The Danish Competition Council has approved Bestseller's new franchise concept

Date 15 apr. 2010

On 24 March 2010, the Danish Competition Council decided to approve the new franchise concept of Bestseller.

 

Following the ruling of the Danish Competition Council, Bestseller will, once again, have the opportunity to gather information about prices from their independent retailers to the same extent as other wholesale distributors in the clothing industry.

 

Facts of the case

Bestseller is the wholesale distributor of men’s wear, ladies wear, and children’s wear (incl. Jack & Jones, Vero Moda and Exit, among other labels) to 37 independent collaborators, who own 170 concept stores altogether. As the cooperation agreements contained provisions of binding resale prices, Bestseller was charged with an injunction to terminate the agreements in 2003. In addition, Bestseller was ordered to revise its IT-system so that sales prices and contribution margin were no longer included in the data which the independent stores were obliged to report to Bestseller.

 

The reason why the Danish Competition Council at first ordered Bestseller to revise its IT-system was the close connection between the reported data and the major restriction on competition that the binding resale prices constituted. The Danish Competition Council was of the opinion that, in case the retailers continued to report on prices, the injunction to abolish the provisions of binding resale prices would not have effect aimed at, as the reporting could be understood by the concept stores as some kind of continued price monitoring.

 

With its decision of 24 March 2010, the Danish Competition Council accepted that the 170 concept stores were granted the opportunity to report information on prices through Bestseller’s revised IT-system, once again.

 

The legal basis

Pursuant to Section 6 of the Competition Act, companies and others are prohibited from entering into agreements which directly or indirectly aim to restrict, or result in a restriction on, competition. However, agreements covered by the triviality limit in Section 7 of the Competition Act are exempted from the prohibition in Section 6.

 

As the Danish Competition Council determined that Bestseller’s access to information on prices from the independent retailers did not involve any market screening impacts and that no overall, noticeable influence on the interstate trade existed, the case was not tried according to Community Law (Articles 81 and 82 of the EC Treaty).

 

The decision of the Danish Competition Council 

In 2003, the Danish Competition Council determined that the agreements between Bestseller and the independent retailers were covered by the scope of the prohibition in Section 6 of the Competition Act as they contained provisions of binding resale prices. However, the decision of 24 March 2010 did concern, firstly, whether Bestseller’s current agreement concept, with no provisions of binding resale prices, violated Section 6 of the Competition Act, and secondly, whether a reintroduction of the independent retailers’ reporting of sales prices would be covered by the prohibition in Section 6.

 

On the basis of, inter alia, a scrutiny of the independent retailers’ pricing over a period of time and interviews with the trading partners, the Danish Competition Council decided that it had been sufficiently proven that direct or indirect agreements on binding resale prices no longer existed between Bestseller and the independent retailers.

 

The Danish Competition Council based its considerations concerning a reintroduction of the reporting of sales prices for the independent retailers partly on a vertical contemplation, partly on a horizontal contemplation.

 

On the basis of a vertical contemplation, the Danish Competition Council was of the opinion that the independent retailers’ reporting of sales prices did not constitute a violation of the prohibition in Section 6 of the Competition Act. This was due to the fact that Bestseller’s revised agreement concept was not covered by Section 6, as well as the fact that a long period of time had passed and, consequently, there was no longer a close connection between the binding resale prices and the reporting of data.

 

On the basis of a horizontal contemplation, the concern of the Danish Competition Council related to the danger of illegal exchange of information, in that the reporting of the independent concept stores could be accessible both to other independent retailers as well as independent stores owned by Bestseller and as a result hereof limit the competition.

 

Following discussions with Bestseller, the concerns of the Danish Competition Council were met by a number of commitments from Bestseller and, hereafter, the Danish Competition Council accepted to lift the injunction.

 

Thus, Bestseller has committed itself to implement data barriers, firstly, between Bestsellers own stores and the independent stores, and secondly, among the independent stores, in order to prevent the retailers from accessing each other’s individual data through the IT-system.

 

Furthermore, Bestseller has committed itself to conduct an organisational separation of the department receiving and handling the incoming data and Bestseller’s retail department.

 

Finally, Bestseller has committed itself not to pass on data, e.g. in the form of lists, performance reports or the like, including calculated average figures of prices and profits suitable for a standardising of the price policy of the independent stores.

 

Considerations of whether the commitments could be considered sufficient, were also based on market related circumstances. Among other things, the Danish Competition Council emphasised that they were dealing with a competitive market with many operators and that Bestseller only to a limited extent had own stores placed in the same area as the independent retailers. Furthermore, importance was attached to the fact that 30%-50% of Bestseller’s products were sold from stores outside Bestseller’s chain concept and, as a result hereof, would not figure in the reported sales prices.

 

Consequences of the decision

With the decision, Bestseller, henceforward, have the opportunity to gather information about prices from their independent retailers. On the basis of a vertical contemplation, this is not new, and the injunction was only imposed on Bestseller as a consequence of a violation of Section 6 of the Competition Act because of agreements on binding minimum prices.

 

However, it will be interesting to observe whether the decision will open up for a horizontal exchange of price information in case a company wishes to correlate sales prices from different retailers for the use of an optimisation of the sale at retailers. The decision is unlikely to be an indication of this, as the Danish Competition Council underlines that the decision is based on a specific assessment of the case, including the commitments entered into by Bestseller and the special market-related circumstances.

 

 

If you have any questions regarding the above or require additional information on the decision, please contact attorney Dan Moalem (dmo@mwblaw.dk) or junior associate Annacarina Stevelt Staunstrup (ast@mwblaw.dk). 

 

The above does not constitute legal counselling and Moalem Weitemeyer Bendtsen does not warrant the accuracy of the information. With the above text, Moalem Weitemeyer Bendtsen has not assumed responsibility of any kind as a consequence of a reader’s use of the above as a basis of decisions of considerations.