Is this a monopoly? Sailing through IP and competition law

Today we talk about IP, antitrust and sailing. Which is a great occasion to escape the files on your desk and envision yourself enjoying warm winds on emerald water.

Sailing, besides being a wonderful way to stay in touch with nature, is an Olympic discipline sailed on different types of boats: at the moment, the official “Olympic Classes” are Laser, Laser Radial, 49er, 49erFX, RS:X, Nacra 17, 470 and Finn. Olympic Classes are selected by World Sailing, the governing body of this sport, and they are subject (in theory) to periodic review. As a consequence, over the years even glorious boats like Star – which has been part of the Olympic program since its initial editions – have been replaced by fancier and foiling ones.

Exclusive supply of the equipment

Let’s go downwind to the IP and antitrust part now. It has been common practice for many decades for World Sailing, after choosing a new Class for an Olympic event, to enter into contracts with the relevant “Class Association” and its associated manufacturers in order to regulate aspects like production quality, prices of the boats, produced quantities and other relevant economic factors. Since each Class Association and its associated manufacturers usually are the sole owners of the IP rights required to manufacture the boats (design rights, copyright on the handbooks, trademarks, patents, etc), these agreements are likely to result in the grant to the Class Association and their manufacturers of an exclusive right to supply equipment for a given event. Therefore, third parties which are willing to manufacture the same equipment cannot do so unless they obtain a trademark license, which in practice rarely occur. Today, this scenario appears true for all the Olympic classes except for 470 and Finn, where a wide range of builders are available across the world.

Antitrust complaint

In view of this situation, some boat manufacturers are going to file an antitrust complaint to convince the European Commission that the exclusive agreements between World Sailing and the relevant Class Association exclude third parties manufacturers from the market for the production and supply of each Olympic Class. In particular, the complainants argue that World Sailing might have easily solved the issue by imposing to each Class Association an obligation to license to third parties its IP rights at fair, reasonable and non-discriminatory terms, but that it was not willing to do so.

World Sailing’s response

As a response to the complaints, World Sailing adopted last November new antitrust guidelines for the selection process of Olympic Classes. In this document, World Sailing acknowledged in the first place that sports federation are subject to competition law and did not exclude to be in a dominant position in light of its power to make the rules governing Olympic and World Sailing events. However, World Sailing argued that manufacturers need a sufficient period of time to justify the financial investment required to supply the equipment. As a consequence, World Sailing introduced a new rule according to which Equipment selected for each Olympic Event shall be subject to re-evaluation at least every eight years, and placed RSX and Laser under review. These two Classes were originally selected for the Olympics respectively in 2004 and 1992 and have maintained their status since then with one sole manufacturer per Class having the necessary intellectual property rights to produce the equipment. The review process will end in November 2018.

Some initial remarks

In light of the above, some initial remarks can be offered.

First, is it correct to define the relevant market in the present case as the market for the production and supply of each Olympic Class (i.e.: Laser)? Although it might be true that Sunfish is not a substitute for Lasers if we place Olympic athletes on the demand sides, probably the two boats are perfect substitutes for the general public.

Second, in the recent decision on the International Skating Union (ISU) case, the European Commission stated that sporting rules are compatible with EU law if they pursue a legitimate objective and if the restrictions that they create are inherent and proportionate to reaching this objective. In this regard, it should be assessed whether World Sailing effectively ensured enough competition for the market over the years by periodically placing each Class under review, undertaking an evaluation based on sporting performance, financial and safety criteria and arranging open, fair and non-discriminatory tender processes.

Third, World Sailing has also envisioned the possibility that all commercial parties involved in the production and supply of Olympic equipment could be required, as a blanket condition of participating in this market, to surrender their commercial and intellectual property rights to World Sailing (which could then allow any other parties to access the market). However, World Sailing concluded that this policy could be challenged by the trademark owners under competition law as an abuse of dominant position. For this reason, World Sailing restricted the possibility to impose an obligation to license the trademark at fair, reasonable and non-discriminatory terms only in presence of a contractual breach by the Class Association.

On this last issue, it is worthy to note that the imposition by an organisation to its members of an obligation to license their IP assets at fair, reasonable and non-discriminatory terms is routine in the context of standard-setting organisations in relation to standard-essential patents which confer to their owners significant market power. However, it is to be determined whether the two situations are really comparable, especially in light of the definition of the relevant market.

Furthermore, another issue to be addressed is whether IP-owners in this case can refuse to license their rights under competition law.

All in all, in light of the focus put by the European Commission on the competitive dynamics behind the sport industry, it is to be expected that the Commission will be eager to look more in depth into the sailing industry.

The pros of “one-design” dinghies

In conclusion, I will take-off my antitrust lawyer’s shoes for a minute, since I have to admit that as a competitor at Laser events for many years, what I love more of Laser is its “one-design” nature. Same equipment for all, the best wins. No different technical solutions coming from competing manufacturers that might prevail over helmsman’s talent. Sailing on one-design dinghies is definitely awesome from an agonistic perspective, and the “fun” aspect might in some way be a factor to be kept in due account also in a competition law analysis. Having said that, it is also true that exclusive agreements between an allegedly dominant entity (World Sailing) and manufacturers which have IP rights to exclude third parties from the relevant market may raise concerns in absence of transparent mechanism that guarantee enough competition for the market.

We look forward to digging more in depth into this case once more information will be available.

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