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EU Commission going after restrictions of cross-border and online sales within the EU Single Market

17/07/2019
EU Commission going after restrictions of cross-border and online sales within the EU Single Market

In June 2017, the European Commission opened formal investigations into Nike's, Sanrio's and Universal Studios' licensing and distribution practices to find out whether they restricted traders from selling licensed merchandise cross-border and online within the EU Single Market, which would contradict EU competition rules.

 In March 2019, the investigations resulted in a fine of 12 555 000 EUR for Nike. Last week, a fine of 6 222 000 EUR was imposed on Sanrio and Universal Studios has yet to receive a decision.

Sanrio: facts and reasons for the fine imposed

Sanrio Company Ltd (“Sanrio”) is a Japanese company that designs, licenses, produces and sells products featuring Hello Kitty and other animated characters. Intellectual property rights, such as trademarks or copyrights, protect these characters. Therefore, Sanrio (the “licensor”) has concluded licensing agreements that allow another party (the “licensee”) to use one or more of the intellectual property rights in its products.

The Commission fined Sanrio because it restricted its licensees from selling outside a specific territory without having concluded an exclusive licensing agreement. Sanrio imposed direct as well as indirect measures on restricting sales out of a certain territory (e.g. clauses prohibiting out-of-territory sales, obligations to refer orders for out-of-territory sales to Sanrio, non-renewal of contracts if licensees sold outside their territory, etc.). These practices lasted approximately 11 years.

Objective behind the fines imposed: restriction of cross-border sales to the detriment of consumers 

The objective of the competition rules that prohibit the restriction of cross-border sales is to stimulate an internal market in which traders can sell their products in different countries and in which consumers can buy products from a larger number of traders. This leads to more competition between traders, and therefore also to more choice and/or lower prices for consumers. In this sense, Commissioner Vestager has said: “Today's decision confirms that traders who sell licensed products cannot be prevented from selling products in a different country. This leads to less choice and potentially higher prices for consumers and is against EU antitrust rules. Consumers, whether they are buying a Hello Kitty mug or a Chococat toy, can now take full advantage of one of the main benefits of the Single Market: the ability to shop around Europe for the best deals.”

Nike: similar infringement

In March 2019, the Commission imposed a fine on Nike for similar reasons. Nike had restricted the sales of its licensees out of a specific territory and forced its master licensees to enforce similar restrictions vis-à-vis their licensees. The practices included both direct restrictions on cross-border sales (e.g. obligations to refer orders for out-of-territory sales to Nike and clauses imposing double royalties for out-of-territory sales), as well as indirect restrictions (e.g. threatening to terminate the licensee’s contract if it sold out-of-territory, refusal to supply “official product” holograms for products that Nike feared would be sold in other territories, audits to ensure compliance with the restrictions). The practices did not concern Nike branded products, but “licensed merchandise”. For these products, Nike acts as a licensor of intellectual property rights that grants licences to third parties, who become entitled to manufacture and distribute those products. Nike’s illegal practices affected in particular licensed merchandising products with the brands of some of Europe’s best-known football clubs including FC Barcelona, Manchester United, Juventus, Inter Milan and AS Roma, as well as national football federations. These practices lasted for approximately 13 years.

Main message for companies

After 20 years of very little enforcement for vertical agreements, the Commission now is clearly also targeting restrictions of cross-border sales in vertical relationships. The message for companies is clear: customers should be able to shop around Europe to get the best deals online and offline. Therefore, restrictions of cross-border sales are in principle not allowed. Undertakings can lawfully impose some restrictions on cross-border sales in specific circumstances in exclusive networks. The relevant contractual agreements, however, need to be very carefully drafted and implemented. It is better to obtain legal advice before engaging in any restriction of cross-border sales in the EU.

The antitrust risk faced by suppliers distributing goods online in Europe has definitely significantly increased. Last year, the Commission also imposed a series of very large fines against, among others, Asus, Philips, Pioneer and Denon & Marantz, for imposing fixed or minimum resale prices on online retailers. 

Contact

Carmen Verdonck

Partner

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