1. CASE SUMMARY
A. Summary of facts
Nike European Operations Netherlands (‘Nike’) terminated its distribution agreement with Action Sport, a distributor based in Italy. Action Sport offered Nike products on the online platform Amazon, which was not an authorised seller of Nike products. Pursuant to Nike’s ‘Selective Retailer Distribution Policy (‘Policy’), which was introduced in 2013, distributors were only allowed to sell products online through their own website or through authorised resellers and authorised third-party platforms. Action Sport thus breached its distribution agreement. Despite several notices from Nike, Action Sport continued selling through Amazon. Nike therefore terminated the distribution agreement and subsequently denied access to its platform, preventing Action Sport from placing orders. As of the date of termination, Nike also refused to deliver any more orders (regardless of whether these were pending on the date of termination or placed afterwards).
Action Sport objected to the termination. It argued that the selective distribution system of Nike did not meet the Metro criteria. The nature of the products did not require selectivity, as they are not luxury products, so the prohibition for authorised distributors to sell Nike products through unauthorised (online) sellers violated Article 6 of the Dutch Competition Act (the cartel prohibition). Accordingly, Nike’s selective distribution system violated competition law, the termination of Action Sport was illegal, as well as the fact that Nike refused to supply (pending) orders to Action Sport and denying it access to its order platform.
In first instance, the Court concluded as follows:
- The conditions set out in Nike’s Policy are objective qualitative criteria, relating to the professional competence of the distributor, its personnel, and the organisation of its business. These criteria are applied uniformly and without discrimination. With reference to the conclusion of Advocate General Wahl in Coty, the Court held that Nike’s products are luxury products, and that the Policy served to maintain the image of the Nike brand.
- A prohibition for authorised distributors to sell through unauthorised third-party platforms cannot generally be considered a restriction on internet sales that is disproportionate in relation to the objective pursued: Nike has no control over sales through unauthorised third-party platforms, whilst it can exercise such control in the context of a selective distribution system, in the online sales environment established by its authorised distributors. Nike’s Policy was therefore permissible under the cartel prohibition, and Nike was entitled to terminate Action Sport due to its breach of the Policy.
- Nike was ordered to pay damages for not delivering pending orders (i.e., orders placed and accepted before the date of termination). Each accepted order is an agreement between the parties, separate from the (terminated) distribution agreement.
B. Legal analysis
The judgment in first instance was confirmed and clarified by the judgment on appeal, which was rendered after the European Court of Justice’s (‘ECJ’) Coty judgment.
On appeal, Action Sport claimed that Nike’s products are not luxury products, and that the prohibition to sell through unauthorised third-party platforms constitutes a hardcore restriction, enabling Nike to expand its online sales at the expense of its distributors.
The Court of Appeal rules on this that the Policy does not generally prohibit the use of the internet to market Nike products, but only prohibits a specific type of online sales. Customers continue to have access to Nike products online, through online shops of authorised resellers, which include various online platforms. The Court of Appeal held that such restriction – under the aforementioned circumstances – is not a hardcore restriction, with reference to Coty (§68):
‘In those circumstances, even if it restricts a specific kind of internet sale, a prohibition such as that at issue in the main proceedings does not amount to a restriction of the customers of distributors, within the meaning of Article 4(b) of Regulation No 330/2010, or a restriction of authorised distributors’ passive sales to end users, within the meaning of Article 4(c) of that regulation.’
The Court of Appeal also clarified, as the ECJ did in Coty, that the selective distribution exemption under the VBER is not limited to luxury products. Nike’s distribution system is covered by the VBER, provided the system meets the VBER conditions, irrespective of the nature of the products. That Coty concerned luxury goods was a mere circumstance and not a deciding factor in that regard.