The European Commission is serious about geo-blocking - and national competition authorities such as the Federal Cartel Office should do the same. No sooner had the geo-blocking regulation come into force on December 3, 2018 than the European Commission, in its decision of December 17, 2018, imposed a fine of almost EUR 40 million on the clothing label Guess for antitrust agreements to prevent cross-border online traffic -Trade in the EU.
dr Christian Andrelang, LL.M.
Specialist lawyer for international business law
Specialist lawyer for commercial and corporate law
Geoblocking – What is the Guess decision about
Guess practices a selective distribution system in the European Economic Area, in which authorized dealers are selected and approved on the basis of quality criteria. Selective distribution systems that limit the number of dealers or set selection criteria are - read here More about selective distribution systems - permissible under antitrust law. What is required, however, is that end customers are allowed to buy from any authorized dealer in the contract area. Accordingly, every dealer must have the right to actively and passively address and supply end customers in the entire sales area, in particular via websites.
However, Guess distribution agreements contained clauses that prohibited the trade from marketing and supplying customers in other EU member states. Customers should only be allowed to shop in their country of origin. Specifically, the Commission's investigation found that Guess distribution agreements prevented authorized retailers from:
- using Guess brand names and trademarks for advertising purposes on online search engines;
- Online sale without the prior express consent of Guess. Guess retained unrestricted discretion for this approval, without the fulfillment of certain quality criteria being decisive for the approval;
- Selling to consumers outside of the assigned dealer territories;
- cross-selling between approved wholesalers and retailers;
- independently determine retail prices for Guess products.
These contractual clauses enabled Guess to seal off markets within the EU. In particular, the Commission found that retail prices for Guess products in Central and Eastern Europe (Bulgaria, Estonia, Croatia, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia, Hungary and the Czech Republic) are on average 5-10 % higher than the Western European level. In the opinion of the Commission, the purpose of these clauses was therefore to maintain artificially inflated prices in some EU member states.
Geoblocking - Always a violation of antitrust law?
In its Guess decision, the European Commission also expressly refers to the Geoblocking Regulation 2018/302. The geo-blocking regulation stipulates that a merchant may not block or limit a customer's access to the merchant's online offering for reasons related to the customer's nationality, place of residence or place of business. The principle of "buy like a local" applies: Providers may not block, restrict or otherwise prevent end customers' cross-border access to online offers of goods and services in a web shop, an app or another electronic application. The European Commission wants to create price transparency within the EU and further strengthen online trade.
In its Guess decision, the European Commission expressly makes it clear that this EU regulation eliminates geo-blocking and other restrictions on a geographic basis that affect online shopping and sales across borders and thus the opportunities for consumers and companies to benefit from the Profiting from the advantages of online trading is prohibited, even if dealers have to commit to this in their sales contracts. This is already prohibited under antitrust law, which Guess felt in a somewhat rough way with the fine.
What exactly is the difference between the general antitrust ban, which bans online trading like Guess did, and the geo-blocking regulation? Antitrust law declares contractual provisions, such as those in the Guess sales contracts with its dealers that restrict online trading, to be invalid. The geo-blocking regulation, on the other hand, sanctions unilateral access prevention or impediments to end customers by manufacturers, importers or dealers. However, the provisions of antitrust law and the geo-blocking regulation also overlap according to the Guess decision of the European Commission: Even after the geo-blocking regulation, a manufacturer or importer may not contractually prohibit a retailer from offering potential end customers in the EU among the geo-blocking To technically enable the requirements listed in the regulation to call up every online shop and to view and order what is on offer. The behavior of Guess, with which passive sales to end customers were restricted, are also prohibited by the geo-blocking regulation.
Geoblocking - What does the Guess decision mean?
The example of Guess has shown that the European Commission can and does impose fines. In Germany, the Federal Cartel Office can impose fines of up to 10% of the group turnover for violations of general antitrust law. In the event of violations of the geo-blocking regulation, the Federal Network Agency is also entitled to impose an additional fine on the company and also on retailers themselves if, in addition to antitrust violations, the following measures by a company are determined:
- Blocking or restricting access to the online user interface
- Redirecting a customer to an online user interface contrary to geo-blocking regulation
- Using different terms and conditions or
- Applying different conditions to a payment transaction.
Retailers against whom the Federal Network Agency is taking action will hardly be able to successfully excuse themselves by saying that they were obliged to take such measures due to the clauses in the distribution contract with the manufacturer or importer. Because: If such clauses violate antitrust regulations, they are ineffective. In addition, a violation of antitrust law or the geo-blocking regulation constitutes unfair action. Consumer protection associations and competitors are therefore entitled to issue warnings, which are subject to a fee, both against the manufacturers and importers as well as against the dealers.
Geoblocking - what is important to you now?
It is true that Guess was not penalized for violating the geo-blocking regulation. However, the case is a good example of geo-blocking and the consequences that can be transferred to other industries as well. I expect that in the future competitors will issue more warnings and that the antitrust authorities or the Federal Network Agency will pay more attention to compliance with the rules of the geo-blocking regulation. It is therefore recommended to check contracts for obvious or hidden violations of antitrust law or the geo-blocking regulation and to refrain from applying such clauses.