France: Cartel Regulation Under French Law: A Pragmatic Approach

In recent times, 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 important periodic penalty payments. Hence, French cartel regulation is no longer only based on sanctions 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 Conseil de la Concurrence (the Conseil). Set up in 1986, the Conseil 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 Conseil 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 Conseil but merely report to the Conseil in open session.¹ This is to ensure full compliance with the requirements of article 6 of the European Convention of Human Rights.

Where an investigation is commenced, both the offices of the Conseil 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 which will be responsible, due to the budgetary constraints of the Conseil. In addition, the offices of the DGCCRF are entrusted with pre-investigation powers.

Substantive test

Since the entry into force of the New Economic Regulations (NRE),² the French substantive test, contained in article L420-1 of the French Code de Commerce (article L420-1 and the Code) prohibits concerted practices, agreements and alliances, express or tacit, between undertakings which 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; or

• share markets or sources of supply.

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

The Conseil 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 ruling by the Paris Court of Appeal³ overturned a decision by the Conseil on the basis that 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 Conseil 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 Conseil emphasised that these practices were particularly serious in the light of:

• the oligopolistic nature of the market;

• the fact that consumers of fuels on motorways are 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 Conseil on the object or effect criteria has recently been confirmed in two decisions in which the Conseil 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 Conseil stressed that sharing strategic information in an oligopoly artificially raises transparency among competitors and thus creates a collusive equilibrium distorting 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 Conseil 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: €709,000 in the luxury hotel case and €92 million in the wireless operator case. The Paris Court of Appeal upheld these two decisions.⁵ However the Cour de Cassation only partly upheld the wireless operator decision by stating that the previous decisions had failed to establish that the exchange of confidential information had either an anti-competitive object or an actual or potential anti-competitive effect, therefore underlining that the mere exchange of information is not anticompetitive per se.⁶

The effect of a practice on the market is taken into account by the de minimis rules which entered into force on 27 March 2004⁷ 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 Conseil imposed fines totalling €4.3 million on subsidiaries of the Air Liquide Group (Air Liquide) for anti-competitive practices in the hospital medical gas sector.⁸ In that case, the Conseil 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 health care establishments.

The Conseil noted that it was not illegal for the subsidiaries of the same group to agree on a sole bidder. However, here the two subsidiaries of Air Liquide had submitted two separate bids during a call for tenders and had thereby, according to the Conseil, 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 Conseil.⁹ In these decisions, the Conseil 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, or – as of recently – periodic penalty payments of up to 5 per cent of the daily average turnover for every day of delay in the implementation of either a decision of the Conseil or an injunction imposed by the Conseil, or both.¹⁰ 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 which 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 Conseil has been as follows for the last six years (year total fines):

• 2001: €51.1 million

• 2002: €64.3 million

• 2003: €88.5 million

• 2004: €49.3 million

• 2005: €754.4 million

• 2006: €128.2 million

• 2007 (first semester): €105.027 million.

This figure includes the highest total fine imposed by the Conseil 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 which 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 which 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".¹¹ 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. While the criminal provisions are rarely involved, guidance on this application has been given in a recent decision of the Conseil 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.¹²

In its decision, the Conseil noted that three elements must be proven in order 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; and

• 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 Conseil considered that all three elements had been satisfied by the behaviour of the FDBP chairman and recommended bringing a criminal prosecution.

The FDBP chairman brought an action against the Conseil’s decision to refer the case to the Procureur de la République. This allowed the Paris Court of Appeal to hold, for the first time, that it is not competent to appreciate the decision of the Conseil to refer the case to the criminal authorities.¹³ The Paris Court of Appeal confirmed this position in a second recent decision.¹⁴ Thus, the Conseil’s power to decide whether to refer the case or not is a discretionary one.

Blowing the whistle – leniency and reduction of fines

Whilst both the Conseil 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 [Conseil] 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 which will enable them to begin an investigation. Providing information which 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 Conseil or the DGCCRF, the rapporteur or the Minister presents a request to the Conseil 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 Conseil then considers whether or not to grant leniency and, in the affirmative, grants full or partial leniency in respect of fines. Seventeen leniency applications have been submitted to the Conseil as at the end of 2006.¹⁵ The first decision was published on 11 April 2006, in the door manufacturing sector.¹⁶

The case involved 10 wooden door producers which implemented two national cartels. Nine of them were fined a total amount of €5 million while the whistle-blower 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 million to €82 million – and the fines imposed on them ranged from 0.75 per cent to 1.87 per cent of their turnovers. The Paris Court of Appeal dismissed the claims of two wooden-doors producers which brought an appeal against the Conseil’s decision.¹⁷

On the date of this decision, the Conseil also published a procedural notice on the French leniency programme. In this notice, the Conseil 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 Conseil 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 Conseil 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 anti-competitive practice of its leniency application. The whistleblower’s name is thus kept secret, within the limits of the Conseil’s domestic and EU obligations, until the statement of objections is notified. In addition, the Conseil undertakes not to refer the case of a leniency applicant to the Procureur de la République under the criminal provisions mentioned above.

The Conseil published a new set of guidelines modifying the following points: (i) the grant of a marker to applicants allowing them to know their rank and thus the amount of fine reduction they may be entitled to; (ii) clarification of conditions to obtain total or partial exoneration: the Conseil indicates the nature and the content of evidence and information applicants must provide to benefit from exoneration. The Conseil also underlines the way applicants must behave during the investigation phase; (iii) guarantees concerning statements made by companies are reinforced: the Conseil provides a framework for the communication of these statements to ensure their confidentiality; and (iv) the possibility to introduce a summary application with French competition authorities where the European Commission is likely to deal with the case: in such case the amount of information the applicant must provide is alleviated, as long as the Conseil has not decided to act in the case.¹⁸

Undertakings can also benefit from fine reductions as a result of a party’s not contesting the existence of the alleged practices and offering commitments to modify behaviour in the future.¹⁹ In the latter case, also known as the ‘negotiated settlement’ route, where the Conseil 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 Conseil may grant a further reduction of the actual fine. By way of illustration, the Conseil granted a 90 per cent reduction of the fine imposed on La Poste for anti-competitive discounts. La Poste did not contest the Conseil’s allegation and submitted a set of substantial undertakings designed to prevent any reoccurrence of such behaviour in the future.²⁰ The Conseil recently implemented this procedure in the cablemakers and in the laundry cleaning and renting sectors in which the companies involved were respectively granted a fine reduction of 10 per cent and 100 per cent as they offered highly innovative measures which had not yet been implemented in France such as an internal 'whistle-blowing' procedure.²¹

Undertakings may also, since Ordinance 2004-1173 of 4 November 2004, offer commitments to remedy the situation and avoid a decision ruling on the existence of an infringement.²² Once the said commitments are considered sufficient by the Conseil, and after receiving the observations of interested third parties, the commitments will form part of the binding decision of acceptance issued by the Conseil. This procedure has been implemented 19 times by the Conseil, with five cases still pending, since its entry into force, and has proved effective in solving competition concerns within a short time frame.²³ The Conseil restrains the application of such procedure in case of horizontal agreements. However, in a recent case of collusion on various tenders the Conseil applied such procedure and granted a 35 per cent reduction of the fine incurred. Nonetheless, the Conseil emphasised that this case should not be seen as setting a precedent allowing a party in a horizontal anticompetitive agreement to benefit from such procedure. According to the Conseil, if the initiative for having collaborated with competition authorities preceded the introduction of the "leniency procedure" into French law, commitments offered by the parties were partially similar to those now required within such procedure. Besides, the Conseil underlined the significance of said commitments.²⁴

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 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 Conseil or the DGCCRF.

Raiding the offenders – investigation powers and procedure

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

Once the case has been referred to the Conseil, it appoints a rapporteur and a rapporteur général. The rapporteur général has the role of supervising 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 Conseil 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; and

• the judicial investigation (article L450-4 of the Code): where the officers of either the Conseil 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 Cour de 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.²⁵ 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 Cour de 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 Conseil 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. In the case of a proposed decision that there is no case to answer, the Conseil 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 Conseil 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 Conseil issues its decision.

In order to increase efficiency, the Conseil 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 hand.

Footnotes