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Online retail sector increasingly targeted by the competition authorities

The online retail sector has seen a considerable increase in intervention by the competition authorities both on a national level and in Brussels. Most recently, in December 2018, the European Commission fined the clothing company Guess € 39.8 million for applying online sales and advertising restrictions. The case is not the first – and retailers must expect frequent intervention within this sector after the clarifications made by the European Court of Justice in its Coty judgment and the recent entry into force of the geo-blocking regulation.
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The growth in the online retail sector and various commonplace trade practices that, for instance, partition the geographic market, restricts online sales forms or impact the retailers’ pricing policies have led to increased focus on the sector by the competition authorities.

In a press statement released in connection with the Guess-case that was made public on 18 December, Commissioner Margrethe Vestager, in charge of EU’s competition policy, stated that: “Guess’ distribution agreements tried to prevent EU consumers from shopping in other Member States by blocking retailers from advertising and selling cross-border. This allowed the company to maintain artificially high retail prices, in particular in Central and Eastern European countries. As a result, we have today sanctioned Guess for this behaviour. Our case complements the geoblocking rules that entered into force on 3 December – both address the issue of sales restrictions that are at odds with the Single Market.”

The Commission began its investigation last year after finalizing its e-commerce inquiry, which found that many, until now, standard business practices in the EU may infringe competition law. The fine in the Guess matter came only two weeks after the European Union’s new geo-blocking regulation (regulation 2018/302) came into force on 3 December 2018. The regulation intends to end geo-blocking within the EEA and addresses unjustified online sales discrimination based on the customers’ nationality, place of residence or place of establishment within the EEA. The ban on geo-blocking is an important element of the EU’s digital single market strategy.

The case law and application of the competition rules supplements the new regulation. In Coty, the Court of Justice ruled that the luxury perfume manufacturer Coty could use a selective distribution clause in its contract preventing the distributor from selling the product on third-party platforms (such as Amazon). The court ruled that if selective distribution clauses are designed to preserve a product’s luxury image, they do not violate EU competition law.

In October, the French Competition Authority fined chainsaw manufacturer Stihl € 7 million for preventing its distributors from selling its products online. The decision is in line with the principles set out in Coty and was the first on selective distribution online after that judgment. Stihl had unlawfully restricted competition by allowing its distribution partners to sell its products online only if they could also guarantee hand delivery. Stihl claimed that this was because of the potentially dangerous nature of its products, hereunder chainsaws. Stihl had, therefore, de facto prohibited the sale of its products from the websites of its distributors.

Last year, the European Commission also opened investigations into Nike, Sanrio and Universal Studios for allegedly restricting traders from selling licensed merchandise cross-border and online within the EEA.

Also in Germany and England, there are pending and recent cases. For instance, in August, the Competition and Markets Authority (CMA) found that Ping broke competition law by preventing two UK retailers from selling its golf clubs on their websites. Ping was ordered to bring the online sales ban to an end, and must not impose the same or equivalent terms on other retailers. While Ping must allow retailers to sell online, it may require them to meet certain conditions before doing so. These conditions must, though, be compatible with competition law. The CMA found that, while Ping was pursuing a legitimate commercial aim of promoting in-store custom fitting, it could have achieved this through less restrictive means. A German court recently concluded that Asics’ banning of distributors from using price comparison websites to sell running shoes was illegal and that advertising restrictions for the Asics brand in search engines was prohibited.

The developments and cases described above mean that online selling practices that have been considered commonplace in many jurisdictions have to be revised and changed in order to be brought in line with competition law requirements – in addition to the geo blocking regulation. In some cases, the national competition enforcers have been cautious when setting the level of fines. In future cases, market players should, however, expect substantial fine exposure because there is now strong precedent that establishes that many online selling practices are hardcore restrictions on competition.