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 consumers were limited in their possibility to contact authorized retailers located outside their borders.
Finally, the Commission also found imposed resale price practices: Guess controlled the observance of the recommended prices communicated to distributors through a strict control of the prices charged. These practices, implemented in the EEA except France, Spain, Portugal and Italy, were intended to confer a consistent product image. Taking into account Guess' pricing policy and the restrictions regarding parallel sales, the Commission found an average price increase of 5 to 10 percent for Eastern European countries.
This decision is also interesting as it is to be read in conjunction with Regulation No. 2018/302 on addressing unjustified geo-blocking, which came into force on December 3, 2018.
According to said Regulation, a supplier cannot prohibit retailers from engaging in passive sales in the situations covered by said Regulation, for example, based on the client's nationality, place of residence or establishment.
This decision completes this text since henceforth, Guess' practices aimed at restricting passive sales are now also prohibited under this Regulation.
The Paris Court of Appeal confirms that the head of a selective distribution network is entitled to refuse to authorize an authorized retailer
In a decision of January 23, 2019, the Paris Court of Appeal once again confirms that the head of a selective distribution network's refusal to authorize a candidate for authorization does not constitute an unlawful agreement.
On June 29, 2016, the Paris Commercial Court dismissed Palau's claim to order Mazda to authorize it, considering that its refusal was a unilateral act that did not fall under cartel law. Palau then appealed this judgment.
In this decision, the Court of Appeal first dismissed the characterization as unilateral practice, considering that the distributors' adherence to Mazda's selective distribution system reflected the existence of a consensus between the supplier and its distributors.
On the other hand, the Court considered that a refusal to authorize did not constitute a restriction of competition by object since this refusal did not fall under the supplier's general will to exclude a form of distribution, create artificial barriers to market entry or eliminate distributors practicing low prices. In this case, the case concerned a simple isolated refusal to authorize based on the absence of constructive partnership and a loss of trust between the parties.
The Court also considered that the refusal to authorize could be considered only as a restriction by effect if it was demonstrated that it was likely to eliminate or restrict competition. However, in this case, proof that the market was impacted was not produced.
Finally, the Court considered that it did not matter that the supplier's market shares were in this case greater than 30 percent to appreciate the validity of the refusal to authorize. As this refusal did not constitute an unlawful agreement under Article 101§1 since it did not have an anticompetitive object or effect, the block exemption regulation was not applicable.
This decision echoes the similar solution it had adopted in its decision of December 12, 2018 in which it rejected Concurrence's action against Sony for a refusal to authorize on the same grounds.
Publication of the ECN+ Directive: a new step for European competition policy
The directive 2019/01, known as ECN+, published on January 14, 2019, is intended to empower the national competition authorities (NCA) of the Member States to enforce the competition rules more effectively, notably through dissuasive sanctions. The directive will notably ensure that the NCA have the guarantees of independence, resources and enforcement powers necessary for the enforcement of competition law.
The transposition of the directive, to be completed within two years, will result in some adaptations of the French legal arsenal.
The most notable change for France will be the implementation of the principle of opportunity. The French Competition Authority will therefore be able to define its priorities and reject the complaints considered as non-priority.
We will note in particular that to put an end to an offense, the NCA can now impose any structural remedy (for example sale of assets or a subsidiary, or a contractual modification) in addition to behavioral measures. Furthermore, to prevent serious and irreparable damage to competition, the NCA may impose on their own motion emergency conservatory measures even in the absence of referral from another party.
We will also note the cap of the fine applicable to associations and trade unions now the same as the cap applicable to companies (10 percent), the possibility in case of investigation of business premises for the French Competition Authority to review the items and documents seized in the companies in its premises and the simplification of the regime of visits and seizures.
This is a strong signal sent to companies: competition policy is more than ever a priority of the European Union.
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