Nespresso has recently made a number of groundbreaking commitments to the French Competition Authority, intended to resolve competition concerns that the latter had expressed.

The commitments procedure was triggered following a complaint that two of Nestlé Nespresso's competitors (DEMB and the Ethical Coffee Company) had denounced exclusionary practices that tied the purchase of Nespresso capsules to that of Nespresso-brand coffee machines.

Following a preliminary examination of the disputed practices, the authority noted that 73% of espresso machines sold in France are Nespresso machines and 85% of capsules sold for those machines are also Nespresso brand. It reasoned that Nespresso is likely to hold a dominant position in France on the espresso machine market and the market for capsules compatible with these machines. It then raised concerns about how Nespresso's behaviour may curb sales of competing capsules.

On a technical level, the authority highlighted that successive modifications made to Nespresso machines and to capsules of the same brand – for example, the change to the capsule perforation system – had rendered the capsules of competing manufacturers incompatible with the new models.

On a legal level, it noted that the labels affixed to Nespresso machines and the notices contained in the instruction manuals encouraged consumers to use Nespresso capsules only, in particular to benefit from the warranty.

On a commercial level, the authority was worried that Nespresso had developed marketing methods in the press and in its stores which encouraged consumers to use Nespresso brand capsules only.

The authority found that these practices were likely to constitute abuse of a dominant position.

No doubt hoping to avoid a statement of objections, Nespresso initially made a series of commitments, which it then had to substantially supplement so that the authority would close the proceedings without imposing sanctions for anti-competitive practices.

In particular, Nespresso undertook to remove definitively any mention of competing capsules from its warranty and to make no comments on competing capsules. Nespresso will provide competitors with technical information on its new machines four months before they are marketed and make the 15 most recent prototypes of its new machines available to competitors to allow them to carry out compatibility tests with their capsules. It will also provide the authority with a file that sets forth the reasons for any technical modifications well in advance of the manufacturing decision process.

Although the authority considers these rather weighty commitments sufficiently proportionate so as not to curb innovation at Nespresso, it is difficult not to consider them a substantial hindrance to any innovative approach that the company adopts in the future now that it is obliged to justify any plans to improve its products and to share any advantage derived from its research and development efforts with competitors. The authority itself has indicated that these commitments were "the first in the world", so it will be interesting to see whether other companies will follow suit.

For further information on this topic please contact Emmanuelle van den Broucke or Sara Pomar at Dentons by telephone (+33 1 4268 4800), fax (+33 1 4268 1545) or email ([email protected] or [email protected]). The Dentons website can be accessed at www.dentons.com.