A European Union regulator has shed light on its latest effort to crackdown on what it views as anti-competitive activity in the fashion industry. In a statement on Monday, the European Commission confirmed that it “has informed Pierre Cardin and licensee Ahlers [Group] of its preliminary view that [they] may have breached EU antitrust rules by restricting cross-border sales of Pierre Cardin-licensed clothing, as well as sales of such products to specific customers.” The announcement from the EU regulator comes in connection with an ongoing probe into the French fashion brand and its licensee, which started last year amid reports that the two companies had “developed a strategy to prevent parallel imports and sales to specific customer groups of Pierre Cardin-branded products by enforcing certain restrictions in the licensing agreements.”
The Commission previously stated that it had “concerns that the companies concerned” – which are now known to be Cardin and Ahlers, a menswear manufacturer and Cardin’s largest licensee – “may have violated Article 101 of the Treaty on the Functioning of the European Union (‘TFEU’) and Article 53 of the European Economic Area Agreement (‘EEA’), which prohibit cartels and other restrictive business practices.” The executive body initiated a formal investigation to assess whether Pierre Cardin and Ahlers have breached EU competition law by “restricting the ability of Pierre Cardin’s licensees to sell Pierre Cardin-licensed products cross-border, including offline and online, as well as to specific customer groups.”
In the event that the European Commission – which is responsible for proposing legislation and implementing decisions, among other EU-related business – ultimately finds evidence of wrongdoing, it has the power to impose fines of up to 10 percent of an entity’s turnover in the last financial year for breach of EU competition law.
The Bigger Picture
The Cardin investigation is particularly noteworthy, as it comes amid an increasingly-focused-effort by the Commission, which has set its sights on the fashion/luxury arena. The agency notably targeted the fashion industry in 2021, probing the signatories of an open letter that called for “fundamental changes in the industry to make it more environmentally and socially sustainable,” including by adjusting the seasonal runway show and product delivery schedules in order “to encourage more full price sales” and fewer discounted wares in the wake of the COVID-19 pandemic. Since then the New York Times reported that the Commission “carried out investigations into several beauty and fragrance companies linked to the supply of fragrance ingredients” this past March.
Still yet, Gucci-owner Kering confirmed in April that it is among the entities that the Commission raided, saying in a brief statement, “In the scope of an inspection carried out as part of a preliminary investigation into the fashion sector in several countries under EU antitrust rules, the European Commission started an inspection at the Italian premises of Gucci, a subsidiary of Kering, on April 18, 2023. The Group is fully cooperating with the Commission in the context of this investigation.”
Not a novelty for the Commission or for well-known retail brands, Article 101 of the TFEU and Article 53 of EEA – which prohibit agreements that appreciably affect trade between EU member states and that aim to prevent, restrict, or distort competition within the internal market – have served as the basis for regulators to crack down on consumer goods brands on competition grounds in the past. For example, EU competition law-centric actions have targeted: (1) French skincare brand Caudalie on the basis of its practice of prohibiting authorized distributors from selling its products for less than a specified price and limiting their abilities to sell its offerings online to consumers in other member states; (2) Nike, which was fined 12.5 million euros in 2019 for banning traders from selling licensed merchandise to other countries within the EEA; and (3) Guess, which was fined nearly 40 million euros in December 2018 for restricting retailers from online advertising and selling cross-border to consumers in other Member States, among others.
A Key Takeaway: Given that “cartel investigations often radiate out across the industry,” K&L Gates’s Michael Martinez and Brian Smith said in a note this spring that “fashion brands should be alert to potential questions or parallel antitrust investigations being opened in the United Kingdom, the U.S., and other jurisdictions, especially since the industry is already under investigation by regulatory authorities for other issues.”
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