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On December 17, 2018, the European Commission (“EC”) fined fashion company Guess EUR 39.8 million for restricting retailers from online advertising and selling cross-border to consumers in other Member States (“geo-blocking”).

The EC opened an investigation in June 2017 based on the EC final report on the e-commerce sector inquiry. The report concluded that distribution agreements restricted authorized retailers from:

  • Freely deciding on the retail sales price of Guess products;
  • Using the Guess brand names and trademarks for online advertising (in particular in Google AdWords);
  • Selling to consumers located outside the authorized retailers’ allocated territories;
  • Cross-sellingamong authorized wholesalers and retailers;
  • Selling online without Guess’ prior specific authorization. Guess had full discretion to deny this authorization, with no need for any objective justification or specific quality criteria.

The EC concluded that these practices deprived European consumers from one of the main benefits of the European Single Market: the possibility to shop cross-border for a greater and better supply.

Guess’ distribution agreements tried to prevent EU consumers from shopping in other Member States by blocking retailers from advertising and selling cross-border (…). Our case complements the geo-blocking rules that entered into force on December 3; both address the issue of sales restrictions that are contrary to the Single Market.” M. Vestager, EU Commissioner for Competition, (press release of December 17, 2018)

This is the first time the EC imposes a fine for online advertising restrictions. In its final report on the e-commerce sector inquiry, the EC had already announced these restrictions as one of its priorities. Also, in the accompanying Working Document, the EC expressed its concerns that these restrictions be aimed at preventing retailer websites from having a prominent position, leaving preferential positions for the manufacturer’s activities. National authorities are also targeting these practices. See the decision of the German competition authority (Bundeskartellamt) regarding the use of brand name Asics on internet searches.

As determined by the Court of Justice of the European Union (“CJEU”) in Coty, companies are free to establish any distribution system that works for them in the European Economic Area (“EEA”), including selective distribution systems, where products can only be sold by pre-selected distributors to ensure quality. However, these selective distribution systems must comply with EU competition law. In particular, consumers should be free to shop cross-border from any authorized distributor.

The EC has several ongoing investigations regarding possible geo-blocking practices in the merchandising, video game and hotel accommodation sectors. Nike, Sanrio and Universal Studios are subject to investigation for possible restrictions in their licensing and distribution systems.

Also, Valve CorporationBandai Namco and other video game companies are being investigated for possible digital content restrictions based on consumers’ location or country of residence; and tour operators Kuoni, Rewe and Thomas Cook for preventing consumers from benefitting from better conditions because of the consumer’s nationality or place of residence.

The EC has reduced the fine on Guess by 50% for its cooperation during the investigation. Other than in cartel investigations, this is the third time that the EC reduces a fine for cooperation after the ARA and electronic product cases. The EC published a fact sheet providing a framework for fine reduction for cooperation other than in cartel investigations.

We will pay close attention to the development of these investigations to inform about any news.

This post is also available in: Español

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