The French Competition Authority (“FCA”) is expected to issue a decision shortly on practices implemented by at least four major French companies in the distribution of consumer products to certain overseas departments and territories of France, including Guadeloupe, French Guiana, Martinique, and Saint Martin (the “Territories”).
In the Territories, most consumer products are manufactured by French companies based in Continental France, and are then imported and distributed by intermediaries - wholesale importers or designated agents - with a price hike of up to 50% compared to what is charged for the same products in Continental France.
In most cases, it was found that most if not all of the products of the same brand were imported from Continental France to the Territories by a single wholesale importer, often benefiting from de facto or contractual exclusivity to distribute the products in a particular territory. This situation was found likely to have the effect of raising prices and restricting competition in the Territories.
Furthermore, since 2013, exclusive supply agreements in the Territories are prohibited by law, in all sectors of the economy. These provisions laid out in Article L420-2-1 of the French Commercial Code are purposely designed to reduce the cost of living in the Territories.
The FCA, which had already objected to this anti-competitive framework in a 2009 opinion (opinion n° 09 A 45), later decided to formally investigate these practices on its own initiative in 2010 and in 2014 (decisions n° 10-SO-01 of 29 January 2010 and n° 14-SO-06 of 14 October 2014).
In this context, in May 2015, the FCA received a series of commitments from the four companies as part of the FCA’s so-called “commitment procedure” (“procédure d’engagements”). This procedure, laid out in the French Commercial Code, enables a company under investigation to commit to put an end to abusive practices in order to avoid or alleviate a finding of liability and the corresponding fines and penalties, by issuing a series of proposed undertakings.
It is worth noting that although commitment procedures are often used by the FCA with respect to practices having the effect of restricting market access, this case is rather exceptional as it relates to exclusive supply agreements which are expressly prohibited by law.
The FCA accepted to evaluate the potential effectiveness of the proposed commitments by conducting so-called “market tests” through the consultation of market operators, who in this instance may submit observations by 15 June 2015, based on the commitments of each company, as published on the FCA’s website.
Although each of the above referenced companies proposed different commitments, the propositions all have the following in common:
- The removal of all exclusivity clauses in existing agreements;
- The drafting of new agreements, without exclusivity provisions, for future partnerships;
- The overhaul of the selection process of importers and distributors, through periodic, and duly publicized, calls for bids, according to objective and non-discriminatory criteria.
Once completed, the market tests will enable the FCA to hear the parties and examine any observations formulated by third parties, at which point the FCA may decide to accept the proposed commitments and close its proceedings as far as these companies are concerned.
If, however, the FCA is not satisfied with the outcome of the market tests, it may require further commitments, failing which the standard FCA investigation and disciplinary procedures would apply.