Brand owners cannot use intellectual property rights to restrict cross-border sales of goods in the EU

The European rules on vertical restrictions are strongly influenced by the EU’s goal of creating a single market, also for Intellectual Property (‘IP’) protected products.

Following its e-commerce sector inquiry, the EC started a number of investigations into non-exclusive distribution agreements of IP protected merchandise products. The fruitful investigations led to the adoption of three interesting decisions in this field in less than one year.

On 25 March 2019, Nike was fined €12.5 million in the context of its role as licensor for the manufacture and distribution of licensed merchandise products. The products included FC Barcelona and Manchester United football clubs branded merchandise. On 9 July 2019, Sanrio was fined €6.2 million for similar practices. This time, the restrictions affected merchandise featuring popular characters such as Hello Kitty.  Earlier this year, the Commission similarly found that NBCUniversal's non-exclusive licensing agreements concerning, inter alia, "the Minions" and "Jurassic World" merchandise also breached Article 101 TFEU (see also here). 

The restrictions found by the EC in all three cases followed a similar pattern:

  • Direct restrictions on out-of-territory sales. Direct measures included explicit restrictive clauses in the agreements, obligations to refer orders for out-of-territory sales to the licensor, limitations to the languages used on the merchandise products (Sanrio and NBCUniversal), obligations to pay additional revenues or royalties generated from out-of-territory sales and to pass on sales restrictions to licensees' customers (NBCUniversal and Nike); and restriction of sales beyond designated customers.
  • Indirect measures aimed at supervising distribution and enforcing compliance with the territorial restriction. Indirect measures included audits, the non-renewal of contracts and/or the refusal to supply the security label "official product" if the licensees were engaging in out-of-territory sales.

The territorial restrictions applied to passive, active and online out-of-territory sales and were implemented through contractual and non-contractual means.

These decisions make clear that the Commission remains vigilant as to the use of IPRs as a vehicle to introduce unjustified territorial restrictions on the distribution of branded merchandise, in both the offline and the online world.

For more information contact: José Rivas and Ana Manzaneque

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