The European Commission strictly enforces the European Union antitrust laws in cases where there are cross-border sales restrictions. On 25th March 2019 the European Commission imposed a fine of € 12.5 million on Nike for banning traders from selling licensed merchandise to other countries within the European Economic Area [1]. Later this year, on 9^th of July, the commission fined the company Sanrio for € 6.2 million for the same kind of infringement [2]. In both cases a violation of article 101 of the Treaty on the Functioning of the European Union (TFEU) was at charge.

Article 101 TFEU prohibits agreements between companies that prevent, restrict or distort competition within the European Union’s Single Market. An infringement of this article is established if there is an agreement that has the object to restrict competition in the European Economic Area. This infringement can be established for both horizontal as vertical agreements. Vertical restraints are generally seen as less harmful than horizontal ones, which is reflected in the amount of the fine.

In the case of Nike there where several vertical agreements between Nike and distributors which led to the Commission establishing various direct and indirect measures:

A. Nike had various non-exclusive license agreements with various sellers. Each license allowed that licensees to sell the product in that country. This non-exclusive licensing system led to less choices and higher prices for consumers. By these licensees Nike explicitly prohibited out-of-territory sales, which qualifies as an direct measure. This out-of-territory restriction automatically leads to an infringement of article 101 TFEU. This restriction consisted of four main clauses:

I. The prohibition of passive and active sales outside the territory

II. Obligations to refer orders outside the territory or inquiries to Nike;

III. Clauses on the reversal of royalties and income from sales outside the territory, and

IV. Clauses for imposing double royalties for sales outside the territory.

B. Nike enforced indirect measures to implement the out-of-territory restrictions. For example Nike threatened licensees with ending their contract if they sold outside of their territory.

C. Nike also obligated their main-licensees to implement the same out-of-territory restrictions with their sub-licensees.

D. The agreements with licensees included clauses that explicitly prohibited supplying merchandising products to retailers, who could be selling outside the territory.

Interesting to note is that some restrictions on out-of-territory sales are compatible with the EU Antitrust rules, although not such extensive restrictions as in this case.

The infringement lasted nearly 13 years (between 1 July 2004 and 27 October 2017). The fine of 12.5 million was set on the basis of the Commission’s 2006 Guidelines on fines: 8% of the profit made with the sale of licensed fan items. The fine could have been substantially higher, but Nike earned a 40% reduction due to its extensive cooperation with the European Commission.

This fine fits into the Commission’s increased focus on vertical restraints. This focus was initiated by the European Commission 2017 e-commerce sector report. Even National competition authorities, like the Dutch AMC, are placing more focus on vertical restrictions. As a company is it important to double check licensing agreements for cross-border sales restrictions, and if necessary take action.

For further information on European Antitrust rules, please contact Jaap van Till, partner at Loyal.

[1] Case AT.40436 (Nike) https://ec.europa.eu/competition/antitrust/cases/dec_docs/40436/40436_949_5.pdf

[2] Case AT.40432 (Sanrio) https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52019XC1114(03)&from=EN