EU Commission fines Guess €40 million for Geo-blocking
21st December 2018
On 17 December 2018, the European Commission (“Commission”) fined clothing and accessories company Guess €39,821,000 for breaching EU competition rules. Guess was found to have attempted to block retailers from selling and advertising Guess products cross-border, thereby preventing their EU consumers from shopping in other Member States. It had placed the restriction in its distribution agreements, which was deemed to jeopardise competition particularly in Central and Eastern European countries. This is the first competition case decided after the implementation of the Geo-blocking Regulation on 3 December 2018.
The Commission opened its formal investigation into Guess in June 2017 following suspicions of anti-competitive behaviour involving geo-blocking activity and the content of its distribution agreements. The Commission found that the distribution agreements placed anti-competitive restrictions on authorised retailers, specifically prohibiting them from:
• selling to customers located outside the authorised retailers’ allocated territories;
• selling online without a specific authorisation by Guess to do so (with the decision regarding authorisation solely at the discretion of Guess, not based on any specified quality criteria);
• using the Guess brand in online search advertising;
• cross-selling among authorised retailers and wholesalers, and
• independently deciding on the retail price of the Guess products sold by them.
Under EU law, consumers must have freedom to purchase products from any retailer authorised by a manufacturer, including across borders in other Member States.
The Commission found that the accumulative result of these restrictions was depriving European consumers of the choice of shopping across borders for a more competitive deal, which is a core benefit of the Single Market. Additionally, prices of Guess branded products were found to be on average between 5 - 10% higher in Central and Eastern European countries such as Poland and Hungary, when compared with prices in Western Europe.
Under EU law, consumers must have freedom to purchase products from any retailer authorised by a manufacturer, including across borders in other Member States. Equally, authorised retailers must have the freedom to offer the products under the distribution agreement for sale online across Member State borders.
The Commission’s press release stated that Guess ceased its anti-competitive behaviour in October 2017, and has since cooperated with the Commission’s investigation, resulting in a 50% fine reduction. This cooperation involved revealing infringements that the Commission was not previously aware of, specifically the prohibition on using the Guess brand and trademarks for the purposes of online search advertising.
Commissioner Margrethe Vestager stated that the Commission’s decision in this case complements the Geo-blocking Regulation which came into force on 3 December 2018, as they both address the issue of sales restrictions that are at odds with the concept of the Single Market. This case also serves as a reiteration of the conditions that the Court of Justice of the EU placed on luxury brands in 2017 in its Coty judgment.
Furthermore, this case highlights the Commission’s changed approach to offering a reduction in fine in exchange for co-operation in connection with competition investigations concerning vertical agreements. Formal leniency for vertical agreements is not available, but in this case the Commission gave Guess a 50% fine reduction in return for co-operation.
For additional information please contact Ros Kellaway or Annabel Borg.