French Competition Authority fines Luxottica and other eyewear brands for fixing sales prices

The French Competition Authority (l’Autorité de la concurrence), on July 22, has sanctioned several companies in the sunglasses and eyeglasses frames sector for committing two anti-competitive practices against the provisions of Articles L 420-1 of the French Commercial Code and 101.1 of the Treaty on the Functioning of the European Union (TFEU) consisting, in the first case, of a vertical agreement aimed at limiting distributors’ pricing freedom and, in the second, a vertical cartel aimed at prohibiting distributors from selling their products online.

In this regard, Article 101(1) TFEU provides that “any agreements between enterprises, decisions by associations of enterprises and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market and, in particular, those which consist in:

1. directly or indirectly fixing purchase or selling prices or other trading conditions;
2. limiting or controlling production, the market, technical development or investments;
3. to share markets or sources of supply;
4. to apply unequal conditions for equivalent services to third parties, causing them a competitive disadvantage;
5. to subordinate the conclusion of contracts to the acceptance by the other contracting parties of supplementary services which, by their nature or according to commercial usage, have no relation whatsoever with the object of such contracts.

Pursuant to Article L 420-1 of the French Commercial Code, it is provided that: “concerted actions, agreements, express or tacit understandings or coalitions, including through the direct or indirect intermediation of a group company located outside France, are prohibited when they have as their object or effect the prevention, restriction or distortion of competition on a market, in particular when they tend to:

1. Limit access to the market or the free exercise of competition by other companies;
2. To prevent the fixing of prices by the free play of the market by artificially favoring their rise or fall;
3. To limit or control production, stores, investments or technical progress; and,
4. share markets or sources of supply.”

In this sense, the French Competition Authority found that Luxottica had “recommended” prices to its distributors and encouraged them to maintain a certain level of retail prices for its products. In particular, Luxottica had executed selective distribution agreements with its distributors which provided for (1) encouraged to maintain a certain level of retail sales prices and discounts and promotions were prohibited; (2) imposed its distributors restrictions on price advertising; (3) carried out practices to control retail prices, soliciting the assistance of its distributors; (4) intervened with distributors who did not apply the established prices; and (5) penalized those who ignored its incentives by delaying deliveries to their stores or withdrawing their authorization to distribute some of its brands.

These antitrust practices are serious due to the repercussions of restricting free competition in the market, the consequences that these conducts have for end consumers and also due to the surveillance and retaliation mechanisms established for those distributors that do not follow the established rules and procedures.

It should be noted that although optical and eyewear products can be classified into two categories: (i) articles assimilated to medical devices, according to the Directive 93/42/EEC of 14 June 1993, such as corrective lenses, frames, and contact lenses and (ii) articles that are not medical devices, such as sunglasses, sports glasses and lens care products, this procedure refers only to prescription spectacle frames and sunglasses, not fitted with corrective lenses.

To understand this procedure and the decision of the French Competition Authority, it is necessary to consider how this sector is organized. Thus, three types of players can be involved in the manufacture and distribution of spectacle frames and sunglasses: brand owners, manufacturers, and distributors.

In terms of manufacturing, some companies, such as Luxottica and Mikli, manufacture the eyewear for the brands they own themselves. Others, such as Chanel, LVMH and Dior, prefer, or until recently preferred, to outsource the manufacture of eyewear sold under their brand to third party companies. In this case, they enter into a brand licensing or distribution agreement, granting the manufacturer an exclusive license to use their brand in the manufacture and wholesale of the products, in exchange for a royalty based on the turnover generated by such sales.

Notwithstanding the above, the major luxury houses have recently become involved in the production of frames, whereas they used to delegate this activity, and some of them have terminated their licensing agreements with certain manufacturers.

Regarding distribution, some brand owners have their own stores where they sell part of their products. However, this method remains marginal, and the parties concerned usually entrust the distribution of their products to the manufacturers who benefit from the operating license. Manufacturers, for their part, often use independent distributors for the distribution of their own or licensed products.

For certain brands, considered as “high-end” or “luxury”, selective distribution networks can be set up to protect the reputation and prestige of these brands. This type of distribution, which is based on a process of selection of sales stores, according to qualitative criteria, such as store equipment, location, product presentation and staff training, is often imposed on the manufacturer by means of brand licensing agreements.

Some eyewear distributors choose to operate as a franchise or branch of an optical chain or join a cooperative group. Others are independent and source their supplies through a central purchasing or referral center.

For the most part, sunglasses and optical eyewear are distributed through physical stores. Online sales have been developing since the early 2000s but are expected to account for only 4% of the market by value in 2020.

Over the last few years, the optical eyewear market has witnessed a wave of mergers and acquisitions, first, in 2018, between Essilor (at that time the world’s leading manufacturer and seller of eyewear) and Luxottica (the world’s leading manufacturer of eyewear), and then between the new entity resulting from this combination, EssilorLuxottica, and GrandVision (the European leader and number two worldwide in the retail distribution of optical and eyewear products), whose union ended on July 1, 2021. This merger also affected some online stores.

Consequently, the decision of the French Competition Authority resulted in the imposition of penalties on Chanel, Luxottica and LVMH as it considered that the clauses of the license agreements concluded between Chanel and Luxottica, on the one hand, and between LVMH and Logo, on the other hand, as well as the selective distribution agreements concluded between Luxottica and its authorized distributors for the Chanel, Prada, Dolce & Gabbana, and Bulgari brands, all prohibited the online sale of certain products and constituted serious anti-competitive restrictions.

To determine the penalty imposed on all these companies, the French Competition Authority took into account, first of all, the fact that such practices result in the closure of a marketing channel to the prejudice of consumers and distributors and limit competition, in particular intra-brand competition. On the contrary, the damage to the economy has also been considered to be limited in online sales due to the low demand for this sales channel in the sector, at least for eyeglass frames.

The following chart (taken from the decision adopted by the French Competition Authority) shows that the penalties-imposed amount to 125 million euros, and are as follows:

Therefore, the French Competition Authority has decided to sanction Luxottica and other brands for the conducts they carried out between 2005 and 2014 based mainly on encouraging the setting of a certain level of retail prices and pursuing and sanctioning distributors that did not comply with the rules set out in the licensing and distribution contracts they concluded with their distributors.