European Union: Dutch Court Renders Judgment On Legality Of Nike's Platform Sales Restrictions

On 4 October 2017, the District Court of Amsterdam (the "Court") rendered a judgment in a case brought by Nike European Operations Netherlands B.V. ("NEON") against Action Sport SOC. COOP, A.R.L. ("Action Sport"), an Italian retailer of Nike's sportswear, footwear and related products.

The facts of the case were that Action Sport, a member of NEON's selective distribution system in Europe, had offered Nike products on Amazon, contrary to NEON's Selective Retailer Distribution Policy (the "Policy"), which only permitted a NEON authorized retailer to display Nike products for sale online either on its own webstore or on a webstore of another NEON authorized retailer. While NEON had appointed e-tailers/platforms such as Zalando, La Redoute and Otto as authorized retailers, Amazon was not a NEON authorized retailer. As a result, NEON requested Action Sport to cease sales on Amazon and, when the company failed to comply with the request, NEON terminated its agreement with Action Sport. Grounded on Action Sport's failure to comply with the Policy, NEON requested a declaratory judgment to confirm the legal validity of the termination of the agreement with Action Sport, and that Action Sport was not entitled to damages. In defence, Action Sport, inter alia, claimed that the Policy was null and void because it violated competition law.

Having confirmed that the Policy established a selective distribution system within the meaning of EU competition law, the Court stated that it needed to consider whether the Policy complied with Article 101(1) TFEU and, if not, whether it was exempted under the Vertical Agreements Block Exemption Regulation ("VABER").  

The Court found that the Policy met the requirements stipulated in the European Court of Justice's ("ECJ") case-law concerning the application of Article 101(1) for the following reasons.

First, it considered that the conditions set by NEON were objective criteria of a qualitative nature relating to the technical qualifications of the distributor, his staff and the suitability of his trading premises, and were not applied in a discriminatory manner.

Second, the Court considered that the selective distribution system was necessary in the light of the nature of the products. It noted that, in line with the ECJ's case law, the characteristics and nature of luxury goods may require the implementation of a selective distribution system. In this respect, the Court concluded that Nike products must be regarded as luxury products and that the Policy was implemented for the purpose of preserving Nike's brand image.

Third, the Court considered that the specific restriction in the Policy which prohibited distributors from offering the products via a non-authorized web shop was justified to preserve the luxury image of the products. In this regard, the Court considered Advocate General ("AG") Wahl's recent Opinion in the Coty case where AG Wahl, inter alia, found that a platform sales prohibition could be an appropriate means to ensure that the objectives of a selective distribution system are met since compliance with the qualitative criteria of the system can only be effectively ensured where the internet sales environment is devised by an authorised distributor, who is contractually linked with the supplier (see VBB on Competition Law, Volume 2017, No. 8, available at www.vbb.com). The Court found the Opinion convincing and saw no reason to defer deciding the case until the ECJ rendered its final judgment. The Court further noted that the case at issue differed from the facts in Coty because NEON had admitted a number of platforms to the selective distribution system and, under the Policy, distributors were permitted to sell through those platforms.

With respect to the prohibition on offering products on third party platforms, the Court additionally considered Action Sport's arguments that NEON had failed to reason why Amazon did not meet the Policy's qualitative criteria. The Court dealt with this briefly, merely stating that Amazon was not an authorized retailer and that, accordingly, NEON would have no means to enforce its selective distribution system against Amazon. The Court added that, if Amazon met the qualitative criteria and were to request admission to the selective distribution system, NEON would be obliged to accept Amazon as a member. In making this claim, it should be noted that the Court seems to have been applying the conditions required for a selective distribution system to escape Article 101(1). However, despite recognising earlier in the judgment that systems that do not meet these requirements may be exempted by the VABER, it did not consider whether the VABER would oblige NEON to appoint Amazon in these circumstances. In this respect, it is noteworthy that the VABER enables a supplier to operate a quantitative selective distribution system and to exclude candidates regardless of whether they meet the system's qualitative criteria.

The Court finally concluded that by offering Nike products via Amazon, Action Sport failed to comply with the obligations under the Agreement, giving NEON the right to terminate the contract.

While the validity of selective distribution systems which prohibit distributors from selling via third party platforms will only be definitively decided when the ECJ renders its judgment in Coty (Case C‑230/16), the case is a further positive outcome for manufacturers of luxury and prestige products which operate selective distribution systems restricting sales through third party platforms that are not a member of the system.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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