European Union: Competition News October 2017

Prohibiting an authorized distributor from selling on a market place is not necessarily a hardcore restriction of competition

By a decree dated September 13, 2017, the French Supreme Court gave its support to brands distributed in a selective distribution network that wish to prohibit their authorized retailers from directly selling on market places (like Amazon for example) rather than on their own websites.

This case opposed Caudalie, a company that manufactures and distributes cosmetics to authorized pharmacies and drugstores, to eNova which operates the online sales platform, 1001 pharmacies, offering pharmacies the possibility to sell their products on this market place.

Realizing that authorized pharmacies sold their products via this platform when they were only authorized to sell on their own websites, Caudalie filed summary proceedings against eNova invoking a manifestly unlawful disturbance based on the violation of its selective distribution network. Caudalie won, and eNova received an order to stop commercializing Caudalie products on its platform, 1001 pharmacies.

eNova appealed, and on February 2, 2016, the Paris Court of Appeal found that by enabling the online sale of Caudalie products only on the authorized pharmacist's website, Caudalie prohibited, in principle, sales on market places. It therefore concluded that this prohibition could potentially constitute a hardcore restriction of competition and cancelled the injunctions issued against eNova to stop commercializing Caudalie products via its platform.

However, the French Supreme Court did not agree with the position of the Paris Court of Appeal as it considered that the latter did not sufficiently explain how the previous decisions of the German and French authorities on which it based its decision to justify the hardcore restriction could eliminate the harm to Caudalie's selective distribution network when the legality of its network had been recognized by the Competition Council. The case was therefore referred to the Court of Appeal.

When the Court of Appeal rules on this matter again, it will do so this time in light of the much-anticipated position of the Court of Justice of the European Union in the Coty case, which must soon rule on whether prohibiting authorized distributors from selling on market places is lawful with regard to competition law.

CJEU, June 27, 2017: "God helps those who helps themselves" except when it comes to State aids!

An agreement between the Vatican and Spain prior to its accession to the European Community provided tax exemptions in favor of the Catholic Church. As an entity responsible for an ecclesiastical school near Madrid, the Church invoked this agreement to request the reimbursement of €24,000 in municipal tax concerning works for a school building. Prior to ordering the reimbursement, the administrative court asked the Court of Justice of the European Union to examine the lawfulness of this tax exemption pursuant to European rules on State aids.

The CJEU replied that this tax exemption could constitute a State aid if the activities carried out on the premises belonging to the Spanish Church were economic in nature as some non-subsidized teaching activities can be. Indeed, if these teaching activities are financed by tuition fees, i.e. private financial contributions, these teaching activities could be considered as economic activities and fall within the scope of State aids.

In the case at hand, the tax exemption did not exceed the €200,000 cap over a period of three years and was therefore not unlawful. The Church should however be vigilant about tax benefits whose amount exceeds this cap.

Sanctioning anti-competitive practices: broad application of the aggravating circumstance resulting from the repetition of the practices

On September 27, 2017, the French Supreme Court confirmed the broad appreciation made by the French Competition Authority of the condition of identity or similarity of practices for the application of aggravating circumstances for repetition of  practices.

In 2013, the French Competition Authority had already sanctioned EDF for abusively favoring its subsidiary EDF ENR on the photovoltaic solar energy market by maintaining confusion in the minds of the consumers between the latter's activity and its public service activity of providing electricity, by playing on the similarities between their logos and brands and by using its client file to promote its subsidiary's offers. Considering that EDF had already been sanctioned for similar practices, the Authority had applied a 25 percent increase for repetition (equivalent to approx. €2 million increase). EDF had already been sanctioned in 2000 for having presented an offer, which was artificially low, to provide lighting to the French city of Tourcoing, which it was awarded for a period of 10 years, and for having signed public lighting care and maintenance agreements for an excessive period with 62 municipalities. The abusive practices were therefore different in the two decisions.

The penalties press release of the French Competition Authority provides that, to accept the existence of a repetition, it must be proven that the new practice is "identical or similar, by its purpose or its effects, to that which led to a previous infringement finding". In case of repetition, the intermediate amount of the financial penalty can be increased from a minimum of 15 percent to a maximum of 50 percent depending notably on the nature and period of time separating the practices in issue.

In the case at hand, the Court of Appeal had cancelled the increase for repetition finding that the practices implemented by EDF were radically different while noting that, in both cases, they represented eviction practices. Its decision was overturned by the French Supreme Court that recalls that the repetition of anti-competitive practices can be adopted for new identical or similar practices, by their purpose or their effects, without this characterization requiring an identity with regard to the implemented practice or the market concerned.

The increase could therefore be systematic for a dominant company that is once again sanctioned for eviction practices.

The Paris Court of Appeal confirms the confidential nature of the settlement procedure before the French Competition Authority

By a decree dated July 6, 2017, the Paris Court of Appeal rejected Direct Energie's request to have access to documents exchanged between Engie and the French Competition Authority as part of the settlement procedure, thus confirming the confidential nature of this procedure.

Direct Energie complained to the French Competition Authority about Engie's abuse of a dominant position on gas markets and its complaint led to a €100 million penalty against Engie which decided to settle. Direct Energie challenged the amount of this fine as well as the absence of injunction measures before the Court of Appeal.

To support its appeal, Direct Energie, to effectively exercise its right of appeal, requested to have access to several documents related to the settlement procedure including observations filed by Engie following the statement of objections, the settlement proposal made by the case preparation services and possible related exchanges and the minutes of the settlement.

The Court did not grant this request underlining notably the fact that these documents were not necessary for the latter to carry out its effective appeal against the decision of the French Competition Authority. On this occasion, the Court recalled that the confidentiality of the settlement procedure is the legitimate counterpart of the waiver of companies before the French Competition Authority of their rights of defense and appeal.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.