The French Supreme Court has delivered its judgment in a case involving the Kontiki company, the exclusive French distributor of the toy Diddl (a mouse figurine with large feet), for setting resale prices to the detriment of consumers.
In its decision of 7 October 2014, the Supreme Court upheld Kontiki’s fine of € 1.34 million.
The fine was initially ordered by the French Competition Authority (FCA) on 15 December 2011. Citing Article 101 TFEU and Article L. 420-1 of the French Commercial Code, the FCA held that an agreement on prices, whether direct or indirect, has an anti-competitive object.
Kontiki was found to have imposed, between 2003 and 2007, “recommended public prices”. It did so by linking the suppliers listing on the www.diddle.ft site with their compliance to the recommended prices.
Although maximum or recommended prices are legal under EU competition law, imposed prices are not. In the Kontiki case, the FCA found that, contrary to Kontiki's claims, the threat of being delisted from the Diddl website in the event of deviation from the Kontiki prices, contained in the Diddl charter and the commercial agreements signed by the parties, was tantamount to imposing prices.
Moreover, as Kontiki was the only distributor of Diddl in France, its price-fixing practice was deemed to have impacted all Diddl products in the country (postal cards, cuddly toys, clothes, school materials, etc.) and thus was found to have prevented any true retail price competition among the retailers.
While recalling that resale price maintenance is among the most serious anticompetitive practices, the FCA nevertheless tempered the gravity of the infringement in this case by noting that no delisting had actually been implemented against those retailers which did not apply the prices imposed by Kontiki, as demonstrated by the fact that several “delinquent” retailers had merely received warnings or been the subject of pressure from Kontiki's representatives. This was a surprising gesture since the FCA, having established the existence of resale price maintenance, was not legally bound to verify the existence of a pricing control system by the supplier and the actual application of imposed prices.
Furthermore, the FCA considered that the damage caused to the economy and the effect of the practice on intra-brand and inter-brand competition were relatively limited.
For the determination of the fine, the FCA first established that 9% of the value of Kontiki’s sales of Diddl products in 2006, at the time of the anti-competitive practices, represented over € 13 million. The FCA then took into account the fact that Kontiki's sales in 2011 were five times lower than they were in 2006, due to the fact that the Diddl character had become less popular with children. In consequence, the FCA reduced the fine amount by 90%, to € 1.34 million. This significant reduction reflected the fact that sales of the Diddl toy comprised 97% Kontitki’s total turnover, which had fallen sharply over the years (from € 66 million in 2005 to € 12.3 million in 2011).
On 16 May 2013, the Paris Court of Appeal confirmed the FCA’s decision, noting that certain retailers were compelled to sign the so-called “Diddl Charter”. The Court also placed particular significance on the fact that products were pre-labelled with prices.
Kontiki argued nevertheless that the Diddl Charters did not constitute a generalized vertical agreement since not all of its retailers had signed them: in fact, the charter was not signed by two large national retailers, which represented 40% of Kontiki’s turnover. However, the Court’s conclusion was not altered by this fact, noting that a generalized price-fixing agreement does not require the adherence of all distributors. It is sufficient that a significant part of the relevant distribution has applied the prices proposed by the supplier to demonstrate the price-fixing agreement.
On 7 October 2014, the French Supreme Court upheld, on all points, the Court of Appeal’s rationale in this regard.