On 17 December 2018 the European Commission fined the clothing company Guess in the amount of EUR 39.8 million for restricting retailers from online advertising and selling cross-border to consumers in other Member States – i.e. “geo-blocking”.
The Commission’s announcement of its fining decision complements the Regulation 2018/302 on unjustified geo-blocking (the “Regulation”), which came into force on 3 December 2018. The Regulation applies to ‘traders’ – which can be both legal and natural persons, in and outside of the EU. It also prohibits traders from discriminating between customers in the sale of goods and services on the basis of (i) their nationality, (ii) their place of residence or (iii) their place of establishment.
The investigation into Guess began in June 2017, following the Commission’s year-long inquiry into cross-border online sales practices of 1,900 companies. Guess operates a selective distribution system in the EEA, where it choses authorised retailers through whom it markets its products. During the investigation, the Commission found that Guess’ distribution agreements restricted authorised retailers from:
- using the Guess brand names and trademarks for the purposes of online search advertising,
- selling online without specific prior authorisation by Guess,
- selling to consumers located outside of the authorised retailers allocated territories,
- cross-selling among authorised wholesalers and retailers, and
- independently deciding on the retail price at which they sell Guess products.
Blocking retailers from advertising and selling cross-border allowed Guess to partition the EU single market, as these provisions allowed the company to maintain increased retail prices in certain countries. In particular, the Commission determined that the retail prices for Guess’ products in Central and Eastern European countries – Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia, were on average 5-10% higher than in Western Europe. On this basis, the Commission concluded that Guess’ illegal practices, lasting until 31 October 2017, deprived European consumers of one of the core benefits of the single market – the possibility to shop across border for more choice and find a better deal.
Guess cooperated fully with the investigation. The company even revealed it made an infringement that the Commission hadn’t yet discovered – by prohibiting the use of Guess brand names and trademarks for online search advertising. In return for Guess’ cooperation, the Commission reduced its fine by 50%.
Apart from Guess, the Commission also launched three investigations into geo-blocking by Nike, video game suppliers – Valve Corporation, Bandai Namco etc., and holiday companies – Kuoni, Rewe, Thomas Cook etc. Additionally, there is a number of similar cases being brought forth or investigated by the national competition authorities. Therefore, it is safe to assume that this is only the beginning of the Commission’s focus on geo-blocking by means of vertical agreements. What is certain is that the Commission’s decision in the Guess case and the entering into force of the Regulation are a big step towards integration into a truly single, and truly digital, European market.
