Goodbye Kitty – Sanrio fined over €6.2 million for breaches of competition law

The European Commission has fined Sanrio – the owner of "Hello Kitty" – €6,222,000 for breaches of competition law. Background

Sanrio is a Japanese company which designs, licenses, produces and sells products which feature characters that it owns such as "Hello Kitty".

In June 2017, the Commission opened three separate antitrust investigations in relation to the practices of Sanrio, Nike and Universal Studios.

The investigation concerned Sanrio's merchandise licensing agreements. Through a licensing agreement, the licensor grants the licensee the right to use one or more of its intellectual property rights in a product.

The Commission's investigation has found that Sanrio's non-exclusive licensing agreements for merchandised products infringed Article 101 of the Treaty of the Functioning of the European Union.

The Illegal Activity

The Commission found that Sanrio imposed direct measures which restricted out-of-territory sales by licensees and also implemented indirect measures to encourage compliance with these out-of-territory restrictions. To list a few examples, according to the Commission, Sanrio:

• included clauses in its licence agreements which expressly prohibited out-of-territory sales;
• limited the languages used on merchandising products; and
• refused to renew contracts where licensees did not respect out-of-territory restrictions.

The illegal activity continued for approximately 11 years – from 1 January 2008 until 21 December 2018.

Comment

As listed in the illegal activity above, the restrictions on the use of multi-lingual packaging are a restriction on out-of-territory sales. However, this decision provides little guidance on whether limiting the languages used on merchandising products on the grounds of editorial or other practical considerations would be permitted. It is arguable that as long as not used directly or indirectly as a means to restrict licensees' cross-border sales, it would be possible to exercise some control over labelling to ensure that a consistent branding approach is adopted by licensees when producing products that are to be sold outside their language territory. 

The Commission granted Sanrio a 40% fine reduction in return for cooperation with its investigation. Despite the hefty fines in these types of cases, this sort of reduction is typical for the Commission where there has been cooperation. For example, due to its extensive assistance with the Commission's investigation, Guess was granted a reduction of fine of 50% last year. This demonstrates the Commission's willingness to grant attractive rewards for cooperation.

Nevertheless, as commented in relation to Nike's €12.5 million fine by the Commission last year, the Commission is clearly continuing to investigate and take a strong approach to vertical agreements in relation to the online and offline sales of licensed merchandise. It is therefore necessary to ensure that you are compliant.