On 25 March the European Commission handed out a €12.5 million (£10.7 million) fine to sportswear company Nike, following findings that Nike had banned traders from selling licensed merchandise across borders within the EEA. The Commission found that Nike had imposed a range of restrictions on retailers, which artificially inflated prices and prevented football fans getting their hands on their favourite teams’ merchandise.

Background

Nike is best known for designing and selling clothing and accessories bearing its ‘Swoosh’ logo around the world. However, it also trades in ‘licensed merchandise’ – products which feature no Nike logos, only the brand of a football club or federation with whom Nike has partnered. Third-party retailers in different territories then take IPR licences from Nike in order to be able to manufacture and distribute the licenced merchandise.

In June 2017 the Commission began its investigation into Nike’s licensing and distribution practices, in part prompted by its e-commerce sector inquiry, which had concluded in May that year.

The Commission’s findings

After a two-year investigation, the Commission determined that Nike’s practices had breached EU competition rules in a number of ways:

1. Imposing direct measures on licensees prohibiting out-of-territory sales or imposing double royalties on out-of-territory sales;
2. Enforcing indirect measures to implement out-of-territory restrictions, including threatening to end contracts with licensees if they did not comply;
3. Forcing parties with whom Nike had entered into master-licences to enforce cross-border restrictions via their sub-licences; and
4. Prohibiting licensees from supplying merchandise to customers who might go on to sell it outside the allocated territories. Nike intervened to prevent retailers from purchasing products from licensees in other EEA territories.

The Commission found that these anti-competitive practices had been in place for a period of 13 years (from 2004 to 2017), and had affected products such as mugs, bags and stationery featuring the brands of FC Barcelona, Manchester United, Juventus and AS Roma, as well as the French Football Federation.

Nike’s cooperation

In its press release, the Commission notes that Nike cooperated with the investigation beyond its legal obligation to do so. Nike provided the Commission with information which led to the scope of the investigation being widened, therefore including additional merchandise of clubs which might not otherwise have been considered. The Commission also noted that when challenged, Nike acknowledged that its actions had infringed EU competition rules. As a result of its cooperation, Nike’s fine was reduced by 40%. Like the consumer electronics RPM decisions (July 2018) and the Guess decision (December 2018), this decision again demonstrates the importance that the Commission attaches to co-operation and an acknowledgement of wrongdoing from the party under investigation.

Comment

This decision follows a string of investigations triggered by the Commission’s recent e-commerce sector inquiry, and provides further evidence that the Commission will not tolerate vertical agreements which jeopardise the integrity of the Single Market to the detriment of consumers. When trying to consolidate their position on consumer goods markets in the EEA, brand owners need to be careful that their agreements with retailers do not impose illegitimate territorial restrictions.

We may see further Commission decisions in this area in the coming months. When it opened its investigation against Nike in 2017, the Commission simultaneously started investigations into the licensing and distribution practices of both Sanrio and Universal Studios. Those investigations are yet to be concluded.

Edwin Bond and Robert Vile