8 Sept 2017
German Body Imposes €10.9 Million Fine for Vertical Price-fixing in the Clothing Industry
On 25 July 2017, the German Federal Cartel Office (FCO) fined Wellensteyn, a producer best known for its outdoor jackets, and Peek&Cloppenburg, a retailer based in Düsseldorf, for a competition infringement that was found to last from April 2008 until February 2013.
The case is interesting for SME companies trading in Germany, including those hailing from Hong Kong, as it has brought anti-competitive behaviour to the attention of the FCO, which may lead to further investigations into the clothing sector.
The president of the FCO, Andreas Mundt, has clearly stated in a press release that there are “indications that these and similar price fixing practices in the textile sector could have relevance beyond the case in question.” He adds that “such practices would be in clear violation of competition law.”
According to the findings of the FCO published in a case summary, Wellensteyn had imposed a minimum selling price on their products, prohibiting reductions as well as internet distribution. Retailers were prohibited from giving any kind of rebates, even during the end-of-season sales.
Deviating retailers were first threatened with an end to their deliveries. In those cases where they continued to exercise their pricing power freely, the end to their deliveries was applied in a second step.
Wellensteyn itself controlled compliance with its pricing policy by making test purchases. In addition, retailers, namely Peek&Cloppenburg, also observed the behaviour of their competitors and reported non-compliance to Wellensteyn. In return, Peek&Cloppenburg was granted the possibility to return unsold goods; a practice which was refused to “non-compliant” retailers.
According to the FCO’s assessment, the prohibition on internet distribution also served to uphold Wellensteyn’s pricing policy.
These practices were qualified as vertical agreements, i.e. competition restrictions between two or more undertakings operating at different levels of the production and distribution process which are related to the purchase, sale or resale of goods or services. Such agreements are prohibited under European Competition law pursuant to Article 101 of the Treaty on the Functioning of the European Union.
Generally, vertical restraints are less harmful than horizontal restraints. EU Regulation 330/2010 (Block Exemption Regulation), which applies directly in all Member States including Germany, even creates a presumption of legality for vertical agreements depending on the market share of the supplier and the buyer. However, in the present case, no exemption applied as the FCO found that the practices at issue constituted hard-core restrictions (pursuant to Article 4 of the Block Exemption Regulation) which remove the benefit of the block exemption.
The amount of the fines that were imposed takes into account that both companies eventually agreed to settle. The settlement decisions are final.
The FCO also included a notice to persons who may have suffered losses due to the competition infringement, informing them of their right to claim damages, and of the fact that by virtue of the German act against Restraints on Competition, for such a claim, the establishment of the competition law infringement by the FCO is legally binding for courts in damages proceedings. This provision aims to facilitate the private enforcement of damages claims.