Competition newsletter

May 2010

Contacts

Contents

In this issue

  • We analyse the U-turn taken by the French Supreme Court concerning the standard of evidence for the damage to the economy
  • We summarise the innovative commitments submitted by Cisco within the acquisition of one of its main competitors, which could set a precedent for other operations
  • We remind the main conclusions to be drawn from the “Port du Havre” case, among others concerning non-compete clauses within a joint venture

The damage to the economy should not be presumed

In summary

Overturning its own precedent, the Cour de Cassation (the French Supreme Court) has ruled that the damage to the economy (one of the elements taken into account under French law for the calculation of the fine) deriving from a restrictive agreement should not be presumed. On the contrary, these effects must be clearly demonstrated by the French Competition Authority (“FCA”).

In its judgment of 7 April 2010, the commercial branch of the Cour de Cassation partially overturned a decision of the Paris Court of Appeal of 11 March 2009 in respect of the sanctions imposed on Orange France (Orange) for having exchanged confidential information with SFR and Bouygues Telecom.

In April 2005, further to a complaint lodged by a French consumer association (UFC Que Choisir), the FCA (then known as the Competition Council) imposed a total fine of €534 million on the three mobile phone operators for having operated a secret market-sharing agreement and for having exchanged strategic confidential information.

Concerning the sanction specifically relating to the exchange of information, Orange argued that the Court of Appeal was wrong to endorse the Competition Council’s brief and abstract analysis of the damage to the economy resulting from the exchange of information. The Competition Council had merely highlighted the significant size of the relevant market and the fact that all existing operators on that market had participated in the information exchange. This analysis satisfied the Paris Court of Appeal which ruled that the existence of damage to the economy deriving from restrictive agreements can be presumed, it is therefore not necessary to quantify them.

Reversing its own precedent, the Cour de Cassation ruled that the existence of damage to the economy should in fact not be presumed for every restrictive agreement. The Cour de Cassation criticised the Paris Court of Appeal for failing to assess the real impact of these collusive practices on the relevant market.

This decision of the Cour de Cassation comes just four months after the decision of the Paris Court of Appeal which significantly reduced the fines that had been imposed on the members of the steel cartel. This judgment further demonstrates the willingness of the courts to submit the calculation of fines imposed by the FCA to a stringent assessment. These successive decisions emphasise the topicality of the current debate on the methods of calculation of fines. The FCA has announced that it will publish guidelines on this point by the end of the year and the Ministry for the Economy has commissioned three experts to provide their views on the question of foreseeability of fines; a report will be submitted at the end of May to Christine Lagarde. It is hoped that this report will lead to the adoption of clearer guidelines for companies, even though the President of the FCA has declared that an “element of mystery” could contribute to the deterrent effect of sanctions.

^Back to top

Merger control: Cisco entrusts the management of its TIP protocol to an independent industry body

In summary

The European Commission (the “Commission”) has approved the proposed acquisition by Cisco of its main competitor on the market for high-end videoconferencing products. However, such clearance required substantial and innovative commitments according to which Cisco will have to divest some of its intellectual property rights to an independent body.

By its decision of 29 March 2010, the Commission authorised the acquisition by Cisco of Tandberg, its main competitor on different markets relating to videoconferencing solutions.

Yet, the Commission had identified competition concerns on the market for “dedicated-room solutions” on which the merged entity would have market shares above 60 percent, as well as on the segment for “telepresence” solutions, which provide for very high-definition communication with life-size images.

Following market tests, the Commission identified potential competition concerns with regard to interoperability. For clients, it is indeed crucial that equipments supplied by different manufacturers can properly function when connected with each other. This requirement actually constitutes the main barrier to entry for new entrants.

Cisco has developed the so-called “TIP protocol”, notably meant to improve the interoperability of its products. Following the operation and taking into account the market shares of the merged entity, all Cisco’s competitors would be forced to use this protocol in order to insure the compatibility of their products with the products of the market leader.

The concerns identified by the Commission did not pertain to the access to the TIP protocol as such, but to the conditions under which access was granted. Indeed, Cisco was ready to grant free licence of its protocol to any interested person. However, the conditions of this licence might advantage Cisco on several levels.

Competitors also argued that, on this market, the interests of the industry could be better served if protocols were developed and managed by an independent industry body, within which any operator could participate.

As a result, Cisco offered innovative commitments according to which it will divest its rights on the TIP protocol to an independent industry body. In this respect, Cisco approached IMTC, a consortium gathering more than 70 companies active in the field of telecommunications. If the latter decided to refuse this assignment, Cisco committed to create a consortium open to all interested operator, within which members will have equal voting rights and will be able to take part in the development and the management of the TIP protocol.

In addition, Cisco commits not to give up the TIP protocol and to continue using it on all its related products.

In this decision, the European Commission adopted an innovative and pragmatic approach, where it also demonstrates a will to regulate a sector, something which is rare in European decisions, and which is more frequent in French decisions. This kind of commitments, which help solving the standardisation issue in highly technical sectors, could constitute a role model for other operations, and eventually for litigation cases.

^Back to top

The allotment of new infrastructure at the port of Le Havre has been submitted to competition rules

In summary

The French Competition Authority (“FCA”) has sanctioned both a non-compete clause between a subsidiary and one of its parent companies and the allotment of new berths that became available at Port 2000 (Port of Le Havre). This decision sets out the limits of intra group non-compete clauses and confirms that an agreement between competitors is not exempt from liability even where it was instigated by a public body.

In its decision of 15 April 2010, the FCA sanctioned two agreements that it deemed anticompetitive in the stevedoring sector at the port of Le Havre and imposed relatively modest fines, for a total of 595,000 euros.

The first agreement concerned the implementation of a non-compete clause between Perrigault and its subsidiary, Terminal Porte Oceane (“TPO”) which is jointly owned by Perrigault and the shipowner, Maersk. The FCA criticised Perrigault and TPO for restricting TPO’s commercial activities to those commissioned by Maersk, excluding all other clients. In doing this, the companies had widely interpreted the non-compete clause which prohibited TPO from doing business with clients of Perrigault which had used Perrigault’s terminals at Le Havre in the last 12 months.

In their defence, the companies argued that the non-compete clause had been concluded intra-group and therefore could not amount to a restrictive agreement. The FCA dismissed this argument on the ground that TPO was financially and commercially autonomous vis-à-vis its parents and that the non-compete clause could not be extended to clients other than Perrigault’s. The FCA thereby reiterated that intra-group agreements are not caught by the prohibition of restrictive agreements only where the undertakings concerned lack autonomy vis-à-vis each other. Competitions rules remain applicable to relationships between parent companies and their common subsidiary which, from a practical point of view, appear artificial.

In relation to the second agreement on the allotment of the new berths which became available as a result of the extension of the port (Project “Port 2000”), the FCA examined the role of the Grand Port Maritime du Havre (“GPMH”) which explicitly urged the bidders to agree among themselves on how they would distribute the berths. Given that GPMH is a public body entrusted with port management, the FCA does not have the power to sanction GPMH’s activities - even if the FCA, referred to such activities as being “very unfortunate”. The FCA said however that GPMH’s prods, which did not constitute overwhelming pressure, did not exonerate the bidders of their liability. The FCA did however take this into account as a mitigating factor and only found the bidders guilty in principle.

This decision is surprising if you balance the seriousness of the practices involved against the relatively small amount of fines imposed. It is however interesting in the sense that it reiterates the FCA’s position on a series of issues which may have significant practical consequences.

^Back to top