The Court of Appeal of Paris recently handed down an interesting and pragmatic decision which has both commercial and competition law implications.

The lawsuit was brought by Odysseum Place de France and Odysseum 2 (hereinafter “Odysseum”), owners of a shopping mall opened in 2009 and located in the suburbs of Montpellier, against the operators of Le Polygone, a mall in the heart of Montpellier since 1975. Before the opening of the Odysseum’s mall, Odysseum’s project had been largely debated and subject to many local protests led by a downtown merchants’ association and Le Polygone. The Commission nationale d’équipement authorized the project in September 2005. Nevertheless, Odysseum had trouble finding lessees due to the existence of exclusivity clauses (almost 100 clauses) entered into by the lessees of the Le Polygone mall, including well-known national brands such as Sephora, L’Occitane, Boulangerie Paul or Yves Rocher, whereby the lessees were expressly prohibited from entering into a similar business (whether directly or indirectly) in another mall located within a radius of five kilometers as the crow flies or one kilometer as the crow flies if the business was not conducted within a mall.

Odysseum sued Le Polygone and one of the lessees (Sephora) arguing that the exclusivity clause contravened Article L.420-1 of the French Commercial Code1 since it restricted free commerce and was not limited in time, was unreasonably limited in the location and had no technical justification.

The Paris Court of Appeal decided that the relevant market was the market for the rental of commercial premises (whether located in a mall or not) in the Montpellier trading area of about thirty to thirty five minutes driving (the area apparently found by the Commission nationale d’équipement to be the residence of prospective clients of Odysseum). On this particular aspect, the Court curiously did not indicate the starting point of the thirty to thirty five minutes drive nor the timing of the day (as traffic may sometimes be impossible in or around Montpellier). It also considered that while the fivekilometer perimeter limit noted in the Polygone exclusivity clauses included Odysseum’s mall, it did not extend to all of the trading area in which consumers were likely to buy goods so that the option to become affiliated with another mall outside the five-kilometer perimeter or to open a distinct business outside the one-kilometer limit allowed the businesses freedom to reach a larger potential clientele within the Montpellier trading area.

The Court held that “exclusivity clauses do not constitute per se an anticompetitive practice provided that they do not affect competition beyond the restrictions which may be necessary to insure a business profitability, for instance due to specific investments made or to the risk of a specific business”. The Court continued and ruled that “practically speaking the analysis to be conducted was to verify that the exclusivity clauses did not […] create a market entry barrier” so that it had to consider the scope of the clause, its duration as well as the situation of the operating companies on the relevant market.

Moreover, the Paris Court of Appeal decided that the exclusivity clauses did not have a anticompetitive object. In fact, the Court noted that Odysseum received almost 700 lessee applications for about 100 premises so that the mall was able to rent all its premises in due time. The Court said Odysseum did not prove that it was not able to attract less attractive national brands than those located in Le Polygone’s mall (on the contrary it had an Apple Store and Desigual).

The case ensures that the exclusivity clauses will continue to be used in the rental of commercial premises in France.