GUESS who got fined?
Updated: Apr 23, 2019
On 17 December 2018 European Commission made a decision in antitrust proceedings and imposed fine of EUR 39,821,000 on Guess?, Inc., Guess? Europe, B.V. and Guess Europe Sagl. Do you still think competition law is not that important?
When I was reading the decision, I was sincerely surprised. The infringements which led to the imposition of the fine were very clear, thus they should have been known and avoidable. The Commission's decision is an evidence to the contrary. From the decision it appears that there were five issues identified - GUESS implemented practices aimed at restricting authorised distributors in its selective distribution system:
from using the Guess brand names and trademarks for the purposes of online search advertising;
from selling online without first obtaining a specific authorisation from Guess which Guess had full discretion to either grant or refuse and where no quality criteria had been specified for deciding whether or not to grant an authorisation;
from selling to end users located outside the authorised distributors' allocated territory;
from cross-selling among authorised wholesalers and retailers;
from determining resale prices independently.
All those restrictions led to the prevention of trade between Member States. According to the decision, Guess’ distribution agreements covered a large part of the EEA.
The wholesale agreements containing territorial sales restrictions covered inter alia Estonia, Latvia and Lithuania. Guess Europe also had mono-brand store agreements containing territorial sales restrictions in the Baltics.
The competition law has not been "invented" for no reason. Basically, according to the general idea of a modern economic theory, the society and consumers benefit from the competition between enterprises. However, for the enterprises the competition is rather tedious and it would be so much easier to be the only one on the market (no pressure on prices, etc). It might not be that beneficial for the consumers though. This is where the competition law steps in - competition law sets the rules for the economic behaviour so the competition would be fair and the society as a whole would benefit from it. That is also the reason why European Commission was not very friendly toward the Guess' malpractice.
Namely, according to the decision, GUESS' strategy was to avoid competition from its independent distributors selling Guess products online. For that GUESS restricted advertising and online selling. The evidences obtained from the internal documents were incontestable.
“[The] policy is not to let our wholesale customers bid on Google adwords using the Guess Trademark. […]”; “We’ve never authorized third parties to advertise our brand keywords on Google (both wholesale and marketplace parties) as the only one authorized to do this is the official GUESS online seller, i.e. guess.eu.” (see para 47 of the decision)
It clearly shows that Guess did not want any competition, vice versa Guess dreamed that all the consumers only used its own online store. That is not the way to do it... According to the Commission's Guidelines on Vertical Restraints, every distributor must be allowed to use the internet to sell products. Commission emphasized in its decision that this position has been confirmed also by the Court of Justice in Pierre Fabre. In that judgement, the Court held that a contractual provision prohibiting de facto the internet as a method of marketing amounts to a restriction of competition by object within the meaning of Article 101(1) of the Treaty. Just to illustrate it, under the Estonian law that would have qualified as a criminal offence.
Another serious infringement of competition law was the resale price maintenance (RPM). Basically, Guess infringed one of the most clear-cut rules of competition law: the resale prices must not be fixed. According to the decision, Guess Europe monitored pricing of third-party retailers and tried to influence them to correct resale prices “misaligned” with Guess Europe’s “recommended” resale prices.
E-mail exchanges show instances when one of the Guess subsidiaries signals that a distributor is deviating from the resale prices provided and requests Guess Europe to take action to “solve the problem”.
And for the years, the problem was indeed solved. What did that mean - the consumers paid more for Guess products than they would have under the conditions of fair competition. It also meant that local entrepreneurs could not compete with guess under fair terms, could not develop their, and thus, our region's success. Let's not close our eyes in front of competition law infringements.