The European Commission has called off a competition-centric probe that reportedly centered on fashion brands’ potential price fixing efforts. The EU regulator confirmed on Friday that “priority reasons” have prompted it to discontinue the 2-year-long investigation into some of the signatories of “an open letter issued in 2020 that called for fundamental changes in the [fashion] 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.
Called the Forum Letter, the industry communication, which was spearheaded by Belgian designer Dries Van Noten, was released in May 2020, and signed by an international group of designers, executives, retailers, and other industry figures, including individuals from Richemont-owned Chloé, Missoni Group, Mytheresa, Nordstrom, Selfridges, Bergdorf Goodman, Carolina Herrera, PUIG, Altuzarra, Gabriela Hearst, Proenza Schouler, and Tory Burch, among many others. The Letter started with 40 signatories but swiftly amassed hundreds of industry supporters.
In a release announcing the probe in May 2022, the European Commission stated that it had “concerns that the companies concerned 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, which prohibit cartels and other restrictive business practices.” Among other things, Article 101(1) of the TFEU prohibits “illegal contacts and agreements, price fixing and market sharing” in furtherance of its ban on cartels – or groups of “similar, independent companies that agree (expressly or tacitly) together to fix prices, to limit production or development, to share markets or customers between them or other similar type of restriction of competition,” which ultimately “reduces their incentives to provide new or better products and services at competitive prices.”
> Article 101(1) applies to both “vertical” agreements (i.e., those between parties at different levels of supply chain: manufacturer and distributor; distributor and retailer), and “horizontal” agreements (ones between competing entities).
Against this background and that of Article 53 of the European Economic Area Agreement, which bans agreements that lead to “the prevention, restriction or distortion of competition,” the Forum Letter’s price-focused point looked as though it might prove to be problematic in the eyes of the European regulator. At the same time, sources said that there was “a possibility that a chatroom may have been set up to discuss the [points in the open letter],” noting that this is “a practice usually frowned upon by regulators and which has resulted in hefty fines for some banks” – and ramifications for individual traders, as well – “after traders colluded via chatrooms to rig financial benchmarks” like LIBOR. (Some agreements are not prohibited by EU law, namely, “if they can be justified as benefiting consumers and the economy as a whole,” according to the Commission. One example cited by the Commission is “agreements on research and development, and technology transfers.”)
“The European Commission has decided to close its preliminary investigation into this matter for priority reasons,” a spokesman for the Commission said on Friday, noting that “the closure is not a finding of compliance or non-compliance of the conduct in question with EU competition rules.” The Commission said that it “may open a new investigation into the same conduct, should new evidence emerge that would warrant further investigation.”