Commission fines Nintendo and seven of its European distributors for colluding to prevent trade in low-priced products

Brussels, 30 October 2002: The European Commission has imposed a total fine of €167.8 million on Japanese video games maker Nintendo and seven of its official distributors in Europe for colluding to prevent exports to high-priced from low-priced countries. The fine on Nintendo alone was calculated at €149 million to reflect its size in the market concerned, the fact that it was the driving force behind the illicit behaviour and also because it continued with the infringement even after it knew the investigation was going on. Prices for play consoles and games differed widely from one European Union country to another during the period investigated by the Commission, with the United Kingdom up to 65 percent cheaper than Germany and the Netherlands. "Every year, millions of European families spend large amounts of money on video games. They have the right to buy the games and consoles at the lowest price the market can possibly offer and we will not tolerate collusive behaviour intended to keep prices artificially high," European Competition Commissioner Mario Monti said.

The decision concerns Nintendo and seven distributors of Nintendo products, namely John Menzies plc (Nintendo's distributor for the United Kingdom), Concentra - Produtos para crianças S.A. (Portugal), Linea GIG. S.p.A. (Italy), Bergsala AB (Sweden), the Greek unit of Japan's Itochu Corp, Nortec A.E. (Greece), and the Belgian unit of Germany's CD-Contact Data GmbH.

The Commission has collected evidence showing that Nintendo and its distributors colluded to maintain artificially high price differences in the EU between January 1991 and 1998. According to the arrangements, each distributor was under the obligation to prevent parallel trade from its territory, i.e. exports from one country to another via unofficial distribution channels. Under the leadership of Nintendo, the companies intensively collaborated to find the source of any parallel trade. Traders that allowed parallel exports to occur were punished by being given smaller shipments or by being boycotted altogether.

UK by far the cheapest country

The investigation showed that during the seven-year period price differences in the European Economic Area (EEA) EU plus Norway, Iceland and Liechtenstein - were frequent and significant. The UK usually had the lowest prices by far, which understandably tempted traders into re-exporting cheap goods to high-price countries.

The most striking price differences were observed in early 1996, when certain Nintendo products were up to 65% cheaper in the UK when compared with the Netherlands and Germany. They were also more affordable than in Spain (up to 67% more expensive than the UK), Italy (54%) and Sweden (39%). The difference narrowed but remained significant in 1997, when the UK price for all N64 game consoles and game cartridges was 33% lower (in October) than everywhere else in the EEA.

A Memo written by John Menzies for Nintendo on 11 April 1996 which was volontarily submitted to the Commission outlined the strategy and steps to maintain the huge price differences: "I fully understand the difficulty that this differential pricing creates for other mainland European countries where the market can clearly stand a much higher price than that which the market can stand here in the UK. [...] I am sure that we can, by working closely together, better control the situation on grey imports and find a much better way of isolating our products and our prices to within the shores of the UK, thus reducing the impact that this differential pricing has upon mainland Europe"

Subsequently, John Menzies took action as a letter obtained via a formal request for information to Nintendo explained: "I can tell you that a significant amount of activity has been undertaken by THE (John Menzies's subsidiary called THE Games Ltd) since January/February this year [1996] with a view to stopping the grey exporting of products from the UK into the continental European market. Our major activities in this regard have been to either shut off supplies completely or to really control/restrict the supply of product into the UK market place, to certain questionable retailers.[...]

It should be noted that, before this happened, John Menzies itself had been boycotted by Nintendo to force it to collaborate better with the infringement.

As a result of the illicit behaviour of Nintendo and its official distributors, families on continental Europe had to put up with high prices. To measure the harm caused to consumers it is sufficient to note that Nintendo sold five million game consoles and 12 million games in Europe in 1997 alone.

Article 81 of the EU treaty specifically prohibits agreements and concerted practices "which may affect trade between Member States and which may have as their object or effect the prevention, restriction or distortion of competition within the (EU's) common market".

Restrictions of parallel trade represent a very serious infringement of Article 81 as confirmed by the European Courts as early as 1966 in the landmark Grundig-Consten case(1) and, more recently, in the 1998 Volkswagen decision(2).

The seriousness of the infringement and the harm caused to end-consumers led the Commission to impose a total fine of €167.843 million, i.e. the fifth largest ever imposed for any anti-trust infringement. It is also by far the largest fine ever imposed for a so-called vertical infringement i.e., in this case, between a producer and its distributors as opposed to a horizontal cartel between manufacturers of the same product. The fine on Nintendo is also the fourth largest ever imposed on an individual firm for a single infringement.

Individual fines

Following is a breakdown of the fines per company (all figures expressed in million EUR):

* Nintendo Corporation and Nintendo of Europe GmbH (jointly liable): 149.128

* John Menzies plc: 8.64

* Concentra - Produtos para crianças S.A.: 0.825

* Linea GIG. S.p.A.: 1.5

* Bergsala AB: 1.25

* Itochu Corporation: 4.5

* Nortec A.E.: 1.0

* CD-Contact Data GmbH: 1.0

The amounts reflect the real impact of the offending conduct of each firm on competition as well as their different size to ensure a sufficient deterrent effect. Nintendo, John Menzies and Itochu are much bigger than the others.

Nintendo was the instigator and the leader of the infringement and carried on with the illicit behaviour even after the Commission had started its investigation as did John Menzies. This constitutes an aggravating circumstance. The latter also tried to mislead the Commission with regard to the real scope of the infringement in mid-1997. These aggravating factors were duly balanced with the fact that, after December 1997, John Menzies and Nintendo co-operated with the Commission. Similarly, in setting the final fine on Nintendo, the Commission also took into consideration its decision to offer substantial financial compensation to third parties, which suffered material harm. Nintendo and John Menzies were, nevertheless, granted large reductions, which stresses the importance the Commission attaches to co-operation by companies that have infringed EC competition law even if this was not through participation in a 'classic' horizontal cartel(3).

The small fine on Concentra reflects its passive role in the illicit agreement.