European Commission fines a company for anticompetitive agreements that block cross-border sales

On 17 December 2018, the European Commission fined the clothing company Guess around €40 million for restricting retailers from online advertising and selling cross-border to consumers in other Member States (geo-blocking). This decision is one of the first from the number of enforcement investigations opened in response to the Commission’s e-commerce sector inquiry.

The Commission began investigating Guess in June 2017, in relation to distribution agreements and business practices that restricted retailers from selling cross-border within the EU Single Market. Guess operated a selective distribution system in the European Economic Area, choosing authorised retailers based on quality criteria. While companies are generally free to do this, the distribution system must comply with EU competition rules on passive (where the customer approaches the retailer) and active sales (where retailer or distributer approaches the customer). In addition, agreements must also comply with the new EU Geo-Blocking Regulation, which came into effect on 3 December 2018. A summary of the new Geo-blocking Regulation can be found here. Under these laws, agreements must not restrict consumers from purchasing from authorised retailers across national borders and authorised retailers must be free to:

• offer products covered by the distribution contract online
• advertise and sell products across borders
• set their own resale prices.

Findings

The Commission investigation found that Guess' distribution agreements infringed Article 101 of the Treaty on the Functioning of the European Union, as they restricted authorised retailers from:

• using the Guess brand names and trademarks for the purposes of online search advertising
• selling online without a prior specific authorisation by Guess. (The company had full discretion for this authorisation, which was not based on any specified quality criteria)
• selling to consumers located outside the authorised retailers' allocated territories
• cross-selling among authorised wholesalers and retailers
• independently deciding on the retail price at which they sell Guess products.

The Commission concluded that the agreements allowed Guess to partition European markets and ‘maintain artificially high prices’ for consumers in certain countries. In particular, in Central and Eastern European countries, the retail prices of Guess products were, on average, 5-10% higher than in Western Europe. The Commission also found that Guess’ practices infringed the Geo-Blocking Regulation.

The Commission fined Guess €39,821,000, but also awarded Guess a sizeable reduction in the fine (50%) for cooperating. This is now the sixth time the Commission has used this ‘informal settlement’ process to settle a non-cartel investigation quickly and offer a reduction in fine.

Next steps

This is one of the first cases that the Commission has found Article 101 TFEU infringements due to geo-blocking. In the light of the new Regulation and the Commission’s commitment to investigating restrictions on cross-border e-commerce, companies should pay close attention to sales restrictions in their distribution agreements to ensure that they do not breach EU law.