, Guess had provided important additional evidence, had expressly acknowledged the infringements and had disclosed the prohibition on using Guess brand names in online search advertising (which not yet known to the Commission) on its own initiative.
The Geoblocking Regulation
As mentioned by Commissioner Vestager, the Commission’s announcement of its fining decision (which is yet to be made public) coincides with the entry into force of Regulation 2018/302 on unjustified geo-blocking (the ‘Regulation’). The Regulation applies to ‘traders’ (which can be both legal and natural persons) in and outside the EU, and prohibits traders to discriminate between customers in the sale of goods and services on the basis of (i) their nationality, (ii) their place of residence or (iii) their place of establishment. Only sales to end users are covered. Copyright protected works, including audiovisual services, such as broadcasts of sports events, are e excluded from the scope of the Regulation. In addition, the Regulation does not apply to transport services and financial services.
Enforcement of the regulation is left over the EU Member States. In the Netherlands, a bill is currently pending in Parliament by which the Authority for Consumers and Markets (“ACM”) will be appointed as the enforcement agency under Dutch law. Under the proposed bill, the ACM may impose a fine for infringement of the Regulation of EUR 900,000 or – in case that is more - 1% of the infringing party’s worldwide turnover.
Further information regarding the Regulation can be found in a recent Loyens & Loeff Life Sciences Bit.
Should you have any questions with regard to the above, please contact one of Loyens & Loeff’s competition specialists Marc Wiggers (Netherlands) and/or Thomas Verstraeten (Belgium), or your regular Loyens & Loeff adviser.