The French Competition Authority severely punished the exclusivity practices put in place by company in a dominant position

On June 23, 2016, the French Competition Authority punished the Belgian group Umicore for abuse of its dominant position on the zinc products market, for having bound its resellers by an exclusive sourcing obligation from 1999 to 2007.

The value of this decision does not reside so much in the finding of Umicore’s dominant position on the market in issue, but rather in the analysis carried out by the Authority to establish the abusive nature of an exclusive purchase obligation which was not always formally provided in the agreements concluded with resellers. It is based on a set of contractual and factual elements that the Authority characterized the offense, including notably:

  • the promotion clause included in the distribution agreements which required resellers to promote Umicore’s products and brands to the exclusion of competing brands and products. Even if this clause was concealed as from 2004 by a less explicit contractual provision, the Authority found that emails and notes seized from Umicore, and statements from competing distributors and manufacturers, show that in actual fact Umicore was continuing its policy prohibiting resellers from offering competing products;
  • the inventory clause pursuant to which resellers were required to have at all times in their inventory all the Umicore products of a given range. Relying notably on statements from former executives in distributors, the Authority found that this clause was in fact used by Umicore, not to verify the volume in stock of its products, but to detect, during surprise visits by Umicore sales representatives, the presence of competing products in the distributors’ warehouses;
  • the unilateral (manufacturing) tonnage forecast clause, which was used by Umicore to verify the sale of competing products. According to the Authority, Umicore asked for explanations from distributors whose sales were abnormally low or whose orders have fallen, in order to “discipline them”;
  • threats and retaliation carried out by Umicore to oblige resellers not to sell competing brands. Thus, according to the Authority, unfaithful distributors were deprived of discounts or preferential conditions such as supply rates and favorable payment and delivery terms. Whereas retaliation only concerned a limited number of distributors, it allowed Umicore to discipline the market as shown by several statements from competing suppliers.

Furthermore, the Authority noted that this exclusive purchase obligation imposed on distributors had anticompetitive effects on the market: the exclusivity in favor of Umicore hindered the development of competitors which could not gain access to the main distributors of zinc construction products and resulted in supra competitive prices since distributors were affected by a higher purchase price that they then passed on at retail price level.

The Authority therefore imposed a fine of €69.2 million on Umicore taking into account the seriousness of the practices, the damage done to the economy, the duration of the practices (nine years) and the fact that Umicore belonged to a worldwide group (€9.7 billion in 2015).

Thus, whereas exclusivity commitments are not prohibited per se, the behaviors in question were considered as sufficiently serious to justify not only this fine but also the Authority’s refusal to make Umicore benefit from the commitment procedure to resolve the competition concerns and avoid the fine. This is a good opportunity to recall that these practices can also be qualified as anticompetitive agreements even if, in this case, the Authority did not find it necessary to examine this potential qualification because of Umicore’s dominant position.

The French Supreme Administrative Court reduces, but does not cancel, the fine imposed by the French Competition Authority for failure to notify a merger

Castel Frères had acquired six companies in the Patriarche Group in 2011. The French Competition Authority (hereafter the Authority) became aware of this operation in the context of another file which it was examining, and it then asked Castel Frères to notify the acquisition in question, which was done a few weeks later. The Authority authorized the acquisition but, at the same time, rendered a decision ordering the Castel Frères group to pay a €4 million fine for breach of its prior obligation of prior notification of a merger to the Authority.

Castel Frères appealed the Authority’s decision before the French Supreme Administrative Court, which found, in a decision dated April 15, 2016, that:

  • the Authority was perfectly entitled to investigate on its own motion a merger completed without prior notification.
  • the Authority had not breached the principle of the individual nature of penalties by attributing the breach to the parent company of the Castel Frères group, although this company is not a signatory of the transfer agreements of the six target companies. For the French Supreme Administrative Court, the fact that the parent company held 100% of Castel Frères through another company allowed it to acquire, after completion of the operation, the possibility to exercise decisive influence over the target companies’ activity. Furthermore, according to the French Supreme Administrative Court, the parent company’s capacity of “pure holding company” does not prevent the Court from establishing its liability.

On the other hand, the French Supreme Administrative Court found that the Authority had breached the principle of proportionality of penalties when calculating the fine which represented 0.5% of the consolidated turnover realized by the group in France. Although the Authority could rightly take into consideration in this calculation (i) the intrinsic seriousness of a breach of the prior notification obligation, (ii) the absence of any difficulty for the group to know whether the operation was notifiable, (iii) the deliberate nature of the breach, (iv) the group’s significant means and (v) its knowledge of the merger control mechanism through the notification of a previous merger, it could not however criticize Castel Frères for an absence of cooperation. The French Supreme Administrative Court noted that the merger had been notified shortly after the Authority’s first requests. It added that account should be taken of the fact that the group did not intend to avoid competition rules. Consequently, the French Supreme Administrative Court reduced the fine to €3 million.

Even though in this case Castel Frères was able to invoke certain specific circumstances to diminish the fine, the latter remains substantial. This is a good opportunity to recall that the penalty for failure to notify can reach up to 5% of the turnover realized in France. Therefore, care should be taken, as upstream as possible, to check the notifiable nature of exclusive or joint takeovers of companies or assets or the creation of joint companies.

An appeal, lodged by a competitor, against a decision authorizing a State aid is only admissible where that competitor’s position is substantially affected

The European Commission had authorized, subject to conditions, a project to grant a €31 million restructuring aid by France to FagorBrandt. Whirlpool, FagorBrandt’s competitor on the domestic appliances manufacturing and marketing market, appealed the Commission’s decision before the General Court of the European Union (GCEU) for the cancellation of this authorization.

By a decision dated June 22, 2016, the GCEU ruled Whirlpool’s action inadmissible because the latter had not demonstrated that its position on the market was substantially affected by the aid in issue. Its capacity of competitor of the aid’s beneficiary, and even its position as number two on the market, were not sufficient in themselves to establish this impact. Whirlpool should have established that it would have been more affected by the aid than the average of all its competitors, by proving for example that it would have been more able than the average of its competitors to capture the demand freed by FagorBrandt’s disappearance, in the absence of the aid.