Paris competition newsletter - Recent developments in French and EU competition law

January 2012

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Introduction

In this issue

  • We analyze the decision of the French competition authority in the detergent cartel case, which raises questions about the efficiency of leniency procedures where the facts at stake may fall within the jurisdiction of several competition authorities.
  • We comment the decision of the French competition authority in the Diddl case, which makes a surprising application of the guidelines on calculation of fines.
  • We study the impact on leniency procedures of the General Court's judgement in the hydrogen peroxide cartel case, which granted a victims association access to the case file relating to the cartel proceedings.

The “detergent case”: the precarious exercise of multiple leniency applications in the European Union

Summary

In a decision dated 8 December 2011, the French competition authority (FCA) applied sanctions to a cartel between the four main laundry detergent manufacturers. This case closely follows a decision of the European Commission (the Commission) imposing fines on very similar facts and involving the same undertakings, one of which had been granted full immunity from fines, pursuant to the European leniency programme. Applying a strict assessment of the facts, the FCA nonetheless refused to consider that both cartels constituted the same infringement and therefore did not extend the benefit of the immunity granted by the Commission to the undertaking in question, thereby emphasising the importance of correctly identifying the competent authorities to which a leniency application is made.

In a decision of 8 December 2011, the FCA applied sanctions to a cartel between four laundry detergent manufacturers active in France (Unilever, Henkel, Procter & Gamble and Colgate Palmolive) for a total amount of € 367.9 million. The undertakings coordinated their commercial strategies by agreeing on sale prices and promotional actions to the French retail grocery sector.

While all the participants in the cartel submitted a leniency application, only Unilever, which was the first company to disclose the existence of the cartel to the FCA, received a full immunity from fines, the other participants receiving only a reduction in fines in exchange for active cooperation with the FCA. This was in line with a common feature of leniency programmes put in place by both national competition authorities (NCA) and the Commission, under which only the first undertaking disclosing the existence of a cartel may be granted a full immunity from fines.

Henkel, which was the second leniency applicant before the FCA, argued that the facts in question were directly related to a cartel that had already been subject to fines imposed by the Commission in April 2011. Since Henkel had been the first to disclose the existence of the cartel before the Commission, thereby being granted a full immunity from fines, it argued that the FCA could not sanction it without violating the ne bis in idem (“double jeopardy”) principle. In this respect, the Head of the FCA’s investigation services (“Rapporteur general”) had expressed some doubts about the distinct character of both cases, noting that both related to practices of coordination “on prices and promotions in the laundry detergent sector in Europe”.

After consulting with the Commission, the FCA nonetheless concluded that both cartels constituted distinct infringements due, in particular, to their different object (the European cartel consisted of indirect price increases, when the French cartel consisted of direct price increases) and the fact that the products concerned were not identical (the European cartel concerned laundry detergent powder only while the French cartel related to any forms of laundry detergent).

This case illustrates the difficulties faced by undertakings that discover unlawful conduct and contemplating the submission of leniency applications. Certain complex cartels are for example structured at a European level, and implemented in several member states. In such a situation, it may be difficult to determine with certainty whether the discovered practices constitute a single infringement that can be covered by a leniency application before the Commission or distinct infringements requiring several leniency applications for each one before both the Commission and/or each competent NCA.

Successfully applying for leniency requires precision in the legal qualification of the facts and swift action, failing which there is a risk - as happened to Henkel in the present case - of not being granted full immunity from fines: in this regard, in the “elevator cartel” case, the General Court of the European Union held that the Commission may relieve the NCA of their competence if they have neither imposed sanctions nor definitively held leniency applicants to be free of liability. (See Competition Newsletter of September 2011). In this respect, the existence of an effective compliance programme within the undertaking - strongly encouraged by both the FCA and the Commission-, can contribute efficiently to this goal.

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Sanction of a vertical agreement in the distribution of Diddl products: burning the house to fright a mouse away!

Summary

On 15 December 2011, the French Competition Authority (the FCA) adopted a decision by which it sanctioned Kontiki, exclusive supplier in France of products featuring the Diddl mouse character, for having entered into an anticompetitive agreement with its retailers, between 2003 and 2007, on resale prices of these products. The FCA’ s decision is surprising regarding the determination of the amount of the financial penalty, and in particular the reduction of the base amount of the fine by no less than 90 per cent, even though such base amount was calculated following the guidelines recently adopted by the FCA, thus concretely illustrating the flaws which were the object of criticisms by practitioners on this issue.

During the second half of the 2000s, Diddl products were a great success on the market for gadgets and novelty items for children and young teenagers. At that time, Kontiki, exclusive supplier of Diddl products in France, earned almost all of its turnover from the sales of Diddl products. Kontiki also ran the French Internet domain of Diddl under the name “Diddl.fr”.

For the distribution of Diddl products, Kontiki promulgated a “Diddl charter”, which constituted the framework for its commercial relation with resellers. By signing this draft, resellers agreed in particular to apply recommended prices, a condition they had to fulfil to be mentioned on the website “Diddl.fr

While the application legislation does not forbid recommended retail prices, the FCA considered in the present case that such a condition had in fact as its object the imposition of a resale price on retailers, who understood that the prices recommended by Kontiki actually constituted prices which must be maintained and which, to a large extent, they applied.

While recalling that resale price maintenance is among the most serious anticompetitive practices, the FCA tempered in this case the gravity of the infringement by acknowledging that no coercive measure had been implemented regarding retailers who did not apply the prices imposed by Kontiki. This argument is surprising as the FCA, having established the existence of resale price maintenance, was not in theory required to verify the latter two criteria applicable to vertical agreements based on a practice of recommended prices, i.e., the implementation of a pricing control system by the supplier and the actual application of these prices by retailers. Yet in the present case, the FCA used the criterion of the absence of a pricing control system to moderate the gravity of the behaviour.

Furthermore, the FCA considered that the damage caused to the economy was relatively limited, the effect of the practice on intra-brand and inter-brand competition having remained limited. As a consequence, the FCA fixed the basic amount of the fine to 9 per cent of the value of sales made by Kontiki in 2005-2006, on a scale which ranges from 0 to 30 per cent in its notice of 16 May 2011 on the method relating to the setting of financial penalties (the Notice).The FCA then applied a multiplying ratio to take into account the duration of the infringement.

However, this period was characterised by the increasing popularity of Diddl. Thus in 2005 Kontiki realised a very exceptional turnover, which then considerably decreased due to the diminution, although not the disappearance of “Diddl mania”. Taking into account this situation which it considers “exceptional and very particular”, the FCA reduced the basic amount of the fine by 90 per cent, thereby implicitly recognising the importance of the individualisation of sanctions.

This decision is the second application by the FCA of its Notice, which was supposed to provide more foreseeability for companies. It illustrates the reservations expressed by practitioners regarding the Notice: not only did the literal application of the Notice in this case lead to fixing a base amount of the fine which was almost twice the legal maximum, but the criteria set out in the Notice represented only 10 per cent of the total calculation, the other 90 per cent enabling the FCA, on the basis of the individual situation of the company, to fix a level of fine which, in the end, remains quite similar to its previous case law.

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Access to the Hydrogen Peroxide cartel case-file: when private actions prevail over leniency programmes

Summary

In a decision dated 15 December 2011, the General Court (the GC) sanctioned the European Commission (the Commission) for having unduly denied an association representing the victims of the Hydrogen Peroxide cartel (the “CDC Hydrogen Peroxide Cartel Damage Claims” - CDC) access to the table of contents of the case file relating to the cartel proceedings. A gesture in favour of private actions as opposed to an absolute protection of leniency applicants.

Following the Commission’s decision dated 3 May 2006 which imposed sanctions on nine undertakings (six of whom had submitted a leniency application) for participating in a cartel in the hydrogen peroxide market, CDC (representing the cartel’s victims) sought access to the table of contents of the case file, in order to identify any documents that would be useful for the preparation of an action for damages. This request was made pursuant to Regulation n° 1049/2011 allowing public access to the documents held by European institutions (the Regulation).

Based on an expansive interpretation of the exceptions to the right of access provided for in Article 4 of the Regulation, the Commission firmly rejected CDC’s request on the ground that such a disclosure could jeopardise (i) the commercial interests of the sanctioned undertakings, exposing them to a greater risk of actions for damages and (ii) the Commission’s task of preventing anti-competitive practices, by undermining the appeal of procedures intended to encourage compliance such as leniency programmes.

According to the Commission, the table of contents could enable the cartel’s victims to identify incriminating evidence which was not mentioned in the public version of its decision, in particular regarding undertakings which cooperated with the Commission to obtain a reduction of their fine.

The GC rejected this line of reasoning and recalled that access to documents relating to a cartel proceeding must be as wide as possible, unless the Commission can show that such disclosure would materially and effectively jeopardize a protected interest pursuant to Article 4 of the Regulation (e.g., the commercial interests of an undertaking, the purposes of investigation activities, business secrets). Since the exceptions to the right of access must be strictly interpreted, the GC concluded that the Commission went too far, in particular because:

  • the fact that an undertaking which participated in a cartel might be interested in avoiding actions for damages cannot be regarded as a “commercial interest” nor as deserving any protection,
  • the concept of “purposes of investigation activities” does not permit the Commission to deny access, “without any limit in time, to any documents in a competition case merely by making reference to a possible future adverse impact on its leniency programme” (§ 70),
  • the table of contents did not contain any business secret that may be protected.

For these reasons, the GC condemned the Commission’s broad approach, which would have enabled it to refuse, in order to promote the efficiency of leniency programmes, the disclosure of any document, even those which had not been produced by a leniency applicant and contained no information likely to damage the commercial interests of such applicant.

This decision underscores the fact that the protection offered to leniency applicants is not absolute and that cooperation procedures may have downsides.

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