Paris Court of Appeal: An association can be sanctioned for abuse of a dominant position and ordered to pay a fine exceeding 5% of its income
In an order dated February 26, 2015, the Paris Court of Appeal confirmed that a trade association cannot claim the cap of 10% of turnover applicable to fines imposed on companies, as a specific cap of €3 million is provided for associations and other offenders which are not companies.
In this case, the French National Federation of Approved Associations had lodged a complaint with the Competition Authority regarding practices implemented by the French National Association of Chartered Accountants on the online tax filing portal, and by ten organizations representing approved management bodies.
The Authority had found that the French National Association of Chartered Accountants and the association Expert-comptable média association (ECMA) were guilty of abuse of a dominant position. The Authority had therefore imposed financial penalty of €1.1 million on the ECMA.
The ECMA appealed by noting a contradiction in the Competition Authority’s decision: according to the ECMA, the Authority could not apply to it the cap of €3 million specific to offenders which are not companies and at the same time establish abuse of a dominant position which can only be attributed to bodies with the status of a company. The ECMA indicated that as a result of this contradiction, it would be ordered to pay a fine amounting to 17% of its income, even though the legal cap for sanctions specific to companies is 10% of turnover, reduced to 5% if the grievances are not opposed.
The Court of Appeal dismissed these arguments by upholding that the ECMA is considered as a “company” in order to establish the offence of abuse of a dominant position as it performs an economic activity. However, when it comes to determining the legal cap of the sanction, the ECMA becomes an association governed by the law of 1901, the purpose of which is to ensure the organization and management of the French National Association of Chartered Accountants’ various actions and is no longer a “company” within the meaning of the Article which fixes this legal cap.
This decision therefore imposes a more severe sanction than that which would have been ordered if the same offence had been committed by a company and not by an association.
To avoid sudden termination, business relations must be maintained under the same conditions until the notice period has expired
By order of February 10, 2015, the French Supreme Court ruled on the conditions governing the termination of established business relations and the scope of the compensable harm following sudden termination.
In the case at hand, two companies had been involved in business relations for almost thirty years under an exclusive distribution agreement. After noting a decline in the distributor’s commercial commitment and its withdrawal from the distribution charter, the supplier terminated relations, giving a 12-month notice period, and adapted the termination conditions, which involved the immediate withdrawal of territorial exclusivity for distribution.
The distributor challenged the immediate withdrawal of territorial exclusivity, considering that this deprived it of the interest of the notice period granted as it was not given time to reorganize. The Court of Appeal, corroborated by the Commercial Chamber, upheld the distributor’s arguments and found that, by granting a notice period, the supplier waived sudden termination for serious breach by its co-contracting party. The Supreme Court found that the granting of a notice period implies the maintenance of business relations under the same conditions and therefore qualified the withdrawal of territorial exclusivity as sudden. It therefore confirmed that the distributor had suffered harm by making a distinction between the loss of margin of €10,000 suffered throughout the first six months during which exclusivity was largely maintained, and the loss of €190,000 suffered during the six months following complete withdrawal of exclusivity.
The Supreme Court then recalled that the Court of Appeal had to show that the distributor’s expenses, related to the costs for amending the editorial database and travel and training expenses for employees incurred in the search for new suppliers, were due to the suddenness of the termination and not the termination itself.
The French Competition Authority sanctions the independent radios EIG for not respecting the commitments made in 2006
The French Competition Authority once again recalled, in its decision handed down on February 26, 2015, that companies which do not respect the commitments made to end proceedings brought against them, risk fines, which can be significant.
This was the painful experience endured by the independent radios EIG, responsible for acting as an intermediary between local radios and advertising management to allow the former to access the national advertising market. The EIG was the subject of a complaint filed by Canal 6 in 2006 for having insufficiently objective and transparent admission and leaving conditions. If a common structure grouping together economic players becomes an essential element in obtaining access to a market, the admission conditions to this grouping must be objective, transparent and non-discriminatory. In order to end said proceedings, the independent radios EIG had made commitments regarding the conditions for belonging to the EIG, the admission procedure, the conditions for leaving and the conditions governing exclusion.
The EIG did implement the commitments by making the necessary changes to its by-laws and internal regulations, but during a subsequent control by the Authority’s services, it was noted that the EIG had later made numerous modifications, a number of which were contrary to the commitments made. The EIG had made said commitments with no specific limits regarding their duration, and although it was free to make subsequent modifications to the concerned provisions, this was subject to the responses to anti-competitive concerns being clearly preserved.
Recalling that failure to respect commitments made is, in itself, a serious practice and highlighting that the breaches observed were completely incompatible with the freedom to conduct business and had an impact on the competition which the commitments were seeking to preserve, the Authority imposed a fine of €300,000 on the EIG, i.e. 5% of its income, and at the same time issued an order subject to penalty for it to modify its internal regulations to ensure their compliance with the commitments. This is a clear reminder that the Authority monitors companies which avoid sanctions by making commitments, even years after, and that companies must therefore remain vigilant in ensuring that they properly respect competition law.
The leniency procedure is not contrary to the French constitution
In the context of an appeal against the decision handed down by the Competition Authority, an application for a priority preliminary ruling on the issue of constitutionality (QPC) was filed before the Supreme Court arguing that Article L. 464-2 of the Commercial Code, which establishes the leniency procedure, is contrary to the rights and freedoms guaranteed by the Constitution.
As a reminder, the leniency procedure allows a company to reveal to the Competition Authority the existence of a cartel in which it participated, in exchange for complete or partial exoneration from sanctions (recent examples: cases of personal hygiene-cleaning products and yoghurts).
The claimant argued that the leniency procedure breached the principles that offences and sanctions must be defined by law, legal certainty and the right to a fair trial, as it grants the Authority excessive discretion by not clearly and objectively fixing the criteria for the granting of leniency, the conditions governing cooperation and the definition of the exoneration rate.
In an order handed down on March 4, 2015, the Supreme Court decided not to communicate the QPC to the Constitutional Council, on the grounds that it was not new or serious. The Court found that the leniency procedure is part of the Authority’s exercise of its sanctioning power, and that, in this respect, the extent of exoneration of a company is assessed following adversarial proceedings, by a reasoned decision, on the basis of objective criteria related, in particular, to the contribution made by the company and its individual situation.
This order comes at the right time for the Authority which, in an effort to standardize European leniency procedures, launched, on February 27, 2015, a public consultation to gather observations on the conformity of French practices with the European model, so as to clarify the obligations and actions of companies wishing to benefit from leniency.