NIKE's sales ban – EUR 12.5 million fine for restricting cross-border sales

Yet another sales ban fine – The EU Commission today has imposed a fine of €12.5 million on Nike for restricting cross-border sales by banning its retailers from selling licensed football merchandise to other countries within the EEA. Please see the respective press release of the EU Commission here. Author: Dr. Christian Andrelang, LL.M. Attorney-at-Law Bar Certified Lawyer International Trade Law Bar Certified Lawyer Commercial and Corporate Law

Sales ban – What is it about?

Nike prevented many of its licenses from selling branded football products in different countries of the EEA, the European Economic Area. This is a breach of EU antitrust rules. In June 2017, the EU Commission opened an antitrust investigation into certain licensing and distribution practices of Nike to assess whether Nike illegally imposed sales bans on its retailers from selling licensed products across borders and online within the EU. The EU Commission investigation established that Nike's non-exclusive licensing and distribution agreements infringed EU competition rules in various ways: – Nike chose direct measures to restrict out-of-territory sales by its licensees and retailers, in particular clauses which directly prohibiting these sales, Obligations to refer orders for out-of-territory sales to Nike, and clauses which impose double royalties for out-of-territory sales. – Nike also opted for indirect measures to enforce and implement the out-of-territory restrictions, in particular by threatening its retailers with contract termination in case of out-of-territory sales, with refusals to supply official products, and by carrying out audits to ensure compliance with the restrictions. – In some cases, Nike used master licenses in each territory to grant sub-licences for the use of the different rights to third parties. To secure this practice within its distribution network, Nike imposed direct and indirect measures on master licenses. Through these measures, Nike compelled master licenses to stay within their territories and to enforce restrictions vis-à-vis their sub-licensees. – Nike included clauses that explicitly prohibited licenses from supplying products to customers, in particular retailers, who would be selling outside their allocated territories. – Furthermore, NIKE obligated its retailers to pass on these prohibitions in their contracts to their retailers. Nike also intervened to ensure that retailers stopped purchasing products from licenses in other EEA territories.

Sales ban – Why is it important?

The clauses on sales ban in Nike's manufacturing and distribution agreements infringed Article 101 of the Treaty on the Functioning of the European Union (TFEU), which prohibits agreements between companies that prevent, restrict or distort competition within the EU's Single Market. The EU Commission concluded that Nike's illegal practices partitioned the Single Market and prevented licenses in Europe from selling products cross-border, to the ultimate detriment of European consumers. Nike's illegal practices affected to varying degrees the licensed merchandise products, in particular bearing the brands of various football clubs. The decision of the EU Commission to impose a fine safeguards that retailers and consumers can take full advantage of one of the main benefits of the Single Market: the ability to shop across borders around Europe for a larger variety of products and for the best deals. The ban of passive sales in the EEA is prohibited, and sales bans are prone to be qualified as anti-competitive behavior. Sales bans often pertain to bans of passive sales, in particular online sales. According to the EU Commission, passive sales mean responding to unsolicited requests from individual customers including delivery of goods or services to such customers. General advertising or promotion that reaches customers in other distributors' (exclusive) territories or customer groups but which is a reasonable way to reach customers outside those territories or customer groups, for instance to reach customers in one's own territory, are considered passive selling.

Sales ban – What does it mean for you?

It doesn't matter if you are a high profile, exclusive licensor of a globally renowned brand, a medium sized company operating a selective distribution system or a start-up which struggles to establish its brands. Any sales ban which prohibits cross-border sales, in particular via the internet may qualify as a breach of antitrust laws. The recent activities of the EU commission as well as regional antitrust authorities indicate that sales bans won't fly under the radar of antitrust investigations any longer. The so-called Geoblocking Regulation also prohibits one-sided impediments of cross-border purchases by end-customers. You are invited to download or share this article.