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Volume XI, Number 127

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E-Concessions And Competition Law

The events of 2020 have caused many brands to re-evaluate whether they are fully utilizing the internet as a tool to reach out to consumers with many enhancing and upgrading their own brand websites. Some brands are now also considering whether they are fully harnessing the potential reach and profile of multibrand websites and platforms to make sales to consumers. 

One growing trend is a rise in the popularity of the “e-concession” model. Just like a branded concession in a physical department store, an e-concession allows the brand to have its own “shop within a shop” on one or more digital marketplaces. These showcase a collection of brands in a distinctive setting in which brands can leverage existing investments in enhanced tools such as virtual try-on or matching suggestions performed by artificial intelligence. They are also likely to attract a broader customer set and thereby grow brand awareness.

In order to ensure such an e-concession strategy is an asset rather than a risk, the anti-trust and competition issues need to be carefully considered and addressed. In particular, is the brand seeking to control a third party’s pricing to consumers? If so, this can amount to a serious violation of anti-trust and competition laws in many jurisdictions, such as the European Union (the EU), United Kingdom and other countries, and expose the brand to a risk of investigation, large fines and damages claims. 

RESALE PRICING AND CROSS-BORDER SELLING RESTRICTIONS

In jurisdictions such as the EU, it is illegal for a brand to dictate the price that a third party reseller charges to a consumer. For example, the European Commission fined GUESS EUR40 million for such resale price maintenance (RPM) and other conduct in 2018 (for more detail on the GUESS case and recent RPM developments, see our earlier alerts herehere and here). RPM can be a risk in concessions in bricks and mortar department stores if the concession is operated by the department store rather than by the brand, such that the department store is the company making the sales to consumers rather than the brand itself. In such a context, the brand may recommend the onsale price but may not dictate it. Much will turn on the factual detail, and the substance rather than the form of the agreement will be decisive. 

The same is true in the online context as regards e-concessions. For example, if the brand itself is making direct sales to consumers via the online marketplace, the brand is entitled to set the price charged to consumers. This may well also be the case where the third party platform is operating as an agent of the brand and is not itself taking the risk/reward of the sale. However, if the marketplace is operating as an independent third party and the brand is transferring inventory to it for onsale, serious concerns may arise.

The operation of e-concessions may also raise issues with respect to cross-border selling. Brands offering their products through e-concession stores may want for example to control the regions where certain products are being sold and marketed (e.g. to account for local fashion trends or consumer preferences). In this respect, it is important to bear in mind that EU competition law imposes a number of limitations on the ability of manufacturers to prohibit sales between EU Member States. 

SELECTIVE DISTRIBUTION

Brands operating a selective distribution system in the EU have the advantage of being able to authorize all the resellers (online and bricks and mortar) selling their products to consumers. E-concession stores certainly fall within the category of stores that a brand may want to include in its selective distribution network. However, care should be taken when the brand expands to such new channels that such a model fits within its criteria for authorization so that the brand is operating its system in a consistent and objective way.

THE INTERNATIONAL PICTURE

The question as to which legal system applies is primarily dictated by where the onsales to consumers are being made. For instance, in the United States, there will be more flexibility when it comes to third party pricing restrictions. We anticipate that China may be a particular area of focus for the e-concession model as brands look to capture sales from the Chinese consumer in the context of a sustained period of travel disruption. The Chinese rules are still evolving in this area and careful analysis is required (see here).

This article features contributions from Michal Kocon, Mélanie Bruneau and Niall J. Lavery.

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Copyright 2021 K & L GatesNational Law Review, Volume X, Number 252
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About this Author

Jennifer P.M. Marsh IP Lawyer KLGates
Partner

Jennifer Marsh is partner in the firm's London office. She concentrates her practice on all aspects of EU and UK competition law and commercial agreements. 

Ms. Marsh’s work covers merger control, including making submissions to the European Commission in Brussels and coordinating merger filings globally; advising on litigating competition law issues before the English courts, including two appeals before the Court of Appeal; advising on distribution strategies throughout Europe, including online resale policies, marketplace strategies and selective distribution;...

+44.(0)20.7360.8223
Gabriela R. Da Costa, Senior Associate, KL Gates
Senior Associate

Gabriela da Costa is a senior associate in K&L Gates’s London office where she is a member of the antitrust, competition & trade regulation practice group. 

Gabriela advises clients on a wide range of competition matters, including restrictive practices and agreements, abuses of dominance, merger control, procurement and state aid. Gabriela has extensive experience in advising manufacturers in a variety of sectors, including leading consumer electronics, sports and fashion brands, on designing and implementing effective distribution...

+44.(0)20.7360.8115
Dr. Annette Mutschler-Siebert, M. Jur. (Oxon), Public Procurement Attorney, EU Antitrust Lawyer, KL Gates Law firm
Partner

Dr. Annette Mutschler-Siebert is a partner in the firm’s Berlin office. She advises clients on public procurement law as well as European and competition law. She is particularly experienced in advising clients on the design of and participation in complex procurement procedures, privatization projects and public private partnerships for both the bidding and the contracting party.

Dr. Annette Mutschler-Siebert also advises clients on issues relating to antitrust law, in particular the structuring of distribution networks, the structuring of...

+49.(0)30.220.029.355
Christopher S. Finnerty, Antitrust, Distribution, Intellectual Property, Lawyer, Attorney, KL Gates, Law Firm
Partner

Christopher Finnerty is a partner in the firm’s Boston office where he leads a multidisciplinary, multinational team which represents clients in antitrust, distribution, and intellectual property matters. He focuses his practice in the design and implementation of resale price maintenance strategies focusing on limiting online price erosion and gray market disruption in North America, Europe, Asia, and Australia for consumer goods manufacturers. Over the past ten years Mr. Finnerty and his team have worked hand in hand with dozens of the world’s largest and most...

617-261-3123
Francesco Carloni, KL Gates, EU merger control attorney, dominant position abuse lawyer
Partner

Francesco Carloni is a partner in the firm’s Brussels and Milan offices where he is a member of the antitrust, competition & trade regulation practice group.

As a European and Italian competition law practitioner, Mr. Carloni’s experience primarily lies in the field of merger control, , restrictive practices and agreements, e-commerce, abuse of dominant position, EU sector inquiries, public consultations, and state aid. He offers compliance training and develops customized compliance programs adapted to clients' specific risk profiles. He...

32-0-2-336-1908
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