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Restriction of Parallel Imports and a Strategic Procedural Argument Worth EUR30 Million: The CFI's Nintendo Judgment

July 1, 2009

Following on from OMM’s recent Antitrust/Competition Alert on Heightened Antitrust Risk in the EU: Restriction of Parallel Imports,’ the judgment on April 30, 2009 from the Court of First Instance essentially upholds the Commission's decision against Nintendo and its distributors for infringement of Article 81, although reduces two of the fines imposed.

The Court of First Instance’s judgment on the Commission’s Nintendo decision (and other related cases) was released on April 30, following appeals by Nintendo (Nintendo Co. Ltd and Nintendo of Europe GmbH) and two of Nintendo’s exclusive distributors (CD-Contact Data GmbH and Itochu Corp.).

The Commission imposed substantial fines on Nintendo and some of its exclusive distributors amounting to EUR 167.843 million in 2002 for having participated in a complex series of agreements and concerted practices in the markets for Nintendo consoles and cartridge games in Europe. In accordance with the agreements, each distributor was required to prevent parallel trade originating from its territory. Nintendo required that its exclusive distributors closely collaborated in order to identify the origin of any parallel trade and any operator found to breach such rules would be punished via a reduction of their supply or a total boycott by Nintendo. This meant that Nintendo consoles and cartridge games were materially more expensive in certain Member States, such as Germany, in comparison to others, such as the UK.

The Court’s judgment clearly upholds the Commission’s infringement decision against Nintendo and its distributors for infringement of Article 81. In its CD-Contact Data decision, the Court states that the Commission did not err in finding that the distributor had 'participated in an agreement having as its object the limitation of parallel trade’. In doing so, the Court dismisses CD-Contact Data’s arguments that it had never concluded or participated in any agreement designed to hinder parallel trade. Such a conclusion is based on the existence of certain correspondence between CD-Contact Data and Nintendo, which was stated by the Commission to illustrate a system of practical collaboration and information exchange on parallel trade, and is further described by the Court as having an object to ‘denounce parallel imports’.

The Court upheld the Commission’s increase of Nintendo’s initial fine including increases by a multiplier of three for deterrence, 25% for the continuation of the infringement and of 60% for the duration of the infringement. Nevertheless, it is notable that the Court ultimately reduced Nintendo’s total fine from EUR 149.128 million to EUR 119.2425 million on the basis of some well-placed strategic procedural arguments relating to equal treatment.

While other similar arguments failed in relation to other points, the Court upheld Nintendo’s argument that it had co-operated with the Commission to an extent which was largely comparable with that of the UK distributor John Menzies. While John Menzies was able to benefit from a 40% reduction on its fine, the Commission had only awarded Nintendo a 25% reduction on its fine. The Court increased Nintendo’s reduction to 40% on the conclusion that both undertakings produced the same relevant documents at the same time in the procedure. CD-Contact Data was also awarded an increase in the Commission’s reduction on its fine (amounting to EUR 500,000), again on the basis of equal treatment. This was in relation to the passive role CD-Contact Data had played in the overall infringement, which was comparable to that of another exclusive distributor party to the agreement who had been awarded a higher reduction by the Commission.

Conversely, the third appellant Itochu had its arguments on equal treatment rejected in their entirety and the Court upheld the Commission’s fine of EUR 4.5 million against the company. The Court held that the appellant could not argue that only a passive role was played in the infringement, since its subsidiary had actually concluded a distribution agreement with Nintendo containing clauses explicitly restricting parallel trade.

In relation to Itochu’s argument that it could not be held responsible for an infringement committed by its subsidiary, the Court referred to the Court of Justice’s well-established precedent in Case C-286/98 P Stora Koppabergs Bergslags v Commission. The Court reiterated that Itochu must be able to adduce sufficient evidence to rebut the presumption that it exercised decisive influence over the conduct of its subsidiary, which it concluded that it had not. The Court further clarified that there is no requirement to prove that the parent company was directly involved in, or was aware of the offending conduct, as they constitute a single undertaking for the purposes of Article 81.