ECJ dismisses appeal against Nintendo distribution agreements judgment

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.