The Danish Maritime and Commercial Court (Sø- og Handelsretten) ruled in May 2024 that Hugo Boss had breached the European cartel prohibition (Article 101 of the Treaty on the Functioning of the European Union (TFEU)) by exchanging sensitive company information with buyers (Kaufmann and Ginsborg) with which it was simultaneously competing at retail level.
This ruling was prompted by two decisions (see here and here, in Danish) by the Danish Competition Authority (DCCA), which investigated the conduct of Hugo Boss and its buyers within what is known as a dual distribution system. This involved Hugo Boss selling its clothing directly to consumers through its own shops and, at the same time, also through independent distributors, such as Kaufmann’s and Ginsborg’s clothing shops. In doing so, Hugo Boss therefore also competed with its independent distributors.
Prohibited information exchange
Between 2014 and 2018, Hugo Boss exchanged information with Kaufmann and Ginsborg on prices, discounts and volumes relating to future sales. Hugo Boss, for instance, sent e-mails about its own planned (i.e. future) retail campaigns during Black Friday, including information on prices and the product range.
Although a vertical distribution relationship existed between the parties, the Danish court ruled that the information exchange was primarily of a horizontal nature – i.e. between competitors at the same level in the chain (retail). Strategic uncertainties about the parties’ future behaviour were eliminated or significantly reduced as a result of this exchange. This could lead to lower discounts and a less diverse and smaller product range, to the detriment of consumers. Moreover, these practices had the restriction of competition between the parties and the coordination of prices, discounts and volumes as its object. As such, these practices constituted an infringement of the cartel prohibition under Article 101 TFEU, in the court’s opinion.
Kaufmann is known to have been fined the equivalent of over €800,000; the fine decision regarding Hugo Boss and Ginsborg has yet to be made public.
Increased use of dual distribution systems poses risks
This ruling is in line with the increased attention given by the authorities to prohibited exchange of information in dual distribution systems. Such systems are increasingly common, partly because it is now fairly easy for suppliers themselves to sell directly online. It can be commercially attractive for a supplier to sell some or all of its own products to consumers both indirectly (through an independent retailer) and directly (through its own online shop).
Dual distribution is permissible in principle. However, parties should be aware that they are then no longer only in a vertical supplier-buyer relationship, but are also each other’s competitors in the downstream sales. This entails certain restrictions on the agreements that may be entered into and the information that may be exchanged between a supplier and a distributor (such as a retailer).
What information may and may not be exchanged
This does not mean that information exchange is never allowed in a dual distribution system. The European Commission (the Commission) recognises in its revised Guidelines on Vertical Restraints (the Guidelines) that the exchange of certain information between a supplier and a buyer may contribute to pro-competitive effects of vertical agreements, in particular the optimisation of production and distribution processes.
In the case of dual distribution, however, the exchange of certain types of information may give rise to horizontal issues. The Vertical Block Exemption Regulation therefore applies only if the exchange of information between a supplier and a buyer in a dual distribution scenario is (a) directly related to the performance of the vertical agreement; and (b) necessary to improve the production or distribution of the goods or services.
The Commission states in the Guidelines that sharing information on future prices at which the supplier or retailer intends to sell the products downstream is generally unlikely to meet the aforesaid requirements in a dual system. As a rule, the following information may be shared: (a) technical information; (b) logistical information; (c) information on past sales; and (d) marketing information, including information on promotional campaigns. This is subject to the condition that the information shared may not enable the supplier and buyer to coordinate or impose the sales price.
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