France: Cartel Regulation Under French Law: A Pragmatic Approach

Marc Lévy and Natasha G. Assadi

"An extract from The 2007 European Antitrust Review, a Global Competition Review special report - www.globalcompetitionreview.com"

French procedures for the regulation of cartel activity have increasingly been brought into line with those of the European Union. Furthermore, changes have been made to reinforce efficiency in fighting illegal cartel activities, including the introduction of a new leniency programme, comprising several constituents; the adoption of increased powers of investigation; and the possibility of imposing significant periodic fines. Hence, French cartel regulation is no longer based on sanctions only but also on a dialogue that allows more pragmatism and weakens the structure of anti-competitive practices. Together these changes should ensure that the French competition authorities are not only more effective in enforcing domestic competition rules but are also able to contribute, as part of the European Competition Network, to the enforcement of EU competition rules post-modernisation.

Working in tandem – the enforcement agencies

Regarding cartels, the principal competition authority with responsibility for enforcement is the Competition Council (Conseil de la Concurrence – the Council). Set up in 1986, the Council is an independent authority responsible for the analysis and regulation of competition in the French market under the relevant provisions of French competition law. Investigations of cases referred to the Council are carried out by rapporteurs, who, further to a decision of the commercial chamber of the Cour de Cassation in 1999, do not participate in the deliberations of the Council but merely report to the Council in open session.¹ This is to ensure full compliance with the requirements of article 6 of the European Convention on Human Rights.

Where an investigation is commenced, both the offices of the Council and the Direction Générale de la Concurrence, de la Consommation et de la Répression des Fraudes (DGCCRF), an administrative service under the control of the minister for the economy (the minister), may exercise the relevant powers of investigation. In practice, it is the latter that will be responsible, owing to the budgetary constraints of the Council. In addition, the offices of the DGCCRF are entrusted with pre-investigation powers.

Substantive test

Since the entry into force of the New Economic Regulations² (NRE), the French substantive test, contained in article L420-1 of the French Code de Commerce (the Code) prohibits concerted practices, agreements and alliances, express or tacit, between undertakings that have as their object or may have as their effect the prevention, restriction or distortion of competition in a market, and in particular those which aim to:

• limit access to, or competition from, other undertakings;
• interfere with price setting by market forces, by artificially favouring a rise or a fall;
• limit or control production, markets, investment or technical development;
• share markets or sources of supply.

Anti-competitive practices committed directly or indirectly through a subsidiary situated outside the French territory are also expressly included within the scope of the prohibition.

The Council has traditionally considered that proof of a demonstrable effect on competition is not necessary where the object of an agreement is to restrict competition. This position of principle has generally been confirmed by French courts, although a recent ruling by the Paris Court of Appeal³ overturned a decision by the Council because it had not been established that the frequent exchanges of price information between service station operators had any real effect on the pricing behaviour of the major petrol suppliers, ie, Total, Shell, Esso and BP, on which fines totalling €27 million had been imposed.

The Council had found that repeated and frequent exchanges of sensitive price information had been taking place between motorway service station operators, ie, service stations had been exchanging information by telephone on the price charged for different types of fuels several times a week, and had been transmitting that information to their respective head offices.

This information had allegedly been used to determine the prices charged by operators on French motorways, which, in line with previous decisions by the European Commission, was identified as a separate market. As a result, prices had converged to a higher level than that which would have otherwise prevailed. The Council emphasised that these practices were particularly serious in the light of:

• the oligopolistic nature of the market;

• consumers of fuels on motorways being captive; and
• the widespread nature of these practices, which had been carried out for some years, as admitted by service station managers when questioned.

The position of the Council on the object or effect criteria has recently been confirmed in two decisions in which the Council considered that the exchange of information involving trade secrets in particular in an oligopolistic market is in itself anti-competitive. These decisions were issued within a few days of each other respectively in the luxury hotel and wireless operator sectors.⁴ In these decisions, the Council stressed that sharing strategic information in an oligopoly artificially raises transparency among competitors and thus creates a collusive equilibrium that distorts competition. In the luxury hotel case, the infringement only consisted in information exchange and the strategic information mainly included occupation rates, average prices per room and incomes relating to each available room. In the wireless operator case, it mainly included information on the numbers of subscriptions and terminations as well as market shares. The Council pointed out that the information exchanged was confidential as the parties could not have had access to it by any other way and that it was not shared with the customers. The following fines were imposed with respect to the information exchange: (i) €709,000 in the luxury hotel case and (ii) €92 million in the wireless operator case.

This position of the Council is also supported by the de minimis rules which entered into force on 27 March 2004⁵ and which are largely modelled on the European Commission’s Notice on Agreements of Minor Importance. Under article L464-6-1 agreements or practices:

• between actual or potential competitors (horizontal agreements) whose combined market share is less than 10 per cent; or
• between undertakings that are not actual or potential competitors (vertical agreements) whose respective market shares are less than 15 per cent may be exempted from the application of article L420-1 on the grounds that they do not have an appreciable effect on competition.

However, where the parties’ arrangements contain certain ‘hardcore’ infringements, the agreement or practice does not benefit from the above exemption. For horizontal agreements, such hard-core infringement comprises price fixing, limiting production or supply, and market or customer sharing.

A happy family? Group undertakings

It is generally considered that article L420-1 does not apply to intragroup arrangements where subsidiaries lack any real commercial autonomy. In this respect, mention should be made of a decision where the Council imposed fines totalling €4.3 million on subsidiaries of the Air Liquide Group for anti-competitive practices in the hospital medical gas sector.⁶ In that case, the Council found that two subsidiaries of Air Liquide had engaged in market-sharing and price-fixing agreements in the years 1994 to 1996 while bidding to become suppliers of medical gases to public hospitals and private healthcare establishments.

The Council noted that it was not illegal for the subsidiaries of a same group to agree on a sole bidder. Here, however, the two subsidiaries of Air Liquide had submitted two separate bids during call for tenders and had thereby, according to the Council, presented themselves as two independent and competing companies on the market. In such circumstances, it was illegal for the subsidiaries to coordinate the terms and price of their respective offers as this misled hospitals as to the real degree of competition for the tender. It made no difference that those who had organised the tenders knew of the corporate links existing between the bidders.

Similar decisions were rendered recently by the Council.⁷ In these, the Council cited the Air Liquide decision as a precedent.

Penalties

The main penalties for breach of the prohibition contained in article L420-1 are fines of up to 10 per cent of worldwide turnover, and, as of recently, periodic penalties of up to 5 per cent of the daily average turnover for every day of delay in implementing a Council decision or injunction.⁸ Turnover to be taken into account for the calculation of fines will be the highest amount realised by the undertaking in any financial year during the period in which the practices took place. For the purposes of the French cartel rules, as with the penalties for breaches of article 81, the notion of undertaking extends to all group undertakings wherever situated. Article L464-2 of the Code was introduced by the NRE and has a significant effect on the penalties that may be imposed by the relevant French competition authorities. Under the previous regime, the maximum penalty which could be applied to undertakings was an amount of 5 per cent of turnover in France for the preceding year. As a result, the total amount of fines imposed by the Council has been as follows for the last five years:

This figure includes the highest total fine imposed by the Council in the last five years, which occurred in the wireless operator case referred to above and amounted to €534 million.

French law has largely followed the case law of the European Court of Justice with regard to the continuity of the undertaking and the fines that may be imposed. Accordingly, where a business is acquired, the acquirer shall be responsible for all anti-competitive practices undertaken by the newly acquired business, irrespective of whether or not the infringements occurred before or after the acquisition. An acquirer of the business of an undertaking may not therefore rely upon the fact that it could not have prevented the undertaking from engaging in cartel activity prior to its acquisition of control.

It is interesting to note that the sanctions that may be imposed by the French competition authorities extend not only to undertakings, but also to individuals engaged in economic activities where fines of up to €3 million may be imposed for breaches of article L420-1. This provision is designed to cover sole traders who engage in cartel-type behaviour.

In addition to the civil sanctions applied to individuals and to undertakings, individuals may also be subject to criminal penalties amounting to fines of up to €75,000 and terms of imprisonment of up to four years where they have "fraudulently taken a personal and decisive action in the conception, organisation or execution of the practices covered by article L420-1".⁹ These penalties are not imposed by the French competition authorities, although the authorities themselves will generally refer the matter to the procureur de la république for further investigation. Although the criminal provisions are rarely involved, guidance on this application has been given in a recent decision of the Council asking the procureur de la république to examine the possibility of bringing a criminal prosecution against the chairman of the Fédération départementale de la Boulangerie et Boulangerie Pâtisserie de la Marne (FDBP), a bakeries’ trade association in the Marne region of France, as a result of his active and decisive role in the establishment and implementation of a cartel among members of the FDBP.¹⁰

In its decision, the Council noted that three elements must be proven to impose criminal charges:

• Personal participation – It is not sufficient for the purposes of the criminal offence that the accused is a director of the undertaking concerned. There must be an active and personal role on the part of the accused in the conception, planning and implementation of the cartel.
• Decisive participation – the behaviour of the accused must be shown to have been decisive, and a causal link established in putting the anti-competitive behaviour into practice.
• Fraudulent participation – the accused must have intentionally breached the relevant competition rules, which may be inferred as a result of a breach of other criminal practices such as breach of trust, corruption, etc.

In this case, the Council considered that all three elements had been satisfied by the behaviour of the FDBP chairman and recommended bringing a criminal prosecution.

Blowing the whistle – leniency and reduction of fines

Though both the Council and the DGCCRF are in a position to commence investigations on their own initiative, an investigation can also be commenced as a result of an application for leniency. The provisions have recently been strengthened since the enactment of the NRE.

Article L464-2 IV of the Code provides that undertakings may be exonerated from financial penalties either in part or in full where they have "contributed to establishing the reality of a prohibited practice and to determine its authors, by providing elements which the [Council] or the [DGCCRF] were previously unaware of". As with the procedure at EU level, it is necessary to provide new information to the competition authorities that will enable them to begin an investigation. Providing information that merely supports information already held by the relevant authority will not be sufficient to obtain full immunity from fines. Undertakings unable to satisfy the requirements for full immunity from fines can nevertheless lead to a reduction in fines.

Where an application for leniency is received by either the Council or the DGCCRF, the rapporteur or the minister presents a request to the Council for a grant of leniency. Following this is a non-public hearing at which the rapporteur and the commissaire du gouvernement present their views. The Council then considers whether or not to grant leniency and, in the affirmative, grants full or partial leniency in respect of fines. Seventeen leniency applications had been submitted to the Council as at the end of 2005.¹¹ The first decision was published on 11 April 2006, in the door manufacturing sector.¹²

The case involved 10 wooden door producers that implemented two national cartels. Nine of them were fined a total amount of €5 million whereas the whistleblower was granted full immunity. The total amount of the fine imposed may not seem particularly high but the cartelists did not have very high turnovers – from €5 to 82 million – and the fines imposed on them ranged from 0.75 per cent to 1.87 per cent of their turnovers.

On the date of this decision, the Council also published a procedural notice on the French leniency programme. In this notice, the Council established four conditions that the applicant must meet to be eligible for leniency, as the law sheds no light on this point, the applicant: (i) must fully cooperate with the Council at every stage of the procedure; (ii) should not have coerced any other member of the anti-competitive agreement to enter into it; (iii) must have stopped participating in the anti-competitive practice as soon as the procedure is launched and at the latest when it receives the leniency notice, although the Council may postpone this date to prevent other members of the anti-competitive practice from becoming aware of the proceedings; and (iv) must not inform the other parties to the anticompetitive practice of its leniency application. The whistleblower’s name is thus kept secret, within the limits of the Council’s domestic and EU obligations, until the statement of objections is notified.

Undertakings can also lead to a fine reduction as a result of a party’s not contesting the existence of the alleged practices and offering commitments to modify behaviour in the future.¹³ In the latter case, also known as the ‘negotiated settlement’ route, where the Council is satisfied that the undertaking has complied with the relevant provision, the maximum fine which may be imposed is reduced by half. Beyond this reduced fine ceiling, the Council may grant a further reduction of the actual fine. By way of illustration, the Council granted a 90 per cent reduction of the fine imposed on La Poste for anti-competitive discounts. La Poste did not contest the Council’s allegation and submitted a set of substantial undertakings designed to prevent any reoccurrence of such behaviour in the future.¹⁴

Undertakings may also, pursuant to Ordinance 2004-1173 of 4 November 2004, offer commitments to remedy the situation and avoid a ruling on the existence of an infringement.¹⁵ Once the commitments are considered sufficient by the Council, and after receiving the observations of interested third parties, the commitments will form part of the binding decision of acceptance issued by the Council. This procedure has been implemented 11 times by the Council, with four cases still pending, since its entry into force, and has proved effective in solving competition concerns within a short timeframe.¹⁶

Despite article 81 being fully applicable in France since 1 May 2004, the French leniency rules only apply in respect of breaches of article L420-1. No proposals have been made as yet to extend the leniency rules to cover breaches of article 81 of the EC Treaty and therefore in such circumstances it is always prudent to apply for leniency to the European Commission at the same time as making an application to either the Council or the DGCCRF.

In addition to the formal investigation powers set out below, the DGCCRF may commence an investigation of its own before formal proceedings before the Council are initiated. In such circumstances, the DGCCRF shall prepare a report on the alleged anti-competitive practices, which is transmitted to the Council. None of the participants are informed of the initial investigation of the DGCCRF at this stage.

Once the case has been referred to the Council, it appoints a rapporteur and a rapporteur général. The rapporteur général supervises the rapporteur in the conduct of the investigation. The rapporteur will instruct officers of the DGCCRF to conduct further investigations, which may often take the form of dawn raids. In such circumstances, two procedures are followed:

The ordinary investigation (article L450-3 of the Code)

Any of the officers of the DGCCRF or the Council may access business premises to request copies of business documents. This includes access to computers and the ability to conduct interviews. Failure to comply with requests made by the officers renders individuals liable to fines of up to €7,500 and up to six months’ imprisonment.

The judicial investigation (article L450-4 of the Code)

Where the officers of either the Council or the DGCCRF wish to conduct searches and seize documents from either business or domestic premises they must obtain a warrant from a judge. Raids carried out under warrant must be carried out in the presence of a police officer and, in the absence of the representative of the company, two independent witnesses.

The criminal chamber of the Court of Cassation has recently confirmed that a national judge may only find against a decision by the Commission ordering an inspection and seeking the assistance of the French authorities where such a course of action would be arbitrary or disproportionate.¹⁷ On the other hand, the judge cannot substitute its own assessment, as to the need for such an inspection, for that of the Commission. As such, the jurisprudence of the Court of Cassation is in line with the ruling of the European Court of Justice in Case C-94/00 Roquettes Frères v Commission.

Once the officers of either the Council or the DGCCRF have completed their investigations, the rapporteur either prepares a statement of objections or proposes a decision that there is no case to answer. The parties shall then have two months in which to access the case file and present their observations. If it is argued that there is no case to answer, the Council shall then either agree and issue the decision or request further investigation.

Where a statement of objections has been issued and the parties have submitted their observations, the Council shall prepare a draft report, which is issued to the parties. The parties shall then have a further two months in which to comment on the proposed report. Following this phase, the Council issues its decision.

To increase efficiency, the Council and the DGCCRF signed a cooperation agreement on 28 January 2005 providing for shorter delays for investigations and case handling on the one hand, and introducing a simplified procedure for cases in which interim measures have been required on the other.

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