28 Jan 2019

The EU Commission has published its decision fining clothing brand, Guess, €40m. Guess admitted its wrongdoing and was rewarded with a 50% discount off the fine.

It emerges that by way of reaction to the increasing threat posed by online trading, Guess imposed a number of restrictions on its authorised wholesalers and retailers. These included:

  • Requiring retailers to obtain consent from Guess before selling products online
  • A de facto ban on retailers selling to end users based outside the sales territory assigned to them
  • Banning cross-supplies between authorised wholesalers and retailers
  • Pressurising retailers to stick to recommended selling prices; and
  • Banning retailers from using or bidding on Guess brand names and trademarks as keywords in Google AdWords in the EEA, in order to drive more traffic to its own website.

All of these practices were considered, by the EU Commission, to fall foul of the EU Competition Rules. The online sales restriction was found not to fall within the permitted type of restriction in the Coty case, because the explicit authorisation that had to be obtained from Guess was not linked to any specified quality criteria. Guess had full discretion whether or not to authorise online sales, and never adopted any criteria to be satisfied by retailers for their online sales activities.

The case shows the lengths some brand owners are prepared to go in order to protect their brand equity by controlling the manner in which their products are sold. With traditional bricks and mortar retailers facing ever increasing threats to their survival from a variety of factors, including online sales, the EU Commission's task in balancing the interests of brand owners and consumers during its current review of the Vertical Agreements Block Exemption Regulation, will not be an easy one.  

Since the new Block Exemption is not due to enter into force before 1 June 2022, the revised EU rules may well not be followed by businesses trading in the UK. The UK is currently due to exit from the EU by 31 December 2020 at the latest, and so will not need to abide by any revised EU rules after that date.  But if the UK chooses not to follow the EU's revised rules, what rules will it apply instead? This is yet another of the Brexit unknowns.

For now, at least, the position is clear: brand owners who try to restrict online sales do so at their peril.  But consumers will ultimately lose out if a sensible balance is not struck between the interests of internet sellers and the interests of more traditional resellers of branded goods. As retailers often say, when its gone its gone – and that is certainly true of bricks and mortar retail.

Consumers and Regulators have some difficult decisions ahead. Let's hope both groups choose wisely.