The European Commission has launched three new antitrust investigations into the licensing and distribution practices of Nike, Sanrio and Universal Studios, who are suspected of illegally restricting traders from selling licensed merchandise online and cross border within the EU.
On 14 June 2017, the European Commission announced it had launched three new antitrust investigations into the licensing and distribution practices of Nike, Sanrio and Universal Studios. These companies are suspected of illegally restricting traders from selling licensed merchandise online and cross border within the EU. These new investigations highlight the Commission’s continued focus on the e-commerce sector, following the Commission’s e-commerce sector inquiry and the launch of four other investigations in 2017.
The three investigations launched on 14 June 2017 follow the Commission’s Final Report on its e-commerce sector inquiry. The Final Report, published on 10 May 2017, identified business practices that may restrict competition. As anticipated in our elexica article, further enforcement action was expected in the wake of the Final Report.
The three investigations are not the first to follow the conclusion of the e-commerce sector inquiry. On 6 June 2017, the Commission also launched an investigation into the designer fashion brand Guess. The Commission is expected to examine whether Guess illegally restricts authorised dealers from selling cross border to consumers or to other retailers within the EU Single Market. Guess is also suspected of restricting wholesalers from selling to retailers cross border in the EU.
In a statement on the Guess case, EU Competition Commissioner Margrethe Vestager said when launching the case that: "[t]he Commission has information indicating that Guess, in its distribution agreements, may ban cross border sales to consumers. One of the key benefits of the EU's Single Market is that consumers can shop around for a better deal. We are going to investigate Guess' practices further to ensure that it's playing by the rules and not preventing consumers from buying products across borders."
Generally speaking, companies are free to set up distribution systems in a manner that best serves them. However, companies must comply with EU competition rules, including permitting consumers to purchase from any retailer authorised by a manufacturer across borders and not banning online sales.
The new investigations concerning licensed merchandise
The three separate cases launched on 14 January 2017 focus on the licensing and distribution practices of Nike, Sanrio and Universal Studios in relation to their licensed merchandise. The companies being investigated own and license the rights to well-known brands including Barcelona Football Club’s merchandise (Nike), Hello Kitty (Sanrio) and the "Minion" and "Despicable Me" film and product brand (Universal Studios).
These licensed rights can only be used by manufacturers (the licensees) if they sign a licensing agreement with the owner of the relevant intellectual property right (in this context Nike, Sanrio and Universal Studios, which are all licensors of their respective rights for merchandising products). The Commission has said that it will investigate whether the companies have breached Article 101 TFEU, which prohibits anticompetitive agreements, by restricting the ability of licensees to sell the licensed merchandise cross border and online in the EU. Such restrictions are considered by the Commission to harm consumers by depriving them of the benefit of greater choice and lower prices, both online and offline.
Commentary and next steps
In February 2017, prior to the publication of the Final Report on the Commission’s e-commerce sector inquiry, the Commission opened three other investigations that related to the e-commerce sector and involved suspected breaches of Article 101 TFEU. Two of the investigations were opened on the Commission’s own initiative - one relating to consumer electronics and the other video games distribution - while the third was opened following customer complaints against operators in the hotel accommodation sector.
The three investigations started most recently by the Commission could help to clarify how agreements concerning licensed merchandising sit within the existing competition law regime and provide a useful roadmap for companies dealing with similar arrangements in the future. These investigations complement the e-commerce sector inquiry and the ongoing investigation into Guess; all of these cases are aimed at tackling licensing practices that could impede online and offline cross border trade in the EU. It is interesting to note that the Commission has opened four cases in just over a month after the publication of its Final Report and these cases all focus on the same broad range of issues, suggesting a targeted but significant enforcement push by the Commission.
The fact that the Commission has opened seven investigations in the e-commerce sector this year (in addition to the ongoing Pay TV case involving contractual restrictions between Sky UK and six major US film studios) signals the Commission’s increasing interest and continued focus on the sector. This increased enforcement action should serve to clarify the application of the competition rules (and in particular the rules relating to vertical agreements) to aspects of the e-commerce sector and the interplay between IP rights and competition law.
Given the Commission’s continued focus on the sector, companies active in the e-commerce sector should consider reviewing their current distribution agreements and models to ensure compliance with current competition law rules. We expect that the current competition rules relating to vertical agreements will not change prior to their expiration in 2022, but the outcome of these investigations may influence companies conduct going forward. We also anticipate that there may be further enforcement action by the Commission on the horizon. We will be keeping a close eye on developments.
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