On 25 March 2019, the European Commission (the "Commission") imposed a fine of €12.5 million on Nike for restricting cross-border sales of football merchandising products in breach of Article 101 of the Treaty on the Functioning of the European Union ("TFEU").
| what you need to know - practical takeaways |
- In the wake of the e-commerce sector enquiry and the 2018 the EU Geo-blocking regulation, the Nike decision confirms the Commission's renewed focus on vertical agreements and its commitment to continue to pursue cross-border restrictions. Entering into any such restrictions requires detailed competition law considerations.
- Both direct and indirect means of restricting out-of-territory sales can infringe competition law.
- This is another notable example of the Commission recently rewarding cooperation by applying an informal settlement discount (i.e. settling outside its formal settlement procedure, which is reserved for cartel conduct).
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Background
In June 2017, the Commission opened a formal antitrust investigation into certain licensing and distribution practices of Nike.
The enquiry focused on Nike's role as a licensor of merchandises featuring football clubs' branding, such as jerseys, bags, stationary, bedsheets and mugs. These products bear the logos from some of Europe's best-known football clubs (e.g. FC Barcelona, Manchester United, Juventus) and national teams (e.g. the French Football Federation).
The Commission's findings
Following a 21-month probe, the Commission found that from 2004 to 2017, Nike illegally prevented licensees in Europe from selling merchandise cross-border and online and in so doing breached Article 101 TFEU.
The restrictions were implemented through the whole distribution chain and included inter alia:
- direct measures restricting cross-border sales by licensees, including clauses expressly prohibiting these sales, obligations to refer orders for out-of-territory sales to Nike and clauses imposing double-royalties on these sales; and
- indirect measures monitoring and penalising these sales, including threats to end agreements, refusal to supply "official product" holograms (holograms on tags or stickers which help customers identify genuine merchandise) and audits to ensure compliance.
The decision follows up on the results of the Commission's e-commerce sector enquiry (see our previous newsletter article) and underscores the Commission's commitment to eliminating commercial practices that threaten to partition the EU Single market to the detriment of European consumers. Similar enquiries are ongoing and concern alleged geo-blocking by Universal Studios for merchandise related to films like Despicable Me and Minions, and by Sanrio over brands like Hello Kitty.
Rewarding cooperation
The decision is also notable as it provides a new example of the Commission rewarding cooperation (Nike was granted a 40% fine reduction) in a non-cartel case. In this case, the Commission took account of the fact that Nike:
- disclosed information that allowed the Commission to extend the scope of the case;
- provided evidence with significant added value; and
- acknowledged the facts and the infringements.
After the ARA, the consumer electronics' RPM and the Guess cases, this decision again shows that the Commission is likely in the future to attach more and more importance to cooperation also in relation to non-cartel cases. Based on the factsheet it published in December 2018 and on these first precedents, companies cooperating with the Commission (even after the notification of the Statement of objections) may obtain a fine reduction up to 50%.
With thanks to Jessica Bracker of Ashurst for her contribution.
