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EU Initiates Formal Antitrust Proceedings Against Major Clothing Brand and Retailer

On 6 June 2017, the European Commission, which is responsible for establishing and enforcing a policy in coherence with the competition law framework for the European Union, initiated formal proceedings against the clothing brand and retailer Guess?, Inc., Guess? Europe BV, Guess Europe Sagl and all legal entities directly or indirectly controlled by these companies (“Guess”).

Hong Kong businesses operating in the EU may be interested to know the reasoning behind the investigation. Article 101 of the Treaty on the Functioning of the European Union (the “TFEU”) stipulates a number of practices that are deemed incompatible with the functioning of the EU’s internal market. These include agreements, decisions and concerted practices which may affect trade between Member States and which prevent, restrict or distort competition within the internal market. Examples include practices between competitors such as price-fixing (where rival companies agree to sell certain products at an agreed price) and also include certain restrictive practices imposed by a manufacturer on its distributors.

In this case, the European Commission believes that Guess may have breached Article 101 TFEU by limiting the ability of its distributors to make cross-border sales within the EU. Under EU competition law, consumers must be free to purchase products from any manufacturer-authorised retailer, irrespective of where the consumer is located.

For this reason, the European Commission announced that it has decided to initiate proceedings in which it will further investigate concerns relating to the distribution of clothing, shoes and accessories in the EU that contain cross-border sales restrictions, cross-selling bans among members of a selective distribution system, internet sales limitations and resale price restrictions.

In particular, the European Commission stated that it will investigate information indicating that Guess's distribution agreements may restrict authorised retailers from selling online to consumers or to retailers in other EU Member States. The European Commission believes that Guess may also restrict wholesalers from selling to retailers in other EU Member States.

With respect to the proceedings, Commissioner Margrethe Vestager, who is in charge of the EU competition policy, stated that the European Commission has information indicating that Guess, in its distribution agreements, may be banning cross-border sales to consumers. Vestager added that one of the key benefits of the EU's Single Market is that consumers can shop around for a better deal, and concluded that the European Commission is going to investigate Guess's practices further to ensure that it is playing by the rules and is not preventing consumers from buying products across borders.

Hong Kong’s clothing traders may like to know that the formal antitrust proceedings follow the European Commission’s e-commerce sector inquiry. During its 2015-2016 inquiry, the European Commission reported that it had gathered evidence from nearly 1,900 consumer goods companies operating by means of e-commerce and digital content, and analysed around 8,000 distribution and licence contracts. The European Commission recently announced that it found that more than one in ten surveyed retailers experienced cross-border sales restrictions in their distribution agreements.

The European Commission clarified that the formal investigation launched concerning Guess is a stand-alone procedure which is separate from the e-commerce sector inquiry, but follows up on one of the issues identified in the inquiry's final report. Three other investigations were opened earlier this year concerning alleged cross-border restrictions in the sale of consumer electronics, video games and hotel accommodation.

The formal investigation relating to Guess does not prejudice the outcome of the investigation. It is still possible that the European Commission will decide to close the investigation without taking further steps against the company. There is no legal deadline for bringing an antitrust investigation to an end. The duration of an investigation depends on a number of factors, such as  the complexity of the case and the cooperation of the companies with the European Commission.

Content provided by Picture: HKTDC Research
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