European Union: Competition Newsletter October/November 2018

Last Updated: 15 November 2018
Article by Emmanuelle van den Broucke and Alexia Delaunay

The European Commission fined four consumer electronics manufacturers for fixing online resale prices

On July 24, 2016, the European Commission imposed fines totaling €111 million on Asus, Denon & Marantz, Philips and Pioneer for imposing fixed or minimum resale prices on their retailers. These four decisions were adopted following an investigation with which the manufacturers decided to cooperate, enabling them to have their fines reduced by up to 50 percent.

In 2013, the Commission first carried out random inspections in Pioneer and Philips' premises. Two years later, in 2015, the premises of these four manufacturers' retailers were visited. Following these inspections, the Commission offered the manufacturers the possibility to cooperate with the inspection by providing information on their conduct, which they agreed to do. The settlement agreements provided that they had to undertake to admit clearly and unequivocally their liability for their involvement in the offense.

In these cases, the procedure adopted by the European Commission is very interesting. On the one hand, the Commission used criteria taken from the 2006 communication on the immunity from fines, whereas this communication on leniency procedures is a priori not applicable to horizontal arrangements. On the other hand, it used criteria from the 2008 communication on settlement procedures. This enabled the companies to benefit from substantial reductions.

Essentially, the Commission criticized these manufacturers for using various price monitoring tools in order to determine which retailers practiced the lowest prices to contact them and ask them to increase their prices. As most distributors were present online, it was easy for the manufacturers to track their prices and react rapidly if they deemed them too low. Moreover, the manufacturers were informed of the low price practices of the online retailers through complaints from other retailers.

The purpose of the scheme set up by the manufacturers was to avoid or slow down the reduction of their products' prices on all the online distribution network. The manufacturers used various means of pressure on the online stores to ensure compliance with their instructions, such as threats to cut funding or block supplies.

In addition, the Commission noted that the determination of their resale prices by the distributors was increasingly automated through the use of algorithms which adapt prices to those of competitors. Accordingly, the constraint imposed by the manufacturers, when forcing their resellers to increase their prices, went well beyond the sole retailers contacted and had a domino effect on the entire market.

Therefore, the Commission concluded that these behaviors constituted unlawful resale price maintenance practices and online sales discrimination. These practices are all the more reprehensible in that they had an immediate impact on consumers. Indeed, the sanctioned practices led to increased prices for consumer electronics, products which can be found in every household.

Reminding the suppliers that they cannot control their retailers' prices, even if some traditional retailers suffer from intense competition from pure players, the Commission stressed the opportunity to cooperate with the authorities in case of an investigation, including in the context of vertical arrangements.

The French Competition Authority sanctions Sanicorse for excessive prices

On September 20, 2018, the French Competition Authority imposed a €199,000 fine on Sanicorse for having abused its dominant position in the sector of infectious medical waste disposal in Corsica by practicing excessive prices vis-à-vis healthcare establishments.

Healthcare establishments are legally obliged to treat the management of their infectious medical waste (DASRI) within tight deadlines and conditions or entrust this task to a service provider. In Corsica, Sanicorse holds a de facto monopoly in this sector, since it is the only existing service provider and has long treated all the island's hospital waste.

In the context of this investigation which led to the matter being brought before the French Competition Authority, the BIEC (the Provence-Alpes-Côte d'Azur, Languedoc-Roussillon, Corsica interregional competition investigation squad, answerable to the Minister of Economy) found that Sanicorse had taken advantage of its monopolistic situation to increase its rates suddenly and without objective justification vis-à-vis the healthcare establishments. These rate increases reached nearly 200 percent in some cases. To impose these significant increases, Sanicorse threatened the healthcare establishments with terminating the existing agreements or not participating in invitations to tender. As the only company active in Corsica, the healthcare establishments were captive and had no other choice than to accept these increases. Moreover, the French Competition Authority considered that the healthcare establishments had been dissuaded from developing alternative solutions for fear of Sanicorse's retaliatory measures.

Consequently, the company was found to have committed an abuse of exploitation between 2011 and 2015 by increasing, in a lasting, significant and unjustified manner, the rates applied to Corsican hospitals and clinics for the disposal of their waste. The impact of these practices is all the more prejudicial that some of the healthcare establishments concerned are in a difficult financial situation, and this extra cost could have been used to improve the quality of the public and private health service.

This sanction was decided after Sanicorse refused the Minister of Economy's settlement proposal which amounted to €75,000 (i.e. more than 2.5 times less than the fine finally imposed by the French Competition Authority) pursuant to the settlement procedure provided for local anticompetitive practices (the amount of the settlement could not exceed €150,000 or five percent of the last turnover if lower). The refusal motivated the Minister of Economy to bring the matter before the French Competition Authority. Yet another example illustrating the fact that it is often perilous to refuse a settlement...

Law on agriculture and food: price and contractual relations regulation

The bill on agriculture and food was adopted on October 2 by the National Assembly. The purpose of this law is to make the purchase prices of agricultural products more lucrative for farmers and to improve commercial and contractual relationships between producers, processors and distributors. Several provisions of this bill will have a direct impact on the distributors' margins and organization.

Firstly, the threshold of resale at a loss is increased to 10 percent. Currently, when a store purchases a product from a supplier for €1 (after discounts), it must resell it at no less than €1 on the shelf. Once the law enters into force, this same product may not be resold at less than €1.10. Furthermore, promotions offered to consumers will be capped at 34 percent of the product's final value.

Relations between producers and purchasers (industrials or distributors) will take the form of an agreement proposed by the producer including a certain number of mandatory mentions. Prices will be determined based on the costs borne by the farmer, which leads to the creation of price indicators. These indicators will be fixed by interprofessional organizations and must be taken into consideration in the renegotiation clauses.

The law has been brought before the French Constitutional Council which may censor all or part of its provisions.

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.

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.

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