Guess Blocked from Influencing Pricing as Part of Geo-Blocking Scheme

By imposing terms on retailers which prevented them from selling to consumers outside of specific territories, the clothing company violated EU competition rules. Guess was fined €39.8 million (USD $45.2 million) by the European Commission, the first fine to be issued under a new set of rules which went into effect on December 3, 2018 (Regulation 2018/302, or the “Geo-blocking Regulation”) and that are part of a wider set of measures under the EU’s Digital Single Market Strategy.

What Happened?

EU competition rules mandate that consumers must be free to purchase from any retailer authorized by a manufacturer, and authorized retailers must be free to offer products online and to advertise them across borders. After a year-long investigation into the cross-border online sales practices of 1,900 companies, the European Commission found that Guess had established a European selective distribution network that violated EU competition rules and ran afoul of the Geo-blocking Regulation. In its distribution agreements, Guess had tried to prevent EU consumers from shopping in other Member States by prohibiting retailers from, among other things, (i) using the Guess brand names and trademarks for online search advertising, (ii) selling to consumers outside of the authorized retailers’ allocated territories, (iii) selling online without a prior authorization from Guess, (iv) cross-selling among authorized wholesalers and retailers, and (v) setting the retail price independently. While brands are allowed to set criteria for online sales, such criteria must be objective and nondiscriminatory. Instead, Guess set rules to ensure it had complete discretion to refuse online sales. Consumers in territories outside of the territories allocated to retailers were unable to browse and/or purchase from these retailers (i.e., they were geo-blocked). As a result of these practices, Guess was able to sustain higher retail prices in Central and Eastern European countries compared to prices for the same products sold in Western Europe.

This incident also emphasizes the importance of cooperation with authorities. Guess voluntarily disclosed a violation of EU competition rules—the prohibition on using Guess brand names and trademarks for online search advertising—that had not yet come to the Commission’s attention. Because of Guess’ cooperation beyond what it was required by law to do, the Commission reduced the fine by 50 percent.

Practical Tips

Implement a compliant distribution strategy. If opting to use a selective distribution system in the EU, brands must set objective, nondiscriminatory criteria for online sales (i.e., sales by resellers). Authorized resellers must be allowed to advertise and sell the products covered by the distribution agreement across borders, and to set their resale prices.

Review existing terms and conditions. In particular, review terms and conditions of distribution agreements in the EU to ensure there are no cross-border barriers to EU consumers’ access to online purchasing or payment. Brands may block retailers from, for instance, listing products overseas, but an EU consumer cannot be blocked from purchasing from a retailer in another country (i.e., a German consumer should be allowed to access and purchase from a UK website).

Cooperate with authorities. It pays, sometimes literally, to cooperate with authorities through every step of the process.

In addition, the European Commission has published guidance to help online sellers ensure compliance with the new geo-blocking rules and to provide examples of best practices.