The European Commission has recently fined the clothing company Guess €40 million for restricting retailers from online advertising and making cross-border sales of Guess products.
The decision follows in the wake of the results of the Commission's e-commerce sector inquiry which found that more than 1 in 10 retailers experienced cross-border sales restrictions in their distribution agreements.
Details of the case
Guess operates a selective distribution system in the EU which allows it to appoint authorised retailers, chosen on the basis of quality criteria, to sell its products.
Selective distribution systems comply with EU competition law provided consumers are free to purchase from any authorised retailer in the EU. In addition, authorised retailers must be free to offer the products online, to advertise and sell them across borders and to set the resale prices of the products.
The Commission decision (AT.40428) found that Guess had restricted authorised retailers from:
- using Guess brand names and trademarks for online search advertising
- selling online without prior permission from Guess
- selling to consumers located outside their allocated territories
- cross-selling to other authorised wholesalers and retailers
- independently setting the retail prices of Guess products
As a result of these restrictions, the Commission found that the retail prices of Guess products in the Central and Eastern European countries affected by the restrictions were on average 5-10% higher than in Western Europe.
The Guess decision coincided with the entry into force of Regulation 2018/302/EU on unjustified geo-blocking (Regulation). Geo-blocking is the practice of using technology to restrict access to online cross-border sales based on the user's geographical location.
The Regulation ensures that all consumers in the EU have the same rights to access goods and services on the same terms, regardless of their location. This means that a business can no longer block a customer from accessing their website based on their location and they cannot automatically redirect a customer to a different website without their consent. So-called passive sales, requiring businesses not to respond to unsolicited requests from consumers in other EU Member States, is also prohibited under the Regulation.
While businesses are not prohibited from having country specific websites or different prices in different countries, the Regulation allows EU consumers to compare offerings across the EU and enables them to take advantage of better prices and sales conditions in other EU Member States. However, businesses are not forced to deliver goods across borders. In addition, services offering copyrighted content, such as online TV, music and e-books, are not covered by the Regulation.
Related European Court of Justice decisions
The Guess decision follows on from a number of recent cases considering the compatibility of online sales restrictions with competition law. Most notably, the European Court of Justice held in Pierre Fabre (C-439/09) that a complete ban on online sales is a breach of EU competition law. This decision was further expanded on in Coty Germany v Parfümerie Akzente (C-230/16) when the European Court held that a restriction of sales through third-party online platforms such as Amazon, in the context of a selective distribution system for luxury goods, does not breach EU competition law provided that certain conditions are met. Please access our previous article on the Coty judgment here.
New Vertical Restraints Block Exemption
The European Commission is currently in the process of reviewing the so-called Vertical Restraints Block Exemption Regulation (VRBER) which exempts certain categories of vertical agreements from the prohibition on anti-competitive arrangements. The VRBER is due to expire on 31 May 2022. A particular focus of the Commission is the increased importance of online sales and the emergence of new market players such as online platforms. Any future revisions to the Regulation and accompanying Guidelines are likely to reflect these new practices and the judgments of the European Courts in relation to online restrictions.
What do these developments mean for businesses?
Manufacturers should familiarise themselves with their obligations under competition law and the new Geo-blocking Regulation before imposing any restrictions on resellers, particularly restrictions on how, to whom and at what price resellers can sell their products and services.