The year 2018 will undoubtedly be remembered as the year in which vertical competition restrictions are once again high on the agenda of all competition authorities. Both the European Commission (“Commission”) and several national competition authorities have been extremely generous in 2018 in issuing fines for anti-competitive agreements within distribution systems. The Netherlands Authority for Consumers and Markets (“ACM”) also stated in late 2018 that it would monitor these developments.
Shortly before Christmas 2018, the Commission imposed a €40 million fine on clothing brand Guess. In its decision, the Commission argued that Guess had wrongly imposed drastic contractual sales restrictions on its distributors. Most restrictions can be roughly classified as follows:
- restrictions in the field of sales and advertising outside allocated geographical areas (“geo‑blocking”);
- restrictions on online sales without specified qualitative criteria being set;
- restrictions regarding the use of the Guess trade name and other trademarks of Guess;
- preventing cross-selling between distributors, also if they form part of one and the same selective distribution system; and
- indirectly imposing sales prices (also known as “resale price maintenance”; see this blog).
EU Commissioner Vestager clarified in her speeches that the European Commission has classified geo-blocking as a serious violation. Briefly stated, geo-blocking means that Internet users (e.g. in a webshop) are treated differently on the basis of their geographical location. In the case in question, this restriction meant that consumers in Central and Eastern Europe had to pay significantly more for their clothing. Enforcement by the Commission in the field of geo-blocking does not come totally unexpected, however, since the harmful effects of this phenomenon were already expressly mentioned in the Commission’s E‑commerce Sector Inquiry. The new Geo-blocking Regulation has furthermore been in force since 3 December 2018.
The fine imposed on Guess was, however, reduced by 50%. Such large reductions have been customary for some time now in the more traditional cartel investigations. Until recently, it was not yet entirely clear to what extent the Commission was also willing to reduce fines in other types of investigations. In response to the Guess case, the Commission therefore issued further guidance on the reduction of fines for cooperation in non-cartel investigations. The ACM is likely to take a similar approach.
In addition to Guess, four large electronics producers were also firmly reprimanded by the Commission in 2018. They were fined a total of €111 million for drastically influencing the sales prices of their online retailers. Those retailers were monitored and “corrected” where necessary if they reduced their prices too greatly. Commercial pressure was not shunned in some cases. The Commission found that one of the objectives of this policy was to combat online price erosion.
Another interesting development that will continue in 2019 is the review procedure with public consultation of the Vertical Agreements Block Exemption. The current block exemption and the related guidelines have applied since 2010 and will formally end in 2022. The Commission is now evaluating whether this Regulation is still effective. On completion of its evaluation, the Commission may decide to terminate, extend or amend the Regulation. The final decision on this point is currently scheduled for the second quarter of 2020.
National competition authorities
The year 2017 ended with the high-profile Coty case of the European Court of Justice (“ECJ”). In that judgment the ECJ found that a supplier of luxury products may prohibit distributors within a selective distribution system from selling via Internet platforms such as Amazon or eBay. A question that remained in 2018 is to what extent such a prohibition is also permissible in other distribution systems and in the case of non-luxury goods. In the Stihl case it became clear that – at least according to the French competition authority – it is permitted also in selective distribution of non-luxury (in this case technical) products to stipulate quality requirements as to how and in what environment a product is sold. According to the French competition authority (along the line of reasoning in the Coty case), those requirements also cannot be enforced against online marketplaces, for the reason alone that there is no direct contractual relationship between the supplier and the marketplace. The Commission arrived at a similar conclusion. It will nevertheless be interesting to see how the competition authorities will deal with the Coty judgment in the various Member States in 2019, in particular in Germany.
ACM carried out dawn raids this last December at manufacturers and retailers of consumer goods. It suspected that some manufacturers of consumer goods attempted to agree on minimum prices with retailers. Since the appointment of its new chairman of the board, ACM appears to be abandoning its current, lenient approach to vertical restraints and to give them more priority in its policy. We therefore expect that it is only a matter of time until the current strategy regarding vertical agreements will be replaced with new policy.
It is apparent from recent case law of the Amsterdam district Court that vertical restraints can be challenged not only under administrative law, but also in civil proceedings. In this case the court found that the termination by tour operator Thomas Cook of the agreement with its travel agent Prijsvrij was in breach of competition law, because the reason for the termination was Prijsvrij’s failure to comply with Thomas Cook’s price policy. This case illustrates the possibilities of successfully relying on competition law in civil proceedings.
What does this mean?
Competition authorities in Europe are sending out a clear signal. They have shown a great willingness in 2018 to address vertical restraints, particularly if those restraints are found in selective distribution systems and online sales. There is every reason to assume that this trend will continue and will even intensify in 2019. A pending investigation that we will continue to follow with a great deal of interest in 2019 is that of the German competition authority and the Commission into Amazon and the dual role it plays in various online platforms. We are also very curious about the Commission’s further steps regarding the (draft) Regulation on promoting fairness and transparency for business users of online intermediation services. The purpose of the Regulation is to strengthen the position of business users in relation to (large) online platforms such as Airbnb, Deliveroo and Uber. The Regulation imposes additional obligations on those platforms, for instance to be more transparent about their general conditions and about the effect of algorithms that they use to determine their ranking.
In light of these developments, one thing is obvious for next year: companies that use a distribution system – particularly if it is selective or contains restrictions regarding online sales – are well advised to carefully examine them from a competition law perspective.