The Danish Maritime and Commercial High Court has handed down judgements in two cases concerning Hugo Boss’ exchange of price information with the retailers Kaufmann and Ginsborg. The judgements illustrate the difficulty of striking the balance between legal and illegal exchange of information for companies selling their products on both the wholesale and retail market.
Background
The fashion industry has attracted the competition authorities’ attention several times – and this time it is the menswear brand Hugo Boss. In June 2020, the Danish Competition Council decided two cases involving exchange of information between Hugo Boss on the one hand and the retail chains Kaufmann and Ginsborg on the other. Hugo Boss is a supplier to the two retailers but also sells directly to consumers from its own stores in competition with the two retailers (so-called parallel distribution or dual distribution).
The Danish Competition Council started its investigation following dawn raids at the retailers where the Council had identified a large number of emails in which Hugo Boss informed the retailers on an ongoing basis which products Hugo Boss intended to include in its future sales campaigns in its own stores and at what prices. The Danish Competition Council found that Hugo Boss, Kaufmann and Ginsborg had breached the Danish Competition Act by sharing competitively sensitive information about future clearance prices, discounts and volumes at product level.
In June 2023, the two decisions were upheld by the Danish Competition Appeals Tribunal with dissent. Hugo Boss and Kaufmann then decided to bring the decisions before the Danish Maritime and Commercial High Court.
The Danish Maritime and Commercial High Court’s judgment
The Danish Maritime and Commercial High Court found – like the majority of the Danish Competition Appeals Tribunal – that the exchanged information about prices, discounts, times of clearance sales, volumes, and specific products on sale in Hugo Boss’ own stores did not concern the vertical cooperation between Hugo Boss as manufacturer and Kaufmann/Ginsborg as retailers, but that this information was of a predominantly horizontal nature. The Court therefore found that the exchange of information was not covered by the vertical block exemption regulation, and that the Danish Competition Council had no obligation to look further into the implications of the parallel distribution setup than it had done.
The Court further noted that the exchanged information represented confidential information, and that the nature of the information had made it possible for the retailers to plan their discount strategy and decide which products to offer at a discount. On that basis, the Court held that the exchange of information could be deemed to have had as its object to restrict competition.
The emails produced in the cases had been exchanged from 2014 to 2017/2018. In one of the cases, the Court therefore also had to decide whether the conduct constituted a single continuous infringement or a series of isolated incidents. For this purpose, the Court took into account that the emails contained the same type of information and served the same purpose, and that the information, for natural reasons, had only been exchanged at specific times in connection with seasonal sales. The Court therefore concluded that the conduct constituted a single continuous practice throughout the period.
In these circumstances, the Danish Maritime and Commercial High Court found no basis for setting aside the Danish Competition Council’s decision.
The Danish Competition and Consumer Authority has reported the cases to the National Special Crime Unit for criminal prosecution.
Our comments
Exchange of information is (and should be) an important area to focus on for companies selling their products through both a retailer network and their own channels, such as their own website.
It appears from the judgments that Hugo Boss did not in practice consider its retailers as “competitors” but as business partners. Therefore, the ongoing dialogue served primarily to support the retailers’ sale of Hugo Boss products.
It is important to remember, however, that from a competition law perspective, the retailers compete with the manufacturer’s own sales channels. And for that reason, Hugo Boss had also established separate divisions to handle its wholesale and retail business. Ideally, the employees responsible for liaising with retailers should not have had access to the information on clearance prices and promotional campaigns that originated from Hugo Boss’ own retail business.
This was also specified in the Commissions “new” vertical guidelines that entered into force on 1 June 2022, providing that information exchange in parallel distribution networks will be block exempted only if the exchange (i) is directly related to the vertical agreement and (ii) is necessary to optimise the production or distribution of the relevant goods or services. The 2022 guidelines also provide a number of examples of information that will/will not meet these criteria.
The Danish Maritime and Commercial Court’s rulings show this distinction. In other words, parallel distribution is (no longer) sufficient for the exchange of information between manufacturer and retailer to be legal. Instead, companies must carefully assess the information, including whether it relates to the cooperation between manufacturer and retailer, or whether it relates to the manufacturer’s own direct sales channels.
Read the Maritime and Commercial High Court’s judgements in the Hugo Boss case and the Kaufmann case
(both in Danish)
Note added on 12 June 2024: Following the judgement of the Danish Maritime and Commercial High Court, Kaufmann has admitted the infringement and agreed to pay a fine of DKK 6 million, while two senior employees have paid personal fines of DKK 120,000 each. According to the Danish Competition Council, other parts of the related cases are still pending in the judicial system.
Read the Competition and Consumer Authority’s press release on Kaufmann’s acceptance of the fine (in Danish).
