1. CASE SUMMARY
A. Summary of facts
Nike, a US-based designer, developer and seller of athletic footwear, clothing, equipment and accessories, employs non-exclusive licensing and distribution agreements for licensed merchandise products.
The decision relates to products of a varied nature (mugs, bedsheets, stationery, toys, etc.) all of which bear the brands or colors of clubs and federations (of clubs such as FC Barcelona, Manchester United, Juventus, Inter Milan and AS Roma, as well as national federations such as the French Football Federation) (but not the Nike brands). Nike acts as a licensor for the brands of the relevant football clubs and federations. To enable the manufacturing and sale of the licensed merchandise products, Nike grants manufacturing and distribution licenses for the intellectual rights, which it obtains from the clubs. The grant of these manufacturing and licensing rights by Nike is done either directly to the party that distributes them (‘licensee’) or indirectly through a ‘master licensee’ who, in exchange for a certain commission, further sublicenses the rights to final licensees. Licensed merchandise products are sold both offline and online throughout the EEA.
Nike implemented a series of practices restricting active and passive cross-border sales of licensed merchandise products both offline and online. Such practices included direct and indirect measures affecting both licensees and master licensees and obligations to pass on such restrictions. Four main types of restrictions are covered by the decision:
- Direct measures restricting out-of-territory sales by licensees, such as
- active and passive sales restrictions that take the form of clauses explicitly prohibiting licensees from supplying their licensed merchandise products outside the territory allocated to them in their agreements (covering both outright prohibitions and a variant whereby Nike’s consent was required for any out of territory sale) (§45-46);
- active sales restrictions whereby, on top of prohibition clauses, Nike’s employees actively approach licensees to inquire about the reasons why their products were found in other territories (§50);
- online sales restrictions including prohibition clauses similar to the bans imposed on active or passive out of territory sales (§52);
- obligations to refer orders for out-of-territory sales or queries to Nike (§54);
- clauses allowing Nike to claw back royalties and revenues deriving from out-of-territory sales (§57); and
- clauses obliging the licensee to pay double royalties for out-of-territory sales (§58).
- Indirect measures restricting out-of-territory sales by licensees, such as
- Nike’s threats to end the agreements for those licensees selling outside their allocated territories (§65-67);
- Nike’s policy to limit the number of security labels (holograms) that licensees required in order to guarantee the “official” character of their products which was used beyond their legitimate purpose (e.g. of estimating the number of future royalties) and was instead used as a tool to monitor if licensees were engaging in out-or territory sales (§69-70);
- Nike would sometimes use audits or the threat thereof in order to ensure that licensees would limit their activities to the territories allocated to them (§71-72).
- Restrictive practices implemented vis-à-vis master licensees to compel them to stay within their territories and to enforce restrictions vis-à-vis their sub-licensees on behalf of Nike (§73-83); and
- Obligations to pass on the restrictions regarding out-of-territory sales down the chain of agreements as well as an obligation on licensees to inform its customers about the restrictions (§84-88).
B. Legal analysis
B.1 - Framework of analysis – licensing agreements
Prior to analysing Nike’s conduct under Article 101 TFEU, the Commission recalls the legal framework for licensing agreements:
- First, the Commission finds that restrictions prohibiting or limiting the cross-border supply of goods included in licensing agreements fall under competition law, irrespective of whether intellectual property rights are exhausted. (§92)
- Second, the Commission refers to case law finding that a misuse of intellectual property rights may amount to an infringement of the competition rules. (§93)
B.2 - Article 101(1) TFEU – object restrictions
The infringement involves the implementation and enforcement of a series of agreements and practices aimed at restricting active and passive cross-border sales of licensed merchandise, both offline and online. Such conduct has as its object the restriction of competition within the meaning of Article 101(1) TFEU. The Commission concludes that Nike's practices partitioned the single market and prevented licensees in the EEA from selling products cross-border, to the ultimate detriment of consumers.
The Commission reminds that it is irrelevant whether the restrictive clauses have been enforced. (§106)
The Commission considered that the infringement by Nike was a single and continuous infringement. Also relevant in this context is that the same patterns were applied throughout the EEA, the individuals involved were essentially the same and there was a centralized team at headquarters responsible for managing accounts in the non-domestic territories. (§117)
B.3 - Article 101(3) TFEU – no block or individual exemption
In view of the hardcore nature of the restrictions neither the Vertical Block Exemption Regulation (‘VBER’), nor the Technology Transfer Block Exemption Regulation (‘TTBER’) apply. Although the agreements of Nike did not fall under the TTBER as they concern the licensing of trade marks and other intellectual property rights and distribution of related products, the Commission found that both the VBER and the TTBER could still provide guidance for the analysis under Article 101(3) TFEU.
This case illustrates that, despite hardcore restrictions in an agreement, an undertaking’s conduct can in theory still meet the conditions for Article 101(3) TFEU. The Commission deemed that in this case such individual exemption was not available. The main reasons were that Nike did not advance any arguments in this respect, but also that there were no indications that the indispensability test was met (e.g. to induce retailer investment in the territories or to alleviate repercussions of freeriding). In addition, as Nike had implemented the restrictions throughout its network, this decreased the chances for consumers to have a wider choice and lower prices. (§129-130)
B.4 - Fines – vertical restraints less harmful
When determining the level of the fine, the Commission noted that vertical agreements are generally less harmful than horizontal ones and therefore the percentage of value of sales to be used in this case was set at 8%.
Nike was fined EUR 12,555,000 for restricting the licensees’ ability to sell licensed merchandise cross-border contrary to Article 101(1) TFEU.