France: A Look Back On A Decision Imposing A Fine On Facebook For Having Provided The European Commission With Inaccurate Information On Its Acquisition Of Whatsapp

Last Updated: 21 September 2017
Article by Emmanuelle van den Broucke

On May 18, 2017, the European Commission imposed a €110 million fine on Facebook for having provided inaccurate information when it acquired WhatsApp, both with regard to the notification form (Form CO) and in response to a request for information concerning the possibility of automatic correspondence between Facebook and WhatsApp user accounts.

It appears from the infringement decision published on July 26, 2017 that, when it was questioned by the Commission during the pre-notification procedure, Facebook explicitly stated it had neither the technical capacity to carry out such an automatic correspondence nor the desire to do so. Furthermore, following the receipt of a document from a third party which attested to the contrary, the Commission sent Facebook a request for information to which the latter reiterated its response.

Yet on August 26, 2016, WhatsApp announced a change in its Terms and Conditions and Private Policy, enabling the correspondence between its user data and Facebook profiles.

Additionally, the Commission noted during its subsequent investigation that, during the examination of the merger, Facebook had already examined the possibility of implementing an automatic correspondence of user profiles between two different applications, and its personnel was aware of this possibility.

This decision is interesting for several reasons.

Firstly, it sets an example: this sanction decision for inaccurate information, the first under Regulation No. 139/2004, appears to announce an increasingly strict policy with regard to companies that notify their mergers by presenting an incomplete or inaccurate file. Incomplete and inaccurate information can indeed distort the Commission's analysis concerning the effects of the operation examined on the relevant markets, while the Commission is forced to give its authorizing decision within strict deadlines.

The second interesting element of this decision resides in its amount: while the Commission did not impose in the case at hand the maximum penalty allowed by Article 14 of the Regulation (the financial penalty being a fine that can reach up to 1% of the global turnover of the year preceding the violation, Facebook registered a turnover of €28 billion in 2016), it did however set an amount that may appear deterrent for companies. Although the Commission took into account mitigating circumstances to reduce its fine, as Facebook did not contest the violation or cooperate with the Commission during this procedure, the overall sanction reached €110 million, i.e. €55 million for having provided false information in the notification form and €55 million for having provided once again the same false information in response to a request for information.

This sanction decision imposed on Facebook may not be an isolated case. The Commission announced on July 6, 2017 having sent statements of objection to General Electric and Merck/Sigma-Aldrich concerning the delivery of inaccurate information for their merger operations.

The Facebook decision must therefore be considered as a strong warning to companies notifying their mergers with regard to the accuracy of the information they have to provide the Commission, on penalty of significant financial penalties. They will have to involve the right people internally to review the notification form, respond to the Commission's questions and not omit facts that are important for the competitive analysis, even if these facts may make the authorization more difficult.

The French Competition Authority recalls that clauses conferring exclusive import rights are forbidden overseas

By decision No. 17-D-14 of July 27, 2017, the French Competition Authority made a new application of the "Lurel" law of November 20, 2012 on overseas economic regulation, which forbids a supplier selling overseas to entrust the exclusivity of its distribution to only one importer/distributor.

As the French Competition Authority noted in its opinion No. 09-A-45 of September 8, 2009, the structural handicaps related to insularity and distance are alone not sufficient to explain the high prices of goods for general consumption overseas. In the distribution sector, the highly concentrated structure of markets, the behavior of the operators, notably through the conclusion of exclusive supply and import agreements, would also explain these high prices.

The Lurel law entrusted the French Competition Authority with specific overseas intervention powers to fight this increase. Exclusive supply agreements are therefore forbidden in all sectors of the overseas economy. The Authority can also make structural commitments in the retail sector mandatory, or even impose structural injunctions in the cases that justify it.

In the case that gave rise to the Authority's decision of July 27, 2017, Materne, a company that produces compotes and desserts, and its distributor, Ets Frédéric Legros, were bound, even after the Lurel law came into force, by an exclusive distribution agreement in Réunion and Mayotte. Despite the Authority's prior decisions regarding this issue, this forbidden practice lasted until July 5, 2016. Reunionese and Mahoran distributors were therefore forced to purchase Materne products from the same importer/wholesaler, Sodibel, a subsidiary of Ets Frédéric Legros, thus reducing competition between companies on these products. The exclusive contract was signed for a period of three years, tacitly renewable.

The two parties therefore had to modify their contract to remove the exclusivity clauses and accept a negotiated sanction, as part of a settlement procedure, amounting to €70,000 for the supplier and €30,000 for the distributor.

A message has thus once again been sent to suppliers who still have exclusivity clauses with regard to overseas import or distribution to modify their contracts without delay.

The United-Kingdom Competition Authority has put in place an algorithm to detect cartels in calls for tenders

The CMA (Competition and Markets Authority) believes that a company can incur a cost increase of up to 30 percent in case of an unlawful agreement between its suppliers to reply to its calls for tenders. To enable a better detection of these unlawful agreements, the CMA has established an algorithm to best detect the situations in which an unlawful agreement may have been made.

The proposed algorithm targets the markets favorable to unlawful agreements, in other words, those where there is little competition to maintain adherence to unlawful agreements and where the benefits expected from such agreements are sufficient to compensate for the risk taken. The data required for the algorithm to function include calls for tenders, proposals from every supplier and the identity of the supplier who won the tender.

The algorithm will then analyze several standard behavioral indicators that are specific to situations of unlawful agreements: the number and structure of tenders, their pricing, and the steps taken by the suppliers to support their tender. Given that the criteria for analysis are not equally applicable to all cartels, the user of this application can adapt the criteria to the specificities of his market, for example, with regard to the number of competitors.

The results of this software, made available to companies and corporations free of charge, obviously do not prove whether or not an unlawful agreement exists, but only give an indication as to whether such an agreement is probable and requires more extensive investigation. For that matter, the CMA has set up a dedicated email address so that all users suspecting the existence of an unlawful agreement can report the situation. The grip on unlawful agreements between companies in calls for tenders is tightening...

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