1. CASE SUMMARY
A. Summary of facts
Guess, a US-based company active in the clothing, shoes and accessories sector, employed a selective distribution system at the wholesale and retail level of trade. It also sold its products online directly through its own online shop and as a seller on online marketplaces.
Guess assigned a specific territory to each reseller and restricted their online and offline sales. The Commission identified five ‘by object’ restrictions:
- Online search advertising restrictions: Guess banned retailers from using or bidding on Guess brand names and trademarks as keywords in Google AdWords. This restriction was not included in the distribution agreements but was systematically applied whenever an authorized retailer asked for permission – as was required – to use any of the Guess brand names or trademarks as keywords in Google AdWords.
In so doing, Guess sought to maximize traffic to its own website and minimize its own advertisement costs. This restricted the ‘findability’ and ultimately the viability of the online retailers in Guess’ selective distribution system;
- Online sales restrictions: Guess favoured its own online shop by limiting the number of independent operators selling Guess products online. Authorized retailers were contractually obliged to first obtain explicit authorization from Guess to conduct online sales. In addition, Guess did not specify quality criteria for online sales and had full discretion in deciding whether retailers were allowed to sell online.
The primary objective was to protect Guess’ own online sales activities and to limit intra-brand competition by authorized retailers;
- Restrictions on cross-selling: Guess prevented wholesalers and retailers from cross-selling to each other by imposing outright sales restrictions and applying disincentives to cross-sales. This was done through different types of clauses in the respective wholesale and retail agreements, for example:
- a restriction on wholesalers to promote or advertise outside their allocated territory, in some cases subject to termination of the agreement;
- a minimum purchase obligation imposed on wholesalers, with purchases of Guess products from other authorized members not being taken into account (i.e. only purchases from Guess were taken into account);
- an obligation for wholesalers to ensure at their own expense that the products sold to their retail customers “remain” within the “territory”;
- restrictions on retailers on purchases across the selective distribution network, only allowing sales to end users; and
- restrictions on sales by retail store sublicensees to non-retail customers, only allowing sales to end users.
- Restrictions on cross-border sales to end users: Guess imposed restrictions on active and passive sales by retailers to end users located outside their allocated territory. These restrictions were typically included in the retail store sublicense agreements.
- Resale price maintenance: Guess imposed minimum prices by communicating a “recommended pricelist” with which retailers had to comply. Guess monitored its retailers’ prices and tried to influence them to stay in line with the ‘recommended’ resale prices. The objective was to have uniform retail prices in specific markets in order to make “the product image uniform on the market”.
In light of the above, Guess effectively restricted intra-brand competition and partitioned national markets contrary to Article 101(1) TFEU. Guess’ conduct did not qualify for an exemption under either Regulation 330/2010 or Article 101(3) TFEU.
The decision relates to practices in 27 EEA countries, excluding France, Iceland, Portugal and Spain. The infringement lasted nearly three years. It started on 1 January 2014 and ended on 31 October 2017.
Guess was fined EUR 39,821,000, after receiving a reduction of 50% for its cooperation.
B. Legal analysis
B.1 - Framework of analysis – selective distribution
The Commission first reiterates the two distinctive features of selective distribution before confirming that Guess’ selective distribution system fulfils both criteria:
- Guess sells the products only to distributors selected on the basis of specified selection criteria; and
- the selected distributors are prohibited from selling the contract products to other distributors not belonging to the selective distribution network. (§112)
B.2 - Article 101(1) TFEU – object restrictions
- Online search advertising restrictions: Guess claimed that the restriction served the legitimate objective of protecting Guess’ brand image. The Commission refuted this claim and concluded that the restriction had as its object to reduce the ability of authorized retailers to advertise and ultimately to sell the contract products to customers, in particular outside the contractual territory or area of activity, and to limit intra-brand competition. (§114-125)
- Online sales restrictions: The Commission found that Guess sought to protect its online sales activities from intra-brand competition and to limit the retailers’ ability to sell outside their territory and concluded that this conduct constitutes a restriction of competition by object within the meaning of Article 101(1) TFEU. (§127-131)
- Restrictions on cross-selling: The Commission reiterated settled case law that a restriction of sales between authorized distributors constitutes a restriction of competition by object within the meaning of Article 101(1) TFEU, and concluded that the restrictions on cross-selling imposed by Guess restricted competition by object. (§132-134)
- Restrictions on cross-border sales to end users: The Commission found that these restrictions were capable of creating, maintaining or restoring national divisions in trade between Member States and therefore it concluded, in accordance with settled case law, that they restricted competition by object within the meaning of Article 101(1) TFEU. (§135)
- Resale price maintenance: The Commission reiterated that resale price maintenance restricts competition by object and goes beyond the requirements pursued by a selective distribution system. The restrictions imposed on resellers were accordingly found to restrict competition by object within the meaning of Article 101(1) TFEU. (§136-137)
B.3 - Article 101(3) TFEU – no block or individual exemption
In view of the hardcore nature of the restrictions, Guess’ conduct did not qualify either for a block exemption under Regulation 330/2010 or an individual exemption under Article 101(3) TFEU. (§157-164)
B.4 - Fines – vertical restraints less harmful and 50% reduction for cooperation
When determining the level of the fine, the Commission noted that vertical agreements and concerted practices are generally less damaging to competition than horizontal agreements. (§193)
The Commission granted a fine reduction of 50% for Guess' cooperation. Guess cooperated beyond its obligation to do so by:
- revealing a restriction of competition which was not yet known to the Commission;
- providing additional evidence representing significant added value;
- acknowledging the infringement of Article 101 TFEU and Article 53 of the EEA Agreement; and
- waiving certain procedural rights. (§199-200)