Competition Newsletter

March 2012

Contacts

In this issue

  • We comment on the procedural notice by which the FCA proposes to clarify the French settlement procedure rules but fails to increase predictability and visibility, particularly concerning the final amount of the fine.
  • We analyse the decision by which the Paris Court of appeal cancels the fines which where imposed on several banks and recalls the strict standard of evidence applicable concerning per se infringements.
  • We comment on the somewhat summary analysis by which the Paris commercial court held that Google Maps had abused its dominant position by providing free web mapping services.

The French settlement procedure: a double fool’s game?

Summary

The French Competition Authority (FCA) published on 10 February 2012 its procedural notice concerning the French settlement procedure (the Notice). This Notice, by proposing a summary of the FCA’s case law, is aimed at introducing more transparency and predictability in the application of procedural rules. While companies may find this procedure to be in their interest and on occasion may even have no other procedural choice, they should not be misguided into thinking that this procedure will open an avenue for the negotiation of their sanction, which ultimately will be determined by the decision-making body (the Collège) of the FCA.

The French settlement procedure may appear attractive. It enables a company suspected of anticompetitive practices (anticompetitive agreement or abuse of a dominant position) to forego any challenge to the statement of objections it receives and, in exchange, to obtain a reduction in fines of 10%, which can go up to 25% if the company also proposes commitments for the future, such as the implementation of a compliance program (which in itself allows for up to a 10% reduction). Furthermore, the maximum amount of the fine is reduced by half.

Despite its apparent advantages, this procedure is subject to several major pitfalls. While the Notice deserves credit for the clarification of applicable rules, it is regrettable that advantage was not taken of the opportunity to overhaul some of these rules and in particular to remove certain limiting factors as ultimately, the French settlement procedure does not provide many options to companies which have recourse to it.

Thus, the predictability is rather relative, given that companies negotiate with the investigating services of the FCA, a body which does not decide on the final amount of the fine. The amount of the fine will actually be calculated by the "Collège" of the FCA, which is not bound by the proposal of the investigating services. The Notice only provides that the case can be sent back to the investigating services and follow the ordinary procedure if the "Collège" of the FCA intends not to follow the recommendation of the head of the investigation services in a direction which is not favourable to the company. As a result, the time saving factor is reduced and the company may find that its position of defence is weakened.

Furthermore, the French settlement procedure should not be considered equivalent to the settlement procedure available before the European Commission or other national competition authorities such as the OFT in the UK. Companies which have recourse to the French settlement procedure do not have any visibility on the final amount of their sanction as they can only negotiate a percentage of reduction of the fine, without knowing the absolute amount of the fine. If the intention was to provide improved predictability, the Notice could have, at the least, allowed for a negotiation of an absolute value of the fine.

Moreover, the Notice does not take the opportunity to review the articulation between the standard procedure and the French settlement procedure when only some of the undertakings concerned use the French settlement procedure. Quite to the contrary, the Notice confirms the still controversial French Supreme Court’s approach in the “temporary work” case under which the company which challenges the statement of objections finds itself, because of the recognition by the other companies of the accuracy of the facts, deprived of the possibility to demonstrate that there has, in fact, been no infringement. As a result, the FCA does not need to demonstrate the accuracy of the infringement but only the individual participation of the undertaking which challenges the claims made against it in the anticompetitive practices in question.

Given the irreversible effects for the rights of the defence, companies should thus carefully weigh the interest of using the French settlement procedure, at least when they have the choice to do so, which is not really the case anymore as soon as other parties to the same procedure have decided to make use of the procedure.

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Interbank fees: return to a balanced position

Summary

On 23 February 2012, the Paris Court of appeals (the Court) modified the decision by which the French Competition Authority (FCA) had imposed fines on 11 banks for a total amount of 348.9 million euros, for having instituted multilateral interbank fees at the time that the new system for dematerialisation of checks was adopted (exchange of check image, ECI), having concluded somewhat hastily that this agreement was per se anticompetitive. The Court thereby restored a balance in the burden of proof by reminding the FCA that strict conditions must be met to sanction agreements on the sole basis of their allegedly anticompetitive object.

The adoption of ECI in 1999 allowed an acceleration of the interbank clearing of checks by dematerialising their processing. However, such acceleration altered the balance of cash flows between the paying banks and the beneficiary banks, the former losing more quickly the use of the funds on which their clients had drawn checks and the return on investment of such funds, in favour of the latter, who could redeploy the funds more quickly.

In order to restore a balanced situation, 11 banks created, under the aegis and with the active participation of the Banque de France, (i) an interbank commission for ECI (CECI) paid by the drawee’s bank to the drawer’s bank, and (ii) eight interbank commissions remunerating related services (CRS) newly provided by the creditor's banks (such as archiving check images...). These commissions also aimed at avoiding the ECI from making the check more attractive than other automated payment means which were less expensive for banks.

Without analysing the effect of these commissions on competition, the FCA had fined the banks, considering that their agreement was anticompetitive by its very object since:

  • the CECI prevented free price determination on the check market by artificially favouring a price increase on the recipient side, and a price decrease on the issuing side;
  • the CRS created a uniform expense common to all banks.

However, the Court took a different view: given that the per se doctrine creates a presumption of illegality and a reversal of the burden of proof, which frees the FCA from having to demonstrate an anticompetitive effect, the FCA should have either (i) proven the anticompetitive object by reference to the agreement's content, purposes and economic and regulatory context, or (ii) shown experience demonstrating that the commissions necessarily had an anticompetitive effect.

This was not the case here, according to the Court, especially since:

  • the commissions were inseparable from the broader agreement on the ECI system, which was a project “of general interest, neutral from the competition law standpoint”, with a “legitimate economic purpose”, and could not be analysed as a secret cartel;
  • as noted by the FCA itself, the agreement did not constitute a cartel on final prices since it was limited to interbank relationships and the commissions were not intended to be passed along to clients; the fact that such passing on might be “likely” or “plausible” was insufficient;
  • the situation was unquestionably new, and the existing precedents on interbank commissions (which related to final prices) were not transposable.

The Court's decision may be welcomed as it has sanctioned the FCA for failing to demonstrate with sufficient certainty that, in the absence of a clearly anticompetitive object, the commissions could actually restrict competition. The FCA has appealed this decision.

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Bottin Cartographies / Google Maps case: Google Maps zero pricing policy viewed as anticompetitive

Summary

On 31 January 2012, Google France (Google) was sanctioned for abuse of dominant position by the Paris commercial Court (the Court). Google was sentenced because it was providing free web mapping services to businesses across the country. This judgement is surprising in that it takes a form-based approach, applying per se rules, rather than a strict effect-based approach assessing the concrete impact of Google Maps offer on the market.

Bottin Cartographies, a multimedia mapping company, accused Google Maps of abuse of dominance, consisting of the provision at no cost of services similar to those offered by Bottin, in order to oust it from the market.

While it could have been expected that the Court would carry out a careful analysis of Bottin Cartographies’ arguments before sanctioning a zero pricing policy which in principle benefits clients and consumers, Google was in fact sanctioned following an expeditious analysis of the facts.

The analysis of the relevant market and Google’s dominant position is rather brief. The Court essentially infers Google's dominant position on the market of advertising and mapping multimedia services from its dominant position in the related market of search engines, analyzed by the French Competition Authority in an opinion of 14 December 2010.

However, the analysis of the abuse is perhaps the most surprising aspect of the judgement. Instead of conducting a thorough effect-based analysis of Google Maps zero pricing policy, the Court essentially considered that providing free web mapping services automatically constituted "predatory pricing", because such a choice does not allow Google Maps to cover its production and distribution costs.

Quite apart from the obvious lack of substance in the judgement, the Court totally ignored the fact that free services are the heart of Google’s web business model in which revenue essentially comes from advertising services. Hence, it was far from certain that by offering free web mapping services, Google necessarily intended to drive other competitors out of this market, and then, once having captured the market with its free product, to start charging its users. Moreover, such a risk was far from likely considering the existence of other “open source” free services in the relevant market, such as “OpenStreetMap”, to which several Google Maps’ users have recently decided to switch.

On a more general note, it seems rather questionable to sanction a free high-quality mapping tool beneficial for both users and consumers, without conducting a thorough analysis of the facts at hand.

In addition to showing a certain misunderstanding of the economics of the Internet, the judgement also underscores the difficulties for civil courts to apply competition rules, which frequently imply consequent resources that civil courts do not always have. As a result, courts may often be tempted to decide in light of the apparent likelihood of the alleged facts rather than on the basis of an in-depth economic analysis. By inevitably increasing the protection of competitors over that of consumers, such a trend should be taken into consideration by companies wishing to constitute a claim on the basis of competition rules.

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