With the growth of the Internet as a distribution channel, the question of what kinds of restrictions companies can include in their distribution agreements for online sales has been pushed to the forefront.
This question is particularly relevant for the fashion industry as recent developments indicate a growing appetite for antitrust enforcement in this sector, both at the national and EU level. Among these developments, the European Commission’s (“Commission”) sector inquiry into e-commerce, is expected to have far-reaching implications for fashion brands’ commercial practices in Europe.
The Commission’s preliminary report in its e-commerce sector inquiry: highlighting risk areas for the fashion industry
In September 2016, the Commission published its eagerly awaited preliminary report in the e-commerce sector inquiry that it launched in May 2015. The Commission’s preliminary findings address a number of areas which have for some time been in a state of flux and have caused significant uncertainty for brands trading in Europe.
Some of the Commission’s preliminary findings are reassuring for fashion brands. Helpfully, these include the extent to which suppliers can rely on their brand image to restrict who sells their products online and whether they can ban the resale of their products through online marketplaces.
However, what is concerning is that the Commission found that clothing and shoes are among the product categories in which it identified most of the restrictions which raise competition issues. The report provides an indication of the specific contractual clauses that are most likely to attract legal scrutiny going forward (particularly, cross-border sales restrictions, misuse of the selective distribution model and criteria and resale pricing strategies). The Commission also stated that “the [preliminary] report should be a reason for companies to review their current distribution contracts and bring them in line with EU competition rules if they are not”, and has indicated that it may open investigations into specific companies to ensure compliance with EU rules on restrictive business practices. The Commission’s final report will be published before the summer of this year.
This clearly suggests that, in addition to new laws that will inevitably be introduced to regulate the e-commerce sector, the Commission is likely to intervene against companies’ practices or agreements that are anti-competitive. Previous sector inquiries led to the opening of infringement proceedings and to material legislative changes that have affected the way companies conduct business (e.g. in the pharmaceutical and energy sectors).
New investigations by the Commission and national competition authorities
The antitrust risk is even more pronounced if we consider the recent enforcement actions taken by the Commission and national competition authorities.
The Commission has already shown a renewed activism with regard to vertical restraints and, in particular, anti-competitive practices in e-commerce. On 2 February 2017, it announced that it had already launched three investigations into online sales practices in the consumer electronics, video games and hotel accommodation sectors. In the consumer electronics and video games sectors, the Commission is acting on its own initiative. The Commission is scrutinizing potential restrictions in relation to retail prices and customer discrimination on the basis of location and geo-blocking. This scrutiny is consistent with the Commission’s preliminary findings in which it states that these restrictions are widely used throughout the EU.
Although these investigations do not concern the fashion industry directly, they send a clear message regarding the Commission’s shift of enforcement priorities and set a tone for what can be expected going forward. The Commission will not hesitate to start following-up on the restrictions it identified in its preliminary report.
The Commission’s renewed interventionism should be read in conjunction with the recent enforcement actions at national level targeting the fashion industry. In the past year, the national competition authorities of France, Italy and the UK investigated the modelling sector and their professional associations and found infringements of competition rules. The authorities imposed significant fines for collusion on modeling services prices.
This enforcement trend is expected to continue. Since clothing and shoes were specifically identified among the product categories in which the Commission identified most of the restrictions in its preliminary report, the fashion industry is likely to remain on the enforcer’s radar for future investigations.
It is crucial for fashion brands to put in place appropriate antitrust compliance policies in order to take into account these developments. With the recent investigations launched by the Commission and national competition authorities, it has become clear that companies should start actively reviewing and updating their distribution agreements and practices (in particular with regard to online sales, pricing policies and selective distribution), in order to ensure compliance with EU competition rules and mitigate antitrust exposure.