Abuse of dominance

Definition of abuse of dominance

How is abuse of dominance defined and identified? What conduct is subject to a per se prohibition?

Article L420-2 provides no definition of abuse but specifies (by referring to article L420-1) that the abusive exploitation of a dominant position is prohibited when it has as an object or may have as an effect to prevent, restrict or distort competition on the market and sets the following non-exhaustive list of examples of abuses: refusal to sell, tie-in sales, discriminatory selling conditions and termination of established commercial relationships solely on the ground that the partner refuses to comply with unjustified commercial conditions.

While some practices are presumed to be abusive, no conduct is subject to an absolute per se prohibition with the French Competition Authority (FCA) preferring to conduct a case-by-case analysis of the object and actual or potential effects of the alleged abusive practice and the potential grounds for exemption.

Exploitative and exclusionary practices

Does the concept of abuse cover both exploitative and exclusionary practices?

Article L420-2 of the French Commercial Code (FCC) prohibits both exploitative and exclusionary practices, even though cases relating to exclusionary practices are more common.

Link between dominance and abuse

What link must be shown between dominance and abuse? May conduct by a dominant company also be abusive if it occurs on an adjacent market to the dominated market?

A causal link must be demonstrated between the dominant position and the abuse of that position.

However, article L420-2 may apply even if the abuse takes place on an adjacent market to the dominant market provided that close associated links are demonstrated between the dominant and the related markets, and a link exists between the position held on the dominant market and the practice observed on the related market (decisions No. 17-D-02 of 10 February 2017 Obut and No. 17-D-08 of 1 June 2017 Ouibus).

Defences

What defences may be raised to allegations of abuse of dominance? When exclusionary intent is shown, are defences an option?

According to article L420-4 of the FCC, the following abusive practices are not subject to the provisions of article L420-2 and may benefit from exemption:

  • abusive practices that result from the application of a statute or a regulation adopted for its implementation;
  • abusive practices for which the authors can prove that they have the effect of ensuring economic progress (including by creating or maintaining jobs) and that they reserve for users a fair share in the resulting profit, without giving the undertakings involved the opportunity to eliminate competition for a substantial part of the products in question; and
  • certain categories of agreement or certain agreements that are recognised as meeting the above conditions by decree (in particular when their object is to improve the management of small or medium-sized undertakings).

 

However, individual exemptions are seldom granted by the FCA and the requirement to not eliminate competition on the market makes it difficult in practice for an exclusionary practice to meet the exemption conditions.

Specific forms of abuse

Types of conduct

Rebate schemes

The FCA refers to the EU case law to divide rebate schemes granted by a dominant undertaking in three categories (decision No. 16-D-11 of 6 June 2016 TDF, confirmed on this point by the Paris Court of Appeal in its judgment of 21 December 2017, No. 16/15499, itself confirmed by the judgment of the Cour de cassation of 16 September 2020 No. 18-11.034):

  • quantity rebates, linked exclusively to the volume of purchases from the dominant supplier, which do not usually fall under the scope of article 420-2 FCC because they are deemed to reflect efficiency gains of the dominant undertaking;
  • fidelity rebates that are presumed to have a foreclosure effect (in its decision No. 15-D-20 of 17 December 2015, the FCA imposed a €350 million fine on the telecommunications company Orange, in particular for putting into place an elaborate fidelity rebate scheme); and
  • ‘intermediary rebates’ whose validity is assessed only on a case-by-case basis.

Tying and bundling

Tying sales are listed by article L420-2 as an example of abusive conduct.

In accordance with the EU Commission Guidelines on abusive exclusionary conduct, the FCA stated that such conduct may be prohibited where an undertaking is dominant in the tying market and where, in addition, the tying and tied product are distinct products and the tying practice is likely to lead to anticompetitive foreclosure.

According to the FCA, pure bundling (where the products are only sold jointly) is, in principle, abusive when the tying product is essential, whereas the effects of mixed bundling are less harmful (Opinion 10-A-13 of 14 June 2010 relating to the cross-use of customers’ databases).

In its commitment decision No. 14-D-09 of 4 September 2014, the FCA held in its preliminary assessment that Nespresso was likely to have abused its dominant position by adopting technical and commercial measures aiming at tying the sale of its coffee machines to its own capsules.

In 2017, Schneider Electric, which had refused to sell spare parts to third-party maintenance providers without the associated maintenance services performed by its own employees, has taken commitments before the FCA to ease the conditions under which these providers could buy its parts (decision No. 17-D-21 of 9 November 2017).

Exclusive dealing

To assess whether exclusive dealing arrangements entered into by dominant undertakings are likely to lead to a foreclosure effect, the FCA takes into account several factors, such as the scope of the exclusive obligation, its duration, its technical or economic justification, the economic compensation given to the customer and the market positions of the competitors.

In its decision No. 16-D-14 of 23 June 2016, the FCA considered that the exclusive purchasing obligations of the Belgian group Umicore, a dominant supplier on the coated zinc covers and zinc rainwater drainage products markets in France, aimed at excluding competitors from the market.

In commitment decision No. 17-D-12 of 26 July 2017, Tereos, France’s leading sugar producer, faced the FCA’s competition concerns about the possible foreclosure of a local sugar beet procurement market. According to the FCA’s investigators, Tereos, the main beet purchaser on this market, was offering its cooperative partners complicated contractual terms. Tereos committed to take measures enabling the beet producers to benefit from a greater freedom in choosing the sugar groups they supply, in particular by clarifying that they were not linked to Tereos by exclusive supply agreements.

Predatory pricing

In order to determine whether a dominant undertaking has abused its dominant position by its low-price policy, French case law usually applies the Akzo test and the European Commission’s Guidelines on abusive exclusionary conduct, according to which:

  • prices above average total costs for a single product undertaking or average incremental costs for a multiproduct company are not presumed to be predatory;
  • prices below average avoidable costs must, in principle, be regarded as abusive; and
  • prices below average total or incremental costs but above average avoidable costs must be regarded as abusive if the prices are part of a plan for eliminating competitors or are likely to cause potential or actual eviction effects.

 

These principles have been recently recalled by the Paris Court of Appeal (in its Direct Energie/Engie judgment of 28 July 2016, No. 2016/11253 and its SNCF Mobilités judgment of 20 December 2018 No. 17/01304) and by the FCA, in particular in its decisions No. 17-D-16 of 7 September 2017 Engie and No. 18-D-07 of 31 May 2018 Vedettes vendéennes.

Price or margin squeezes

Price (or margin) squeeze occurs where a vertically integrated firm holding a dominant position on the upstream market charges prices on the upstream market which, compared with the prices it charges on the downstream market, do not allow an equally efficient competitor to operate profitably and, on a lasting basis, on the downstream market.

According to the FCA, a price squeeze has an anticompetitive effect when an equally efficient competitor can only enter the market by suffering losses and such effect can be presumed when the services provided by the dominant undertaking to its competitors are essential for them to compete against it on the downstream market.

In its assessment of a price squeeze, the FCA conducts a test comparing the difference between the revenues generated on the downstream market by the dominant undertaking and the costs incurred on this same market with the wholesale price it invoiced to its competitors for the access to the intermediary good (eg, decision No. 15-D-10 of 11 June 2015 TDF, confirmed by the Court of Appeal of Paris in its judgment of 12 October 2017, No. 15/14038).

Refusals to deal and denied access to essential facilities

The FCA applied the essential facilities doctrine for the first time in 1996 in its decision Héli-Inter Assistance (decision No 96-D-51 of 3 September 1996) and has since defined the cumulative conditions under which denying access to an essential facility is considered an abuse of a dominant position (in particular, Opinion No. 02-A-08 of 22 May 2002 Association pour la promotion de la distribution de la presse and, more recently, decision No. 14-D-06 of 8 July 2014 Cegedim):

  • the essential facility is controlled by a dominant undertaking;
  • access to the facility is necessary or essential to compete with the dominant undertaking on an upstream, downstream or adjacent market;
  • the competitor is unable to reasonably duplicate the essential facility;
  • the use of the facility is denied or granted under restrictive and unjustified conditions; and
  • access to the facility by competitors is feasible.

 

Even in the absence of such essential facility, a refusal to supply can constitute an abuse, in particular if:

  • the refusal relates to a product or service that is necessary to be able to compete on an adjacent market;
  • the refusal is likely to eliminate all effective competition on the adjacent market;
  • the refusal is likely to prevent the undertaking requesting supply from bringing innovative goods or services to the market; and
  • the refusal cannot be legitimately justified.

 

In its decision No. 14-D-06 of 8 July 2014 (confirmed by the Court of Cassation in its judgment of 21 June 2017 No. 15-25941), the FCA considered that Cegedim had infringed article L420-2 of the FCC by refusing to sell its database to the clients of a competitor in a discriminatory manner and without a lawful and objective justification.

Predatory product design or a failure to disclose new technology

Product innovation can, in certain circumstance, be considered as predatory.

For example, in its commitment decision No. 14-D-09 of 4 September 2014, the FCA found that the several technical changes made by Nespresso to its coffee machines affected the compatibility of competing capsules. Therefore, this series of product design changes was likely to infringe article 420-2 by tying the sale of the Nespresso coffee machines to its own capsules.

In its decision No. 18-D-10 of 27 June 2018, the FCA has stopped the procedure initiated by Econocom, according to whom IBM, HP and Oracle had implemented a strategy of eviction of third-party maintainers by refusing to allow them, or some of their customers, access to updates of microcodes necessary for the maintenance of the hardware, servers and storage solutions that they market.

Price discrimination

Discriminatory selling conditions are expressly covered by article L420-2 and price discrimination may be found abusive by the FCA in two cases (eg, decision No. 13-D-07 of 28 February 2013 E-kanopi):

  • when the discrimination has as an object or may have as an effect the exclusion of a competitor by artificially strengthening the dominant undertaking on the dominant market or another market (exclusionary abuse); and
  • when the dominant undertaking artificially provides its customers with an advantage or disadvantage on their own market by unjustified difference in treatment (exploitative abuse).

 

In its decision No. 15-D-17 dated 30 November 2015, the FCA fined SFR for abusive price discrimination between its on-net and off-net phone calls on mobile services for non-residential customers markets of La Réunion and Mayotte insofar as this practice made an increase in competition more difficult on these markets.

Moreover, in its decision No. 17-D-13 of 27 July 2017, the FCA imposed a fine on the funeral company Comtet for practicing price discrimination by charging its competitors an extra fee that did not correspond to any additional service.

Exploitative prices or terms of supply

An excessive price may be an exploitative abuse if there is a lack of proportionality between the price of the product or service and the production cost or service value or this price seems to be excessive compared to those of undertakings in a similar situation (unless there is an economic justification). Cases relating to these kinds of practices are relatively rare.

Practices limiting the commercial freedom of the dominant undertaking’s economic partner (such as unilateral limitation of liability clause) may also be considered exploitative.

In decision No.17-D-02 of 10 February 2017, Obut, the leading French manufacturer of petanque balls, was fined by the FCA for having abused its dominant position by imposing on its distributors a resale price policy in order to protect its own sales outlets from price competition.

In 2019, the Paris Court of Appeal overturned decision No. 18-D-17 of 20 September 2018 of the FCA, which had sanctioned Sanicorse for imposing abusive price increases on its customers in a brutal, long-lasting, significant and unjustified way (judgment of 14 November 2019 No. 18/23992). The Paris Court of Appeal reminded that, for trading conditions to be considered as an exploitative abuse, the FCA has to prove that (1) the dominant position of the concerned undertaking has allowed it to obtain benefits from the transaction and (2) these benefits are unfair, which implies that the trading conditions between the dominant undertaking and its economic partners can be objectively qualified as unfair. According to the Paris Court of Appeal, this second condition was not met.

Two recent exploitative abuse cases have concerned Google.

In its decision No. 19-D-26 of 19 December 2019, the FCA considered that Google had abused its dominant position in the search advertising market as the operating rules of its Google Ads advertising platform were established and applied under non-objective, non-transparent and discriminatory conditions. Therefore, the FCA fined Google €150 million and ordered Google to clarify these operating rules and its account suspending procedures.

Moreover, in its decision No. 20-MC-01 of 9 April 2020, the FCA imposed interim measures on Google under which Google had to negociate in good faith with the publishers and new agencies that requested it, and according to transparent, objective and non discriminatory criteria, the remuneration due to them for any re-use of protected content. The FCA found that:

  • Google was likely to hold a dominant position on the French market for general search services.
  • The practices implemented by Google on the occasion of the entry into force of Law of 24 July 2019 on related rights were likely to be qualified as abuses of dominant posiiton and had caused a serious and immediate harm to the press sector: the FCA considered in particular that Google may have imposed on publishers and news agencies unfair transaction conditions allowing it to avoid any form of negociation and remuneration for the re-use and display of protected content under related rights and may have implemented a discriminatory practice by imposing a principle of zero remuneration on all publishers without examining their respective situations, thereby treating in the same way economic actors in different situations without any objective justification.

 

Abuse of administrative or government process

According to the FCA, a dominant undertaking is entitled to use legal and administrative proceedings to defend its interests. As a result, the mere fact that a dominant undertaking lodges patents and introduces legal recourse in order to protect its intellectual property rights cannot, in itself, be deemed as abusive.

However, a legal action can, exceptionally, be characterised as an abuse (eg, decision of the FCA No 11-D-15 of 16 November 2011 Sogarel and Coyote judgment of the Court of Appeal of Paris of 19 December 2018 No. 17/00219) if it is:

  • manifestly without foundation (and cannot reasonably be considered as an attempt to assert the dominant undertaking’s rights); and
  • part of a plan aiming at preventing, restraining or distorting competition on the market.

 

In this decision No. 17-D-25 of 20 December 2017, the FCA stated that the interference of a dominant undertaking in the decision process of a public authority could be considered as abusive if such interference is undue as it has no legal basis and aims at convincing the public authority to adopt a decision that it should not take. In application of this principle, the FCA imposed on the laboratory Janssen-Cilag, and its parent company Johnson & Johnson, a €25 million fine in particular for abusing its dominant position by repeating legally unjustified approaches to the French health agency for the purpose of convincing the authority to refuse to grant generic status to competing medicinal products. In 2019, the Paris Court of Appeal confirmed this decision but lowered the amount of the fine to €21 million (judgment of 11 July 2019 No. 18/01945).

Mergers and acquisitions as exclusionary practices

In a decision No. 20-D-01 of 16 January 2020 following a complaint lodged by Towercast concerning the abusive nature of TDF’s takeover of Itas (a transaction that was not subject to clearance by the FCA because the notification thresholds were not met), the FCA has ruled that it could not consider that a concentration constitutes, in itself, an abuse of dominant position.

However, abusive conducts that are detachable from the merger itself may be sanctioned, in particular under article L430-9 of the FCC according to which, in the event of an abuse of a dominant position, the FCA may enjoin the undertakings involved to amend, supplement or cancel all agreements and all acts by which the concentration of economic power allowing the abuse has been carried out, even if these acts have already been subject to the merger control procedure (article L430-9 of the FCC).

Other abuses

No comprehensive list of potentially abusive conduct can be provided.

The other practices that may fall under the prohibition of article L420-2 include, in particular:

  • termination of established commercial relationships on the sole ground that the partner is refusing to accept unjustified commercial conditions (listed as an example of abuse by article L420-2); or
  • acts of defamation when a link is established between the defamation and the undertaking’s dominant position, resulting generally from the undertaking’s reputation or the confidence it enjoys from the market participants (conviction decisions of the FCA No. 13-D-11 of 14 May 2013 Sanofi, No. 16-D-11 of 6 June 2016 TDF and No. 17-D-25 of 20 December 2017 Janssen-Cilag and judgment of the Court of Cassation of 8 June 2017 No. 15-26151). In 2020, the FCA imposed fines of a total of €444 millions to the pharmaceutical companies Genentech, Roche and Novartis for abusive practices aiming at sustaining the sales of a drug for age-related macular degeneration (AMD) treatment, Lucentis, to the detriment of a competitive and cheaper medicinal product, Avastin (decision No. 20-D-11 of 9 September 2020). Novartis was fined for disparaging practice and the three companies were considered to have abused their collective dominant position by spreading an alarmist, and sometimes misleading, discourse before the public authorities about the risks linked to the use of Avastin.

 

The FCA also requires operators who benefit from a legal monopoly to avoid any cross-subsidies between its public service activities and its competitive activities that could result in predatory or exclusionary prices (decision No. 17-D-09 of 1 June 2017 INRAP). In 2020, the FCA fined PMU for not complying with a commitment taken in the FCA's decision No. 14-D-04 of 2014 to separate, on the horse betting sector, the betting pools of its physical outlets and of its website: indeed, while online betting is open to competition, PMU still enjoys legal monoply for betting at points of sale and the FCA had considered that PMU used the resources of its monopoly to reinforce the attractivity of its offer on a market open to competition (Decision No. 20-D-07 of 7 April 2020).

Law stated date

Correct as of

Give the date on which the information above is accurate.

1 February 2021