Guess fined by EU Commission for blocking Internet sales


Author: Thomas Edwards, Alex Haffner


Alex Haffner, Partner, Fladgate LLP (ahaffner@fladgate.com)

Thomas Edwards, Trainee Solicitor, Fladgate LLP (tedwards@fladgate.com)


 

The fashion retailer, Guess, has been fined by the EU Commission for a breach of Article 101 of the Treaty on the Functioning of the European Union (TFEU), which prohibits agreements between companies that prevent, restrict or distort competition within the EU’s Single Market.

Guess operates a selective distribution system across the EEA, which is a series of criteria that anyone wishing to act as a distributor of their products has to meet. Select distribution systems are permitted as long as they comply with EU competition rules. These state in particular that consumers must be free to purchase products from any retailer who is authorised to sell the manufacturers products and that retailers must be free to sell their products across the EU, and to set their own prices.

Guess was found to be in breach of EU competition law. The EU Commission stated that Guess’ unlawful restrictions, ‘allowed the company to maintain artificially high retail prices’. The EU has been cracking down on such agreements following their large-scale e-commerce enquiry in 2017 which found that 1 in 10 retailers suffered from cross border sales restrictions.

Guess took a number of steps to restrict retailers from selling Guess products across borders, including preventing retailers from:

  1. using the Guess brand names and trademarks for the purposes of online search advertising;
  2. selling online without a prior specific authorisation by Guess. Guess had full discretion for this authorisation, which was not based on any specified quality criteria. The EU Commission has made clear in a number of recent decisions that a quality criteria must be in place and must be fairly administered;
  3. selling to consumers located outside the authorised retailers’ allocated territories, which prevented retailers from making sales across EU borders;
  4. cross-selling among authorised wholesalers and retailers; and
  5. independently deciding on the retail price at which they sell Guess products.

The Commission found that these practices led to Guess products costing consumers in certain territories (in Central and Eastern Europe) approximately 5-10% more than elsewhere in Europe.

Interestingly, Guess cooperated with the Commission investigation to such an extent that they actually self-reported the fact that they prohibited the use of Guess branding and trademarks for online advertising. The Commission acknowledged Guess’ cooperation with the investigation which resulted in a reduction of the overall fine of 50%. Given Guess ended up being fined just under €40m this is a clear indicator of how heavy fines for a breach of anti-competitive rules can be.

This is also one of the first enforcements following the introduction of EU Regulation 2018/302, which prohibits unjustified geo-blocking. The Regulation seeks to tackle practices which limit the benefits of online commerce, one of which is the ability to access retailers from across the EU in order to get the best price available.

The Guess decision is the latest of a number of high profile fines handed down by EU Commissioner Margrethe Vestager, who is clearly taking a hard stance on retailers who restrict the retail of their products across the internal market. Those in trades of any form of retail sales, notably e-commerce, should take careful note.

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