The European Commission recently fined Guess for restricting retailers from using its trademarked brand name when advertising products online through Google Adwords. The ban was part of a package deal with retailers, which also included other restrictions, such as territorial limitations and resale price maintenance. The Commission has labelled these agreements anti-competitive "by object" rather than "by effect", which lowers the standard of proof. It is almost impossible for this type of restriction to be justified under existing exemptions of the cartel prohibition if pro-competitive effects outweigh any anti-competitive ones. The restrictions are presumed harmful, irrespective of market impact. The Commission's view in Guess that AdWord restrictions violate competition law "by object" sets a dangerous precedent. The finding lacks nuance and creates uncertainty whether pro-competitive justifications for Adword restrictions will hold weight for brand owners in other circumstances.
When it comes to a registered trademark, the trademark owner may restrict usage to ensure that the goods or services under the trademark originate from the trademark owner or an economically connected party. The European Court of Justice confirmed this in Google France. This does not, however, apply to retailers who resell the original products of the trademark owner. Under trademark law, they are allowed to use the trademarked brand name of the products they resell. Nonetheless, a producer and retailer can voluntarily make other arrangements in their distribution agreement. In an exclusive distribution system a retailer can, for example, be lawfully restricted from pro-actively advertising products online in jurisdictions outside of a clearly defined, exclusive territory (where the territorial allocation is permitted by virtue of the supplier and buyer's limited or moderate market positions). This is also true when it comes to "paying a search engine or online advertisement provider to have advertisements displayed specifically to users in a particular territory", according to the European Commission in its Guidelines on Vertical Restraints. But, as so often is the case, IP protections do not guarantee lenient treatment under competition law. This has been confirmed again in the recent Guess decision published on 25 January 2019, where the Commission fined Guess for over EUR 39 million.
Guess' online search advertising restriction
In the Guess case, the European Commission established – with reference to Guess's internal documents – that it had a strategy to sell online to customers directly, thus becoming a competitor of its affiliated retailers. Internal documents further demonstrated that Guess intentionally restricted its retailers' online presence in favour of its own e-commerce strategy. The agreements between Guess and its retailers contained several restrictions, including:
- Usage of Guess brand names and trademarks, in particular in Google AdWords;
- Selling the goods online without the prior authorisation (at the sole discretion) of Guess;
- Selling the products to customers located outside their allocated territories;
- Cross-selling among other authorised wholesalers and retailers; and
- Deciding, independently of Guess, the retail price at which products would be sold.