In its judgment dated November 20, 2014, the Paris Court of appeal (Court of appeal) partially overturned the decision of the French Competition Authority (FCA) relating to the practices followed in the flour business (Decision).
In 2012, certain millers were accused by the FCA of closing the French market to competition by combining into two joint venture companies manufacturing and selling bags of flour, one to medium and large retail outlets (France Farine) and the other to hard discount stores (Bach Müle).
Commencing by acknowledging that the degree to which an agreement has an anti-competitive purpose must be assessed with regard to ‘the content of its provisions, its purposes and its economic and legal context’, the FCA then held that, even though the association into two joint venture companies was not in itself a restriction to competition, the manner in which they operated did, in practice, eliminate any kind of competition between the shareholding millers. For instance, referring to France Farine, the FCA pointed out that (i) the sales prices of the flour to retailers were determined in advance by its members, and (ii) the market was divided between millers in such a way that they were supplying only orders which were the closest to them.
However, the Court of appeal pointed out that, under the relevant case law, characterizing a by object restriction requires obvious restrictions of competition to be proven. This is precisely the reason why in such a case the FCA can refrain from proving any anticompetitive effects and thus realize an important procedural saving. Therefore, despite the harmfulness of the practices in question, the Court of appeal overturned the decision of the FCA, because the FCA did not take into account either the ‘economic and legal context’ that led to the creation of the joint ventures nor any fact that could have cast doubts on the genuineness of the existence of a restriction on competition.
The Court of appeal explained that when the joint ventures were created, the milling business was subjected to two kind of limitations: a price regulation –price liberation took place in 1987 – and a production restriction – the wheat which could be transformed into flour to be consumed in France was under a quota policy defined by the State. Moreover, the fast development of large retail outlet distribution with its large negotiation power and its national organization compared to the regional organization of the millers, incentivized the millers to unite by creating shared companies, in order to safeguard the efficiency of their business. By referring to these elements, the Court of appeal concluded that the creation of these joint ventures by the millers could not be analyzed as a concerted practice with an anti-competitive object. Consequently, the FCA should have highlighted the existence of potential anti-competitive effects resulting from the association of the companies.
This is not the first time that the Court of appeal has overturned a FCA decision on the ground that it has mischaracterized a by object restriction; the decision on Exchanges Check-Image Fee constitutes a strong precedent. The specificities of the repercussion of the judgment at hand are due to the fact that it echoes the recent CB Bank Cards Group case in which the European Court of Justice [Ldlc September/October 2014] has adopted a similar position.
While it is regrettable that the analysis of the economic and legal context was not taken further by the Court of appeal (for instance it would have been interesting to provide a specific examination with respect to the period subsequent to the price deregulation), the willingness of the Court of appeal to assess rigorously the qualification of by object restriction is good news, both in terms of fostering a reasonable application of competition law rules and of securing the rights of defence of undertakings.