France: Competition News - February 2016

Last Updated: 8 March 2016
Article by Emmanuelle van den Broucke and Sara Pomar

Refusing to settle in the case of local anticompetitive practices is not necessarily the right decision

As might be expected, the decision handed down by the French Competition Authority on January 17, 2016 regarding a cartel between seven companies in the context of public contracts for school transport in the Bas-Rhin region, is a good example of why companies should really think twice before refusing to negotiate with the DIRECCTE (Regional Directorate for companies, competition, consumer affairs, labor and employment).

Since 2008, the Minister of Economy (through the DGCCRF (General Directorate for competition, consumer affairs and prevention of fraud), and locally the DIRECCTE) is responsible for settling local anticompetitive practices involving SMEs to allow the French Competition Authority to concentrate on the most important cases. In this respect, the Minister can notably order the companies involved to cease their practices and conclude settlements with them which imply a financial sanction.

In the case at hand, the matter was referred to the Minister in 2012. He noted that the companies had formed a consortium allowing them to share the market so that each of them kept the transport lines that they historically operated. In 2014, he proposed a settlement to the seven companies. Only three of them accepted, for amounts ranging from €34,000 to €75,000.

For the four remaining companies, the Minister was therefore obliged to refer the case to the French Competition Authority which confirmed the Minister's analysis and ordered the four companies to pay fines ranging from €20,000 to €96,000.

This was the first decision to be made by the Authority after failure of a local settlement and there are several lessons to be learned regarding the advisability of refusing a settlement proposed by the Minister. The company may want to refuse for two possible reasons: in order to object to the existence of the infringement or to obtain a lesser fine than under the settlement proposed by the Minister.

With regards to the existence of the infringement, it should be noted that, until now, the Minister has seemed to limit himself to finding practices which are clearly anticompetitive, in view of the Competition Authority's decision-making practice. Moreover, it seems, as in the case at hand, to take a particular interest in cartels concerning responses to calls for public tenders. Consequently, an appeal before the Authority to challenge the existence of an infringement seems doomed to failure, as was the case here.

With regards to the amount of the fine, once again, it seems to be of limited interest. On the one hand, the settlement amount proposed by the Minister cannot exceed €150,000. Moreover, in the case at hand, the sanctions imposed by the Authority correspond to the settlement amounts proposed and given the extension and cost of proceedings, it seems illusory to believe that going before the Authority would allow the company to reduce the overall cost.

Finally, the possibility of private enforcement proceedings must be considered. The decisions of the Competition Authority are widely published, and companies can also be ordered to publish a summary of the decision in the press, which is the case here. Furthermore, they constitute res judicata. On the contrary, the Minister does not take fining decisions but enters into simple settlements containing a somewhat limited summary of the facts. The action before the Authority therefore seems to increase the chances of liability claims being made by competitors or clients.

This case therefore shows that the utmost caution should be taken when it comes to deciding whether or not to accept a settlement proposed by the Minister. Only the case of a clear error by the Minister (regarding the principle of the infringement or the amount of the settlement) seems to justify the risk of appearing before the French Competition Authority.

French merger control: final acquisition of exclusive control in a multistage transaction is only taken into account if it is certain and takes place in the near future

In a decision of December 21, 2015 concerning a merger in the tire and automobile accessories sector, the French Competition Authority analyzed the case of a multistage merger: in the initial stage, the Simon group will acquire 51% of the Chouteau group's shares. Between March 31 and June 30, 2017, the activities of the two groups will be combined and the Simon group will own an 83% holding in this new group. Between January 1, 2023 and January 1, 2033, the Simon group will finally acquire full control.

With regards to the first two stages, and by virtue of a shareholders agreement negotiated between the two partners, the minority shareholder, Chouteau, will have strategic veto rights allowing it to exercise joint control over the concerned activities. The question was then whether these two intermediate stages should be ignored and it be considered that the Simon group already has exclusive control, given the third stage. Such a qualification can be important for the calculation of the notification thresholds as the qualification of joint control can trigger thresholds which would not be fulfilled in the case of exclusive control being acquired. Moreover, if the Authority directly takes into account the final stage, it would not be necessary for the parties to once again notify thereof upon the change from joint control to exclusive control.

In the case at hand, the Authority considered that the first two stages are not temporary and that the activities being pooled will be jointly controlled in the long term.

The Authority applied the consolidated Commission Jurisdictional Notice, which sets forth two conditions in order to assess whether a temporary transaction constitutes a lasting change of control. Firstly, the temporary nature must be agreed in a legally binding manner. Most importantly, there should be no doubt as to the promptness of the second stage after the initial acquisition, or the initial transaction will be considered as a separate merger.

In this case, the implementation of the third stage (acquisition of exclusive control) can only be established with certainty between January 1, 2023 and December 31, 2033. Since this final stage cannot be promptly completed, the joint control stages constitute a separate merger transaction.

The Simon group will therefore have to notify again in a few years when it acquires full control.

Suspecting a cartel is not enough, suspicions must be adequately substantiated

By decision of January 20, 2016, the French Competition Authority dismissed the referral of two companies (Pyxis Pharma and Sagitta Pharma), regarding allegations of anticompetitive agreements in the sector of distribution of non-reimbursable medicinal products. The main seizing party, Pyxis Pharma, is a structure de regroupement ŕ l'achat (SRA) which purchases, on behalf of its pharmacist members, medicinal products, except for reimbursable medicines.

The seizing party reported two agreements. Firstly, a horizontal agreement between a number of laboratories, which allegedly concerted and, by refusing negotiations and granting less advantageous conditions than to other players, sought to exclude the SRAs from the market. Pyxis Pharma thus claimed parallel conduct which allegedly was the result of a prior agreement.

The second practice criticized is a vertical agreement between laboratories and pharmacist associations with the aim of dissuading the members of the latter from becoming members of SRAs and ultimately excluding SRAs from the market for the distribution of non-reimbursable medicinal products.

The French Competition Authority rejected both allegations. With respect to the first agreement, it considered that the laboratories' commercial practices in relation to SRAs are not harmonized, that the laboratories made their offers on different dates and that the initiation of legal proceedings against Pyxis Pharma was not coordinated.

Concerning the second agreement, the documents submitted by the claimant were declared non-conclusive, their content not supporting the allegations of anticompetitive practices.

The SRAs learned the hard way that suspicion of an anticompetitive agreement is not sufficient; it is necessary to have specific, serious and consistent evidence which substantiates said suspicions.

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