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Guess’ €40 million fine and ‘geo-blocking’ – What retailers need to know

Woman Lying On Carpet Shopping Online On Laptop With Debit Card Print publication

21/12/2018

Walker Morris’ Commercial Dispute Resolution/Retail and Competition specialists Gwendoline Davies and Trudy Feaster-Gee highlight the recent anti-competition findings and fine against clothing company Guess, and explain what retailers need to know about new online retail ‘geo-blocking’ rules.

Guess’ €40 million* fine

Clothing company Guess has been fined almost €40 million by the European Commission (EC) for anti-competitive provisions within its distribution agreements which restricted retailers from online advertising and selling cross-border to consumers in other Member States in breach of European Union (EU) competition rules.

As a manufacturer of luxury, branded products, Guess had established a selective distribution network within Europe. In such a network, where territories are allocated to specific re-sellers, EU competition rules provide that consumers must be free to purchase from any retailer authorised by a manufacturer, including across national borders; and authorised retailers must be free to offer the products online, to advertise and sell them across borders, to supply other authorised retailers in the network and to set their resale prices independently.

Following an investigation which commenced in June 2017, the EC has 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 a prior specific authorisation by Guess (for which the company had full discretion, which was not based on any specified quality criteria);
  • selling to consumers located outside 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.

The agreements therefore allowed Guess to partition European markets, resulting in retail prices in Central and Eastern European countries being, on average, 5-10% higher than in Western Europe.

The EC concluded that Guess’ practices were in breach of competition law and deprived consumers of the possibility to shop cross-border to access more choice and a better deal.

These, and related, practices which restrict online cross-border sales based on nationality or place of residence are known as ‘geo-blocking’.

New ‘geo-blocking’ rules

The Guess findings closely coincide with the coming into effect, on 3 December 2018, of the EU’s new Geo-blocking Regulation ((EU) 2018/302) and the UK’s Geo-blocking (Enforcement) Regulations 2018, which specifically prohibit unjustified geo-blocking.

The UK regulations also allow for consumers to bring claims against businesses which breach geo-blocking rules relating to online interfaces and access to goods and services (including, non-exhaustively, by offering different terms and conditions to consumers in different Member States and discriminating in relation to payment methods).

The EC has published a guide for online traders to explain how online sellers can ensure their services are compatible with the new rules and to provide examples of good practices.

What can retailers do?

Retailers should immediately familiarise themselves with the new geo-blocking rules and should review existing terms and conditions (in particular within distribution agreements); payment practices; marketing material; and logistical/delivery arrangements to make sure that any potential cross-border barriers to a customer’s access to online purchasing or payment are identified and removed or re-drafted as necessary.

If you would like any further advice or assistance in relation to the issues raised in this briefing, please do not hesitate to contact the authors. Walker Morris’ Head of Commercial Dispute Resolution is a specialist within the retail industry and Trudy Feaster-Gee is an expert in all aspects of EU and UK competition law.

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*Guess’ fine would actually have been double this sum, were it not for the fact that the company acknowledged its wrong-doing and co-operated with the investigation by voluntarily revealing an unknown infringement and providing significant evidence.

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