Nike's antitrust fine marks first blow in EU's merchandise licensing campaign

Brand owners can’t use intellectual property rights to restrict cross-border sales of goods in the EU, the European Commission indicated today in its decision to fine Nike, in a case that is likely to set a precedent for ongoing and future merchandising investigations.

Universal Studios and Sanrio, a Japanese owner of several cutesy “kawaii” brands including Hello Kitty, are also under investigation in the EU for suspected abuse of their intellectual property rights to restrict cross-border sales of merchandise.

The investigations form part of a wider EU blitz on the terms and conditions imposed by brands on sellers that either fragment the EU’s single market or prevent goods from being sold online, to keep prices artificially high.

In December, the European Commission hit fashion label Guess with a 40 million-euro penalty, over territorial restrictions it imposed on the use of its brand name in online advertising.

And earlier this year, Belgian brewer AB InBev set aside 203 million euros ($230 million) in anticipation of a fine in an EU probe into its alleged practice of changing of its labels to prevent beer sold more cheaply in France or the Netherlands from being sold in Belgium.

The commission has also recently forced Hollywood studios to change pay-TV contracts with broadcasters, a move which is facing a challenge at the EU’s top court from France’s Canal Plus.

Merchandise licensing

Today the commission fined Nike 12.5 million euros ($14 million) for one infringement of EU rules against restrictive agreements, for banning traders from selling football merchandise across borders. The infringement was made up of several different practices, the commission said.

As well as explicitly prohibiting the cross-border sale of products by manufacturers and distributors licensed to use the brands of beloved football clubs, Nike also threatened licensees with terminating their contracts if they sold across borders, the commission said.

The EU regulator began the probe on its own initiative, MLex understands, rather than in response to any complaints. That suggests a broader interest in companies using intellectual property as a lever to restrict the sale of products across borders.

That should serve as a warning shot not only to Universal Studios and Sanrio, but also any other companies tempted to squeeze more profits out of their brand merchandising by restricting sales across internal EU borders.

Moreover, other companies may end up paying higher fines than Nike, which was only a license-holder — rather than the owner — of the various football clubs’ brands that appeared on its products. In Sanrio and Universal’s case, the license agreements involve brands that the companies themselves own, such as Hello Kitty and Minions.

Nike also walked away with a relatively low fine because the products it restricted weren’t expensive products such as replica football kits, but low-cost items such as scarves, mugs and plastic bowls. That meant that the royalties Nike received on their sale were relatively small.

Speedy resolution

The commission wrapped up the probe just a year and nine months after announcing it, a quick turnaround by the standards of antitrust investigations.

In today’s press release, the regulator praised the company for cooperating “beyond its legal obligation to do so,” and offering the commission “information that allowed it to extend the scope of the case.”

Here the antitrust watchdog is reiterating the message that if companies confess guilt and cooperate with a probe, it can be wrapped up quickly, with sizeable reductions in the end fine.

‘Master licensees’

Another interesting finding from today’s decision is that Nike, and Nike alone, was found responsible for breaking competition rules.

The commission found that the “master licensees” in the case — companies given the right by Nike to grant sub-licenses at the national level for the use of the intellectual property in question — weren’t guilty of any infringement.

In the jargon of competition law, these companies weren’t “genuine agents” — they weren’t considered by the commission to be auxiliary organs of Nike, but functionally separate entities, allowing them to avoid inclusion in the fines.