On 10 February 2011, the European Court of Justice
("ECJ") rejected an appeal brought by Activision Blizzard
Germany (formerly CD-Contract Data) ("Activision
Blizzard") against a judgment of the General Court in a
longstanding case concerning an agreement between Nintendo and its
EU distributors to limit parallel exports. This agreement had been
found to infringe the prohibition of anti-competitive agreements at
Article 101 of the Treaty on the Functioning of the European
Union.
The case dates back to 1991, when Nintendo entered into agreements
with seven of its distribution companies, including Activision
Blizzard, which the European Commission ("Commission")
decided had the object and effect of restricting parallel exports
of Nintendo products. Each distribution company was allocated an EU
Member State in which to distribute its products. Nintendo
encouraged the distribution companies to prevent parallel trade
through controls on their retail and wholesale customers. It was
found that the companies collaborated to find the source of any
parallel trade and penalised those involved by giving them smaller
shipments or boycotting them altogether. Consequently, consumers in
Member States where Nintendo products were expensive could not take
advantage of cheaper parallel-imported products.
The Commission's decision was published in 2002. A total fine
of €167.8 million was imposed on the parties, of which
€149.128 million was imposed on Nintendo, and Activision
Blizzard was fined €1 million. Both Nintendo and
Activision Blizzard appealed to what is now the General
Court.
In April 2009, the General Court dismissed both appeals. However,
the fine imposed on Nintendo was reduced to take into account
Nintendo's cooperation in the Commission's inquiry. The
General Court also reduced Activision Blizzard's fine to
€500,000 due to its passive role in the infringement.
Nevertheless, Activision Blizzard appealed to the ECJ, which
dismissed each of Activision Blizzard's three grounds of appeal
as unfounded and upheld the reduced fine imposed on Activision
Blizzard.
On paper Nintendo's EU national distribution agreements were
compliant in banning active sales. However, the conduct of Nintendo
and the distribution companies told an altogether different story.
The agreements were an "illegal system" with the clear
object of restricting parallel exports. There was evidence that
extra-territorial sales (both active and passive) by all the
distributors were routinely monitored and challenged. Indeed the
distributors collaborated to find the source of any parallel trade
and where such activity was found it was punished through
unfavourable terms or a boycott of the company.
Both the Commission and the General Court concluded that commercial
correspondence (in the form of faxes and other documents)
represented evidence of an agreement between Nintendo and the
distributors to limit parallel exports.
The Commission codified its rules on distribution agreements in
the 2000 vertical agreements block exemption, which it revised in
2010. The Nintendo case serves as a timely reminder of two
points:
- that evidence of an anti-competitive agreement can be found in underlying commercial arrangements (which may contradict a written contract); and
- that conduct prohibited by the verticals block exemption regime (here, the monitoring and punishment of parallel imports) is still potentially subject to severe financial penalties.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 14/02/2011.