Guess what, online branding restrictions are on the EU Commission’s radar

By Floris ten Have | Partner Amsterdam | Stibbe

Companies are probably aware of the Commission’s eagerness to clamp down on online resale price maintenance and geo-blocking restrictions. The recent fine for vertical restraints by clothing company Guess marks a new dot on the Commission’s radar. Restrictions on retailers using a supplier’s brand names for online search advertising purposes are just as much a no-go.

The ACM seems to be catching up with the vertical restraints crusade too. It is therefore essential for companies to check their distribution contracts. Companies wishing to have a guided tour through the maze of vertical competition issues are very welcome to join us at the Stibbe Annual Competition Law Update on 17 January 2019.

According to a recent press release, the European Commission imposed a fine of EUR 40 million on Guess for placing a number of restrictions on retailers within its selective distribution network. In addition to the more ‘traditional’ restrictions such as restrictions on online resale prices, geo-blocking, cross-selling between authorised retailers and online sales limitations, Guess had also restricted retailers from using its brand names and trademarks for the purposes of online search advertising.

This is the first time the Commission has established this type of infringement. This does not mean that these restrictions have gone unnoticed until now. The Commission had already flagged online advertising restrictions in its 2017 E-commerce sector inquiry. In the accompanying Staff Working Document, the Commission expressed concerns that these kind of restrictions aim to prevent retailers’ websites from appearing in a prominent position when using specific keywords, to safeguard top listings for the supplier’s own retail activities or to keep bidding prices down. In 2015, the Bundeskartellamt examined a prohibition by ASICS on its retailers’ use of brand names as a key word in paid search engine advertising [see our February 2016 Newsletter] and the U.S. Federal Trade Commission recently condemned bidding agreements between 1-800 Contacts, a large online retailer of contact lenses, and a number of its competitors with regard to auctions to place online advertisements. Meanwhile, the ACM seems to be catching up with the European Commission’s vertical restraints crusade. It recently conducted dawn raids at various companies to investigate possible vertical price-fixing of consumer goods by manufactures and (web)shops. These investigations may mark the end of the ACM’s more liberal approach towards vertical restraints.

It may therefore just be a matter of time before more vertical competition issues, including online search advertising restrictions, come under fire. If and when they do, it makes sense for companies to consider which approach to follow during the antitrust investigation procedure. Guess was granted a 50% fine reduction in return for (i) coming clean about the online search advertising restriction, (ii) providing additional evidence and (iii) expressly acknowledging the facts and infringements before the issuing of a statement of objections. The Guess case is the third non-cartel case, following the ARA and Consumer Electronics cases, in which the Commission granted fine reductions for cooperation. The Commission recently published a fact sheet codifying this practice of rewarding cooperation outside cartel cases, where settlement and leniency proceduresdo not apply. Similarly, the ACM recently published guidelines enabling it to conclude its fining cases more swiftly. According to the ACM guidelines, companies can obtain a 10% fine reduction for acknowledging the infringement and accepting the fine to be imposed.

It remains to be seen whether more national authorities will follow a similar approach in future cases. Who knows, it could even be a first step towards more competition authorities introducing leniency possibilities in vertical competition cases. This is why it is essential for companies to double-check whether their distribution contracts are competition law-proof.

Compliments of Stibbe, a member of the EACCNY