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Just don’t do it - Nike fined for imposing anti-competitive restrictions on cross-border sales of football team merchandise

Posted: 23/05/2019

In the last few weeks, professional football clubs across Europe have begun to unveil the attire in which they will do battle with each other on the pitch next season. Simultaneously, the European Commission has settled its own scores with the maker of many of those kits, Nike, off the pitch, in the global arena of competition law compliance. On 25 March 2019, the Commission concluded its year-and-a-half long investigation into allegations that certain of Nike’s commercial practices constituted the anti-competitive practice of ‘geo-blocking’. The investigation has resulted in a €12.5 million fine for Nike.

Whilst many antitrust cases turn on technicalities and specifics of particular industries and markets, this case has relevance beyond the European football fan, potentially affecting anyone doing business in multiple European markets.

Many football fans who buy replica kits and club merchandise do so having seen their sporting heroes wearing or using attire and equipment produced by a sportswear manufacturer such as Nike. These organisations license their intellectual property rights (such as logos, crests, etc) to Nike to enable it not only to produce the goods the professional football team requires, but also to allow it to manufacture replica goods and memorabilia to market to fans. Whilst Nike produces many of these goods itself, it licenses the organisations’ intellectual property (but not its own, ie the well-known ‘swoosh’ logo) to others to produce goods which fall outside of its core sporting goods business area. Examples of such goods include branded mugs, bedsheets, stationery, and toys. When licensing the organisations’ intellectual property to these third parties, Nike essentially acts as a licensor on behalf of the professional sporting organisations.

The Commission found that when conducting this licensing activity, Nike took steps to prevent licensees from selling the goods they manufactured online and across European Economic Area borders. Nike achieved this through direct measures including employing clauses in licensing agreements restricting out-of-territory sales; requiring that enquiries relating to out-of-territory sales be referred to Nike; and imposing what amounted to punitive royalty terms for any sales that were made out-of-territory.

Nike also implemented indirect measures to control licensees’ activities, such as using intermediary licensees at territory level to discourage out of territory sales; and threatening to withhold contracts / goods if goods were sold out-of-territory. Nike often required its licensees to ensure that any retailers and suppliers with whom they worked adhered to identical requirements.  

The global licensed sports merchandise market is worth an estimated £21 billion. It thus represents a lucrative opportunity for the companies participating in it. It may therefore seem surprising that a major player such as Nike should fall foul of the regulations. That the offending conduct took place between 2004 and 2017, when e-commerce began to grow to maturity in Europe, might be a clue as to how and why the default occurred.

The conduct related to a number of well-known European football clubs, including FC Barcelona, Manchester United Football Club, Juventus Football Club, Internazionale Milano and AS Roma, as well as the organisations which control national teams, such as the French Football Federation.

Nike’s actions infringed Article 101 of the Treaty of the Functioning of the European Union, which prohibits certain ‘agreements…decisions…and concerted practices which may affect trade between member states and which have as their object or effect the prevention, restriction or distortion of competition within the internal market’ (examples of which are specified in the statute).

On sentencing, the Commission held that as Nike had co-operated with it so that the investigation could be expanded to include more conduct than was originally envisaged (amongst other co-operative measures), its sentence should be reduced by 40%. Nevertheless, Nike’s fine still amounted to a substantial €12,555,000. 

Whilst the United Kingdom’s expected exit from the European Union may alter the applicability of European Union law to British companies, it is important to remember that ‘pre-Brexit’ case law will still constitute good authority, and that the rules engaged in the Nike case will still apply to British companies wishing to sell into multiple European Economic Area markets.

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Penningtons Manches Cooper LLP