Nike terminated an agreement with one of its distributors, the Italian company Action Sport, claiming that the latter did not adhere to Nike’s Selective Retailer Distribution Policy. In 2017, the District Court of Amsterdam decided that Nike’s action was lawful. Action Sport subsequently appealed the decision. The Amsterdam Court of Appeal has now also found that within its selective distribution system, Nike can indeed prohibit authorised resellers from selling Nike products through non-authorised (e-)resellers, such as Amazon.
The question which the court considers is whether the selective distribution system of Nike, more specifically the prohibition of sales through non-authorised e-resellers, is permitted under competition law. The court of appeal first reiterates the legal framework: vertical restraints, including in the context of selective distribution agreements, are exempted from the cartel prohibition under the Vertical Block Exemption Regulation (VBER) as long as the market shares of the relevant supplier and buyer do not exceed 30% and the vertical agreement does not contain any so-called hardcore restrictions.
According to Action Sport, the market share of Nike exceeds this threshold as a result of which its selective distribution system cannot benefit from the VBER. As Action Sport only claims in general terms that: “Nike is one of the biggest producers of sport shoes and clothing in the world, with a market share of more than 30% on any relevant market“, without further defining the market, the court of appeal cannot give any weight to this argument.
Nike’s selective distribution system does not contain a general internet or online platform prohibition. Resellers are allowed to sell through their own websites or those of authoriseed e-sellers (such as Zalando and Otto). The system does prohibit authorised resellers from selling Nike products through non-authorised resellers (like Amazon). According to Action Sport this is a null and void online platform restriction.
The court of appeal has a different view and quotes the European Coty case in this respect. In Coty the EU Court of Justice came to the conclusion that a provision restricting only a specific type of internet sales is not a hardcore restriction within the meaning of the VBER. According to the Amsterdam court of appeal such conclusion was not limited to the situation where the product can be qualified as a luxury products (as in the case of Coty). The court of appeal finds the reasoning in the Coty case applicable to the present case, where Action Sport claims that Nike products are not luxurious. According to the court of appeal the restriction of sales via a non-authorised (e-)reseller is (likewise) not a hardcore restriction. Since Action Sport had violated this provision for a long time, Nike could lawfully terminate the agreement with Action Sport.
Despite the fact that Nike’s termination of the agreement with Action Sport was considered to be lawful, Nike was ordered to pay damages to Action Sport. This was because the orders which Nike had accepted before terminating the contract constituted a separate contract on the basis of which Nike was obliged to deliver the goods. It failed to do so. Nike was ordered to compensate Action Sport for the resulting damage (loss of profit).
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We closely follow developments as concerns the application of competition law to vertical agreements. We are the Dutch national expert for Lexology’s Getting The Deal Through guide for Vertical Agreements. Our extensive publication on how to take competition law into account in your commercial (distribution) agreements is available here. Please do not hesitate to contact us if you have any further questions and/or inquiries about certain agreements.
