Guess: The Cost of Failure | Corporate and commercial law

The online retail sector is booming, with consumers taking to the internet hoping to pick up top brands’ products at bargain prices.

Bargain prices, however, don’t exactly sit well with the ‘high-end’ brands, who view the selling of their products on ‘low-end’ websites as damaging to their corporate image. Guess, the clothing manufacturer and retailer, has been fined €39,821,000 (that’s £34,916,446) for prohibiting their retailers from advertising online, using their brand and trademarks, from selling to customers outside of their distribution areas, and dictating to retailers the prices for which their products are to be sold.

So what’s the problem – surely manufacturers can choose how their products are sold, to whom, and for how much?

Actually, no…

Article 101 of the Treaty on the Functioning of the European Union (TFEU) prohibits distribution agreements which affect trade or restrict competition between member states, and declares that any such agreements will be void and unenforceable. The fine of nearly £35m imposed by the European Commission on Guess in December last year shows how severe the penalties for breaching Article 101 can be – especially given that this was the fine after the Commission had applied a 50% reduction in return for Guess’ significant co-operation with the Commission’s investigation!

What had Guess done wrong?

Guess were found to have breached Article 101 by preventing retailers from setting their own prices for Guess products, and restricting the ability of retailers to sell across borders. Retailers were also prevented from using Guess’ trademarks and brand names in their online search advertising, and were unable to sell online at all without Guess’ prior consent (which could be with-held at Guess’ absolute discretion).

The Commission found that Guess’ activities breached competition law, and prevented customers from being able to shop around for the best deals between member states.

Implications for distributors

The Commission’s decision in the Guess case came just days after the introduction of the EU’s Unjustified Geo-Blocking Regulation ((EU) 2018/302), and the UK’s corresponding Geo-Blocking (Enforcement) Regulations 2018, both of which expressly prohibit the imposition of geographically-based restrictions on distributors by manufacturers.

The Commission capitalised on this fortunate timing, by using the announcement of the decision on Guess to highlight the fact that an important loophole regarding Article 101 had been closed. The size of the fine shows the seriousness of how restrictions on cross-border sales are taken. Who knows, maybe after Brexit this may be an important protection for the UK.

If you operate a network of distributors, or if you are a distributor and want to know more about how the regulations may affect you, contact Jane Rudge jrudge@thursfields.co.uk or Stuart Price sprice@thursfields.co.uk.