€160m fine warning of dangers of imposing resale prices on customers or interfering with discounts
Businesses might want to protect their downstream market, but this is riddled with dangers when they look to impose conditions on the minimum or actual prices or discount conditions on their customers. The €157m fines on Gucci, Chloé and Loewe provide a big warning sign to businesses of engaging with this.
In 2023, the European Commission started investigating the high end suppliers of fashion products for alleged breaches of EU competition law. The Commission has now found that there was a breach and issued the fines, for breaching Article 101 of the Treaty on the Functioning of the European Union. Parallel provisions apply under UK competition law, through the Chapter I Prohibition of the Competition Act 1998.
Those laws prohibit any agreements or understandings which have the object or effect the distortion of competition in the given territory. This is often understood as being collusive activity between competitors. However, even agreements between parties at different levels of trade can amount to breach of competition law. One particular behaviour that is known as a 'hard core' or very serious breach of competition law is where a supplier and customer agree the actual or minimum price that the customer must resell the product at - also known as resale price maintenance. That is primarily what the three luxury goods providers were found guilty of here. Their customers were therefore unable to set their own retail prices. As well as requiring their customers to stick to recommended resale prices, they also prohibited the setting of discounts. The suppliers enforced this by monitoring their customers' behaviour. The retailers stuck to the requirements - either from the start or when they were asked to do so.
As well as this, action was taken against Gucci for imposing an online sales restriction by asking their retailers not to sell the products online. Again, Gucci's retailers complied with this.
The three fashion retailers had been acting independently, so there was no question of collaboration between competitors - this was simply about each one controlling their downstream market.
The fines could have been even bigger, but they were reduced due to the parties' co-operation with the competition regulator in the investigation.
Key Takeaways
I often see parties unsure about what they can do with their upstream suppliers or (usually) downstream customers, which may lead to a breach of competition law if they actually do this. I have been able to keep them on the straight and narrow. A big one in distribution agreements is requiring actual or minimum prices that the distributor can or must sell at - this is a no-no. Genuine recommended resale prices are acceptable, but that is not what happened here. The scale of the fines should be a warning to commercial parties to ensure that they do not go down an unlawful route, and stick to the right side of the law.