The European Commission recently imposed a EUR 6.2 million fine on Hello Kitty owner Sanrio for preventing its licensees from selling licensed merchandising products across the entire EEA. Sanrio is the second licensor (after Nike) to be fined for imposing territorial sales restrictions on its non-exclusive licensees for licensed merchandise. A third investigation into allegedly similar practices by Universal Studios is ongoing. The case confirms the Commission's determination to tackle these practices, regardless of type or form.
This should represent a clear call for companies to double-check their distribution and licensing agreements for cross-border sales restrictions, and take any necessary action.
According to the Commission's press release, Sanrio's non-exclusive licensing agreements infringed EU competition rules by containing clauses i) explicitly prohibiting out-of-territory sales by licensees, ii) committing licensees to refer orders for out-of-territory sales to Sanrio, and iii) limiting the languages used on the merchandising products. Sanrio kept tabs on the licensees' compliance with these territorial restrictions, and made clear the consequences of non-compliance, by conducting audits and refusing to renew contracts with non-abiding licensees. In line with the Commission's practice rewarding cooperation outside cartel cases [see our January 2018 Newsletter], Sanrio obtained a 40% fine reduction for having cooperated beyond its legal obligation to do so.
The fine on Sanrio fits into the Commission's increased focus on vertical restraints, initiated by its 2017 e-commerce sector report [see our June 2017 Newsletter]. Fines have already been imposed for (online and offline) resale price maintenance and territorial restrictions. National competition authorities, such as the Dutch ACM, the French Autorité de la Concurrence and the German Bundeskartellamt, are also stepping up the pace in the quest against vertical restrictions.
The review of the Vertical Block Exemption Regulation (VBER), due to expire in 2022, could therefore not have come at a better time. Not only is a uniform approach on how to enforce vertical restrictions among EU competition authorities long overdue, more guidance and clarity would also benefit companies when concluding vertical agreements. According to the evaluation roadmap, the VBER's review should be ready by the second quarter of next year. It will therefore soon be clearer whether good things indeed come to those who wait.
This article was published in the Competition Newsletter of August 2019.