Interview with Andreas Reindl and Steven Cernak
Partner Andreas Reindl of Van Bael & Bellis and Steven Cernak, Of Counsel at Schiff Hardin give their views on competition risks for luxury companies
Global Legal Post: What do you see as the main issues in competition law for luxury companies?
Andreas Reindl: In Europe, the strict and rather formalistic competition law rules applicable to distribution agreements can have a significant impact on luxury companies. Strategies to control pricing at the distributor or retailer level can create material competition law risks, including a risk of significant fines. Certain non-price restraints – such as limitations on territories in which a distributor or retailer can sell –are equally likely to raise competition law concerns. In addition, the evolving prominence of online platforms and the competition law rules applicable to online sales require close attention, as they can materially affect distribution strategies of luxury companies in Europe—strategies to support sales through brick-and-mortar stores, prohibitions against sales on platforms, and restrictions on the use of a luxury brand’s name and trademark in online advertising, could all create competition law risks if not carefully designed.
Steven Cernak: In the US, antitrust rules have been somewhat less onerous than Europe, at least in relation to certain aspects of law. However, recently there has been a call for enforcers to take a closer look at all mergers and try to block more of them. As a result, enforcers might be more likely to find a narrow “luxury only” product market in which there are fewer participants each with higher shares, thus making a merger challenge more likely. In labor markets, “no-poach” and covenants not to compete that restrict the movement of workers, especially within an industry, have been under severe bipartisan attack. In distribution, most non-price restraints imposed by luxury manufacturers on retailers are likely to be approved under the antitrust laws; however, price restraints are still subject to closer scrutiny, especially by aggressive state attorneys-general under state antitrust laws, some of which are different than federal antitrust laws.
GLP: Is there any impending legislation or regulatory issues on the horizon which they should be aware of?
SC: In the US, some of the basic principles of antitrust law are being seriously questioned for the first time in decades. Various legislative proposals have already been introduced in Congress and many more have been suggested by 2020 Presidential candidates. If change occurs, antitrust enforcement, by both governmental enforcers and private litigants, will be increased with potentially far-reaching impact. While much of the discussion of these potential changes has been focused on so-called tech companies, the changes likely would affect all companies, including luxury companies.
AR: In Europe, the competition law rules governing distribution agreements are currently under review and are expected to be revised by 2022. Many brands are involved in this important review process, as are stakeholders with diametrically opposed interests that seek to promote their views. In the end, we do not expect this review to result in fundamental changes. However, certain adjustments appear possible, such as rules governing online sales restrictions, and those could have a material impact on distribution strategies of luxury brands.
As in the US, discussions about broader changes to EU competition law focus on tech companies, in particular large digital platforms. As digital platforms play a central role in the distribution systems of many companies, both as sales channels but also as a space to advertise and promote products, changes in EU competition law in the digital space therefore may well affect distribution strategies of luxury brands.
GLP: What do you think luxury legal departments should be focusing in over the next five years?
AR: Clearly, optimizing distribution systems in light of rather strict EU competition law rules should remain a focus for legal departments, especially as strategies of luxury brands to deal with online distribution opportunities will evolve. This may include getting involved in important cases before national or European courts to ensure that the views of the luxury industry are taken into account when courts shape competition law rules. In addition, there should be increased focus on the interface between data and competition law. There could be opportunities in terms of greater access to useful consumer data held by third parties, but it will also be important that the handling of data by a luxury brand does not create competition law risks.
SC: In the US, luxury legal departments should take a fresh look at restrictions on distributors/retailers and employees, especially if those restrictions have been in place for a long time. Even if those restrictions would continue to pass antitrust muster in a court of law, luxury legal departments should work with their clients to ensure that the company can explain in the court of public opinion why these restrictions are necessary for the company and the brand.
GLP: Are there any global threats on the horizon for this sector?
SC and AR: In the US, any changes in the antitrust law could mimic the more restrictive elements of European competition law, especially in appropriate actions by companies with large market shares or on limiting distribution restrictions.
The greatest threat for luxury brands likely would come from stakeholders opposed to carefully designed distribution systems that control in particular a luxury brand’s online presence. These stakeholders may lobby for stricter competition law rules that limit a luxury brand’s freedom to adopt distribution strategies that most effectively promote a brand and reach targeted consumer groups.
Andreas Reindl and Steve Cernak will be speaking on the topic of how luxury companies can protect their brands at the Luxury Law Summit NY on 13 November 2019.