– Miguel Verdeguer Segarra –
After two years of investigation the European Commission decided last March 25th to fine the world-renowned sportswear brand Nike for hampering cross-border sales of certain licensed products within the EEA. According to the EU Antitrust watchdog the fine, which amounted to a €12.5 million, is the result of years of implementation by Nike of an exclusive distribution system which went beyond the legal margins drawn by EU Competition Law. This legal framework must be understood in conjunction with the Geo-Blocking Regulation which addresses unjustified on-line sales discrimination based on customers’ nationality, place of residence or place of establishment within the internal market.
Nike, in its condition of license holder of merchandising products of some European football clubs and federations, contractually refrained manufacturers and traders from selling such goods in a different territory than that exclusively assigned in the distribution contract. By means of a licensing agreement Nike (licensor) granted third parties (licensees) the use of images protected by IPRs in order to incorporate them into the production of all kinds of products. These could range from mugs to stationary items. Such products did not feature Nike’s trademark nor its well-known “Swoosh” logo but rather the emblem and distinguishing signs of a given football team instead.
By exclusively allocating territories to distributors Nike was relaxing competition in the internal market and subsequently boosting prices for this type of products to the detriment of end consumers. As Commissioner for Competition, Mrs. Margrethe Vestager put it: “Football fans often cherish branded products from their favorite teams, such as jerseys or scarves. Nike prevented many of its licensees from selling these branded products in a different country leading to less choice and higher prices for consumers. This is illegal under EU antitrust rules. Today’s decision makes sure that retailers and consumers can take full advantage of one of the main benefits of the Single Market: the ability to shop around Europe for a larger variety of products and for the best deals.”
In particular, the Commission found that Nike had been raising barriers to commerce for nearly 13 years in breach of EU Antitrust rules by:
- Establishing a deterrent mechanism for out-of-territory sales not just by directly forbidding them but also imposing obligations to refer sales to Nike whenever these transactions happened or by even imposing double royalties on those distributors wishing to sell outside their allocated territory.
- Threatening licensee-distributors with putting an end to their contracts if they ever infringe the exclusive distribution agreement. Plus, audits were scheduled to ensure that traders adhered to the terms of exclusivity set out in the contract.
- Extending the out-of-territory ban to sub-licensees for all those master licensees entitled to further grant the use of IPR’s to other producers.
- Prohibiting sales to customers or retailers who could potentially resell the licensed merchandise out of the exclusively assigned territory.
The Commission’s decision suggests that the listed practices paved the way for a heavy loss of intra-brand competition especially in light of the position of strength that the US-based sportswear company holds in the market. The antitrust decision is actually the second major headache for Nike from the Competition Law division of the European supranational authority. It must be recalled that Nike kicked off the New Year with an investigation into certain tax rulings that apparently provided the sports company with an advantage over its competitors. Tax benefits deemed to be against EU State Aid rules.
Notwithstanding the importance of the mentioned investigation, for now it is of great interest for both academia and practitioners to see whether individuals and undertakings affected by Nike’s conduct seek compensation for damages. It must be born in mind that any Commission decision represents binding proof that may eventually be claimed before a Court. And as the Commission highlights in the Press Release published on occasion of its decision on Nike the ‘Antitrust Damages Directive’ is already in force to make it “easier for victims of anti-competitive practices to obtain damages”.