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Exclusive sponsorship contract not in violation of competition law

Exclusive sponsorship contract not in violation of competition law

Ever since the Dutch Badminton Association (NBB) concluded an exclusive sponsorship contract with Yonex for a substantial sum of money, a heated competition-law battle has been raging between the NBB on the one hand and Dunlop and a number of badminton professionals who are sponsored by Dunlop on the other (Dunlop et al.). Dunlop et al. believe that the contract restricts the competition between Dunlop and Yonex (and is therefore in violation of the prohibition of cartels). The District Court of Utrecht already found in preliminary relief proceedings that it cannot be assumed that the exclusive sponsorship contract constitutes any violation of the prohibition of cartels. Although the District Court of Utrecht pronounced a decision to the same effect on 30 November 2011, the NBB does not emerge unscathed from the battle since it induced badminton professionals to act wrongfully.

The sponsorship contract
Based on the exclusive sponsorship contract with Yonex, the NBB prohibits players on the national team from using any clothing or rackets bearing sponsorship messages (such as logos) from brands other than Yonex during international tournaments. Dunlop takes the position that this contract results in a conflict with the prohibition of cartels and is therefore void. According to Dunlop, the sponsorship contract has the aim and/or result of restricting competition on the relevant market (thus violating the prohibition of cartels) since as a result of this contract, Dunlop itself has no serious possibilities for promoting its brand.

Does the sponsorship contract aim to restrict competition?
The District Court of Utrecht ruled firstly that the contract does not have the aim of restricting competition. The District Court of Utrecht then concludes that exclusive promotional possibilities in and of themselves are not in violation of the prohibition of cartels. The District Court of Utrecht said this could only be otherwise if the other market parties were not left any serious promotional possibilities as a result of the contract. The District Court of Utrecht said that was not the case here, since in addition to international tournaments there are a great many other competitions in which players can participate using rackets bearing logos other than that of Yonex.

Does the sponsorship contract result in restricting competition?
The District Court of Utrecht then rejected the assertion from Dunlop et al. that the exclusive sponsorship contract results in competition on the relevant market being restricted. In order to determine any restrictive effect the contract may have on competition, a detailed economic analysis is required, for which strict requirements are stipulated. First the relevant market must be determined and then the effects of the contract on that market will have to be charted out. Since Dunlop et al. have in no way demonstrated the alleged negative effects of the contract on competition, the District Court of Utrecht also rejected the assertion from Dunlop et al. that the contract has the result of restricting competition.

Wrongful act by the NBB
Although the District Court of Utrecht disregards the competition-law assertions of Dunlop et al., the NBB does not emerge from the battle unscathed. At the moment that the NBB concluded the exclusive sponsorship contract with Yonex, a number of badminton players from the national team already had individual sponsorship contracts (with brands other than Yonex). The NBB exerted a great deal of pressure on the players with individual sponsorship contracts to opt for Yonex despite their individual contractual obligations. If the particular players did not choose Yonex, this could result in their no longer being eligible for the national team, for instance. On top of this, the NBB would no longer reimburse these players’ travel and accommodation expenses.

By exerting this pressure, the NBB actively induced those players with individual sponsorship contracts to breach their individual contracts. In doing so, the NBB acted wrongfully both towards the players with individual sponsorship contracts and their respective sponsors. The NBB must compensate the damage that arose as result of this.

Conclusion
It must be concluded that exclusive sponsorship contracts do not in general have the aim of restricting competition. This conclusion is understandable since without exclusivity, there would be virtually no incentive for sponsorship.
A survey among national competition authorities by the Organisation for Economic Cooperation and Development, for instance, indicated that a competition-law effect can only occur (but does not necessarily occur) in the event of (a system of) special circumstances. This could include, for instance:

– an extremely long duration of the exclusive contract, as a result of which there can be no competition for the exclusive right;
– the scope of the contract (can the bound players or teams be sponsored by a competitor at other events); and
– the possibilities of promoting competing products via other channels and/or sponsorship contracts (in addition to the exclusively bound players or teams, are there other events or players than the exclusively bound players available for sponsoring#).

Sjaak van der Heul

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