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Vertical Restrictions Are Back With Full Force

The Commission said as much when publishing its final report on the e-commerce sector inquiry but we did not quite believe that investigations focusing on vertical restrictions would come back with such force. In February the Commission announced three investigations and in the past few weeks the Commission has announced not one, two but four new investigations into vertical restrictions spanning across several product markets such as bags, phone accessories, consumer electronics, toys as well as hotel room pricing.  And the talk on the town is that there is more to come.

On 6 June 2017, the Commission announced the opening of a formal investigation into distribution practices of clothing and accessories retailer GUESS. The Commission suspects that GUESS – owner of trademarks GUESS? And MARCIANO – may have illegally curbed its retailers from selling cross-border. GUESS runs what in competition law terms is called a selective distribution system where it can indeed be rather picky in choosing its retailers but even in such a set-up a retailer is not allowed to restrict an authorized retailer from selling to consumers in another territory, for example by way of online sales.

Under 10 days after the announcement of the GUESS inquiry came the next wave – the Commission announced the opening of a formal investigation into the licensing and distribution practices of Nike, Sanrio and Universal Studios. In these investigations the focus is on the question whether the licensing and distribution activities of the companies are in line with EU competition rules. The stakes are high and wide reaching as these companies license the rights to some very well-known brands such as Hello Kitty and the Minions, not to mention Futbol de Barcelona.

The background to these investigations is the European Commission's Digital Single Market strategy and its e-commerce sector inquiry which culminated in a final report in May 2017. Quite simply the Digital Single Market is good news for everyone in the EU aiming at, amongst other things, allowing European consumers to shop across borders and online at a time and place convenient for them.  The e-commerce sector inquiry was a massive effort from the Commission to dig deep into the online sales practices prevalent across the single market and identify possible obstacles to cross-border trade and ultimately the realization of the digital single market. In its final report the Commission made it clear that whilst it did not see any reason for the updating of the rules governing the distribution of goods (mainly the so-called Vertical Block Exemption regulation and its accompanying guidelines), it did indicate that it had identified quite some concerns as regards restrictions of online sales and that formal investigations of individual company's should be expected.

The Commission has and continues to deliver on this promise and the outcome of these investigations will provide valuable guidance on the application of the rules on distribution for both companies and practitioners advising them.  Not only will we learn in detail how to apply the rules to online sales, we will also have much needed guidance on certain practices regarding offline sales as well as licensing in the context of distribution, the latter area having mostly been dealt with in only in the context of music and broadcasting rights.

Ami Paanajärvi is a partner specialising in EU and competition law at Roschier. She has extensive experience in antitrust proceedings before the European Commission and the Finnish competition authority, and regularly advises clients in all types of competition law issues, particularly related to behavioral antitrust, merger control and dominance issues. You can find out more about Ami here.

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