Historically, competition authorities started to apprehend vertical anticompetitive agreements after horizontal anti-competitive agreements. After a period of systematic sentencing, practices evolved and some competition authorities even abandon the prohibition per se of resale price fixing, in the context of vertical anticompetitive agreements, in favour of the "rule of reason". However, recent French case law shows that the Competition Council has a more restrictive analyis for the evidentiary standard in cases of vertical anticompetitive agreements.
1. Evolution In The Absolute Prohibition Against Price Fixing
It has always been difficult for competition authorities to sanction vertical anticompetitive agreements. In effect, the consent of distributors is not simple to prove where they implement a commercial policy defined by the suppliers, and where one can infer that this policy is merely the expression of their unilateral intention.
According to case law, the distributors' consent initially resulted from their express or tacit acceptance of the policy defined by the manufacturers in the context of their contractual relationships with the distributors1.
This perception changed with the CFI Bayer and Volkswagen cases2, which established a more restrictive definition of the notion of consent under community law, as a result of which:
- unilateral measures taken by suppliers are no longer considered to come automatically within the ambit of ongoing commercial relations between suppliers and distributors; and
- for each measure taken by a supplier, it must be proven that it was approved by the distributor.
Recently, the United States Supreme Court went even further in the Leegin3 case by assessing the legality of vertical agreements through the prism of the "rule of reason" and by overruling its previous case law dating back to the Dr. Miles Medical Co. v. John D. Park & Sons decision of 1911, which had established the rule of the illegality per se of price fixing pursuant to section 1 of the Sherman Act.
Thus, the Supreme Court held that the prohibition per se of imposed minimum pricing practices was a "flawed antitrust doctrine". Siding with the arguments sustained by Leegin, the Court concluded that it was impossible to state with certainty that the practice of setting minimum prices tends to systematically or more often than not restrict competition.
As specified in the Supreme Court's decision, imposing fixed resale prices can have anti-competitive effects in the form of a pricing cartel or an abuse of dominant position. However, the rule of reason favours a more flexible and pragmatic approach to the subject insofar as it requires the complainant, even before proving the restriction on competition, to evidence that the supplier has true market power. In particular, this new approach authorizes manufacturers to setforth the pro-competitive nature of their pricing policy: if the pro-competitive effects outweigh the anti-competitive effects, the practice will not be found unlawful.
As it now stands, French case law does not share this pragmatic approach.
2. The Strict French Case Law Position On Vertical Pricing Agreements
For the Competition Council, the standard of proof for vertical pricing agreements must be assessed according to two types of situations. The first and most simple case arises where an express and binding stipulation between the supplier and distributor is found: in such a case, the explicit agreement embodies the offense. The second case is more complex, arising in the absence of an express agreement, where the Council requires that the existence of the agreement be proven on the basis of "serious, precise and concurrent clues".
The circumstantial evidence required by the Council entails three cumulative components4:
- "a reference to public sales prices" by the supplier to its distributors: such a "reference" is shown through any process by which a manufacturer communicates to its distributors the price at which it wishes its products to be sold to the public, without the necessity of any discussion of such prices. In other words, the existence of a supplier-recommended price suffices;
- "price enforcement", based on control by the supplier of the resale price accompanied by any form of retaliation (e.g.: reduction of discounts in the event of a breach of the pricing policy);
- compliance with these prices by distributors with respect to a significant number of the products upon resale.
This approach was recently reaffirmed by the Court of Appeal of Paris5.
Businesses thus find themselves in a paradoxical situation: the unilateral communication of a recommended price is not considered illegal but is the first sign of the existence of a vertical agreement6. The end result in practice is that suspicion is raised where there is any communication of a recommended price.
Upon the finding of a recommended price by the supplier, the Council pursues its legal analysis of the facts and sanctions any vertical agreement where the other two components are met, without worrying about the competitive consequences of the operation.
In other words, French law and U.S. law have radically different approaches today to vertical pricing agreements: the Competition Council considers these agreements through the prism of evidence, viewing the evidence from a legalperspective, while the U.S. authorities focus on the practical effects of the conduct at hand and have more of an economic approach. In the former case, the agreement is automatically prohibited once the evidence is provided and, in the latter case, a case-by-case analysis is used to validate or invalidate the agreement.
Furthermore, the Council seems to be interpreting the circumstantial evidence required not so restrictively. As the Council indicated in its 2006 activity report, the evidence of the acquiescence by distributors in the price fixing practices does not require that every distributor be shown to have accepted, but only that a "major", "sufficient" or "significant" proportion thereof have done so.
Consequently, by confirming in its decision dated June 26, 2007 the Council's decision 06-D-04 bis related to practices in the perfumery sector, the Paris Court of Appeal indicated [translation]:
"As far as the acquiescence of the distributors to the invitation [of the supplier to a pricing agreement] is concerned, the standard retained by the Council of "the significative application of the imposed prices" has to be considered (...) as equivalent to the usual standard indicating that "the prices indicated have been effectively applied by the distributors"; the Council can also use, for demonstrating the acquiescence of the distributors to the pricing agreement, statistical standards (...)".
In the Volkswagen decision rendered on July 13, 2006 by the Court of Justice, the latter required that the competition authority adduce evidence on a case-by-case basis of the acquiescence by each of the distributors to the disputed invitation by each of the suppliers in the following terms:
"the case-law (...) does not imply that any call by a motor vehicle manufacturer to dealers constitutes an agreement within the meaning of Article 81(1) EC and does not relieve the Commission of its obligation to prove that there was a concurrence of wills on the part of the parties to the dealership agreement in each specific case."7
In sum, while an economic analysis in assessing anti-competitive price fixing practices is being advanced in the United States in order to describe complex situations more effectively, French case law is distancing itself from this approach and seems also to interpret the acquiescence of the distributors in a more broader way than in EC law.
The issue of the standard of proof applicable to vertical pricing agreements under French case law should still be a source of debate.
1. See, for example, CA Paris, January 28, 1988, Conseil de l'ordre des pharmaciens.
2. CFI, October 26, 2000, aff'd T-41/96, Bayer AG, point 71 and 173 of the decision. CFI, December 3, 2003, aff'd T-208/01, Volkswagen AG, point 30 to 33 of the decision.
3. Supreme Court of the United States, Leegin Creative Leather Products, Inc. v. PSKS, Inc. rendered June 28, 2007.
4. These three components of the bundle of clues were defined for the first time by the Council in decision no. 02-D-42, which was partially quashed. They were however subsequently confirmed particularly in the decision rendered on September 25, 2003 relating to practices used in the school calculators sector (03-D-45); the decision rendered on February 24, 2005 relating to practices used in the civil firearms and munitions market (05-D-07); the decision rendered on December 5, 2005 relating to the application by the corporation Avantage against practices used in the mass-produced electronics products industry (05-D-66); the decision rendered on December 19, 2005 relating to practices used in the pre-recorded videocassettes industry (05-D-70); the decision rendered on March 13, 2006 relating to practices used in the paerfumery sector (06-D-04 bis).
5. CA Paris, June 19, 2007, RG no. 2006/00628, Secteur des produits d'électronique grand public; CA Paris, June 26, 2007, RG no. 2006/07821, Secteur de la parfumerie de luxe.
6. See, for example, the Council decision 05-D-66 rendered on December 5, 2005, Secteur des produits de l'électronique grand public.
7. CJEC decision, July 13, 2006 (aff'd 74/04-P (Rec.2006, p.I-6585)).
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