Earlier this summer, the Danish Competition Council (DCC) adopted two separate decisions finding that the Nordic division of the luxury clothing manufacturer Hugo Boss and two Danish clothing retailers, Kaufman and Ginsborg, illegally exchanged information on prices, discounts and quantities in relation to future retail sales by Hugo Boss. In its decisions, the DCC said that this conduct violated the Danish Competition Act and Article 101(1) of the Treaty on the Functioning of the European Union (TFEU), which prohibits agreements between companies that disrupt free competition within the EU.
The DCC found that Hugo Boss has a relationship with both Kaufmann and Ginsborg through its role as a supplier of clothing to these retailers. This is known in competition law as a vertical relationship. In addition, since Hugo Boss also operates its own clothing retail business, the DCC considered that it is also their competitor at the retail level. This is known in competition law as a horizontal relationship. In its two separate decisions, the DCC recognised that information exchange in a vertical relationship will often not raise competition concerns. However, it considered that the information exchanged in this case would result in a restriction of competition at the retail level given the horizontal relationship between the parties at this level.
In particular, the exchange of information on future prices, discounts and quantities planned by Hugo Boss’ own retail business gave Hugo Boss, Kaufmann and Ginsborg the ability to coordinate their future sales, which could have led to a reduced range of products on sale and lower discounts. In this regard, the DCC considered it important that the conduct enabled the retailers to know which products Hugo Boss would not discount, when acting as a retailer.
The fact that Hugo Boss had apparently maintained a “Chinese wall” between its wholesale and retail departments did not alter the DCC’s findings. In this respect, the DCC asserted that email exchanges demonstrated that the wholesale department had, in fact, relayed detailed information concerning the actions of Hugo Boss’s retail division to Kaufmann and Ginsborg. Furthermore, the effectiveness of the Chinese wall was considered to be further undermined by the fact that the Administrative Director of Hugo Boss, who was in charge of both the wholesale and retail division, was included on some of the email correspondence with the retailers.
Furthermore, certain agreements between companies with a vertical relationship which satisfy the criteria of the EU’s Vertical Agreements Block Exemption Regulation (VABER) are exempt from the prohibition on agreements between companies that disrupt free competition within the EU under Article 101(1) TFEU. However, the DCC rejected the parties’ argument that the conduct should be considered to benefit from the VABER on the grounds that the exchange should be considered to be part of the parties’ vertical relationship.
The DCC ordered the parties to cease the illegal conduct and to refrain from similar conduct in the future. The cases were due to be referred to the relevant State Prosecutor to bring criminal charges for the imposition of any penalty.
These decisions by the DCC are a very rare example of competition enforcement action taken in respect of information exchange in a dual distribution system. The rarity of such cases is not surprising as there is some debate over whether a supplier should properly be considered to be a competitor of its retailers when it operates a retail business. In addition, regardless of whether a supplier also has a retail business, it is apparent that a supplier has a legitimate need for information concerning sales by its retailers, including concerning their future plans, in order to operate an efficient distribution system.