Competition Newsletter February 2019

Author:Ms Emmanuelle van den Broucke and Alexia Delaunay
Profession:Dentons
 
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The European Commission fines Guess €40 million for geo-blocking practices in distribution contracts

On January 25, 2019, the European Commission published a decision in which it fined Guess nearly €40 million for clauses included in its selective distribution contracts considered as restricting competition. However, Guess benefited from a 50 percent reduction of its fine as it cooperated with the Commission beyond its obligation to do so.

In May 2017, the Commission presented its final report on the sector enquiry on e-commerce in which it identified the existence of geographic blockings organized by the suppliers with their distributors, preventing online consumers from accessing goods and services proposed in another Member State.

The investigation launched in June 2017 on Guess' distribution contracts thus ties in with this sector enquiry.

This investigation revealed that several clauses of its distribution contracts restricted competition.

The Commission first noted the restrictions imposed on wholesalers and authorized retailers to sell online, through both the prohibition for them to use the brand Guess as a key word for online advertising, and Guess' policy promoting its own website by submitting online selling to its prior authorization, without it being based on precise criteria.

In the case at hand, it was impossible for the distributors to use and enhance the brand as a key word, notably via Google Adwords, without Guess' prior authorization, thus reducing the visibility of the distributors online but also their competition pressure on Guess' own online sites. This practice, in that it reduces the distributors' capacity to promote their products and therefore sell the contractual products, was deemed as restricting inter-brand competition.

The Commission thus sanctioned the partitioning of national markets organized by Guess' system and distribution contracts. The sales in the selective distribution network were limited by the fact that the wholesalers, exclusive for one or more Member States, were encouraged to purchase the products from Guess alone and not from other authorized distributors. Moreover, they were prohibited from promoting or selling Guess products outside their territory and therefore only sold to authorized retailers in their territory. Furthermore, the authorized retailers were allowed to sell only to final users in their territory.

These contracts thus partitioned the different European markets since some...

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