Guess imposed five restrictions on retailers in its selective distribution network between January 2014 and October 2017¹. These included a ban on retailers using Guess brand names and trademarks in online search advertising. Guess confessed this restriction to the EC as part of its cooperation efforts in the investigation, providing the EC with its first infringement decision involving restrictions on online search advertising. In exchange, Guess received 50% off the EC's fine.

The other four restrictions Guess imposed were:

• a requirement for retailers to obtain specific authorisation from Guess to make online sales (even though the retailers had already met the requirements for admission to Guess's selective distribution network);
• a ban on retailers selling to consumers located outside the retailers' allocated territories;
• restrictions on cross-selling between authorised wholesalers and retailers; and
• restrictions on the prices at which retailers could sell Guess products.  

The EC found that the five restrictions prevented retailers from advertising and selling Guess products cross-border, leading to artificially high retail prices in some Member States.

Restrictions preventing the reseller from using a brand's names and trademarks in online advertising are illegal – at least in a selective distribution network

Restrictions limiting how resellers may use the supplier's brand name have been on the EC's radar since its 2017 report on the e-commerce sector inquiry. The EC observed that restrictions "may be in the interest of the manufacturer … to allow its own retail activities to benefit from a top listing and/or keep bidding prices down"². But until the Guess decision, only the German competition authority had considered trademark advertising bans to be an unlawful restriction of competition³.

In Guess, the EC uncovered internal documents evidencing that the restriction "sought to maximise traffic to its own website at the expense of the independent Guess distributors" and "to minimise its own advertisement costs"⁴. The EC decided Guess could not rely on trademark laws to enforce the restriction, or on its selective distribution network to justify the move, as Guess's objectives were inconsistent with protecting its brand. The restriction deprived resellers of "the ability to generate traffic to their own websites by means of online search advertising", giving Guess a "considerable competitive advantage over its retailers with whom it competed online"⁵.

The EC therefore concluded that the online advertising restriction constituted a hardcore restriction which could not be exempted under the Vertical Agreements Block Exemption Regulation⁶. In the specific circumstances of the Guess case, the restriction also did not benefit from the efficiencies exemption under Article 101(3) of the Treaty on the Functioning of the European Union.

What about similar restrictions outside a selective distribution network?

The EC's analysis in Guess is limited to restrictions on a reseller's use of the brand's name and trademarks within a selective distribution network. Whether the EC or a national competition authority is likely to find a similar restriction outside a selective distribution network to be hardcore remains to be seen – but the EC is likely to consider online advertising and sales restrictions in its upcoming review of the Vertical Agreements Block Exemption Regulation and Guidelines⁷. Meanwhile, brands and retailers should continue to monitor developments in this fast-moving space carefully.

Geo-blocking breach

As well as competition law, some of Guess' restrictions also breached the Geo-Blocking Regulation⁸ , which came into force on 3 December 2018. In certain respects, the Regulation mirrors competition law by preventing suppliers from prohibiting a retailer from responding to unsolicited customer requests (known as passive sales).