Gun-jumping: the French Competition Authority issues highest fine ever for premature engagement in post-M&A integration
By Valerio Cosimo Romano
On 8 November 2016 the French Competition Authority (FCA) imposed a whopping EUR 80 million fine on Altice Luxembourg and its subsidiary SFR Group for implementing two notified transactions before obtaining appropriate merger clearance.
In France, the effective implementation of a concentration is suspended until clearance by the FCA. Pending approval, the concerned parties must behave as competitors and not act as a single entity. Violation of the rule triggers the application of Section II of Article L. 430-8 of the Commercial Code, which provides for a fine of up to the 5 per cent of the notifying parties’ turnover.
In 2014, Altice and its subsidiary Numbericable had notified the Authority about two distinct concentrations: the acquisition of SFR and that of OTL. Both transactions were approved. However, in 2015 the Authority started suspecting an early implementation of the two transactions and raided the companies’ premises. Evidence showed that the behavior implemented by Altice led to the exercise of decisive influence on its targets and allowed the company to access strategic information before getting the green light from FCA.
More specifically, Altice had repeatedly validated a number of SFR’s strategic decisions such as pricing and promotional policy, the participation in a tender, the renegotiation of a contract and the joint preparation of an offer. Further, the two companies had exchanged a large amount of strategic information concerning performances and forecasts at a very senior level.
In the second case, Altice had been involved in the OTL’s operational management, had set up a mechanism which allowed access to commercially sensitive information, and had allowed the participation of OTL’s CEO in the group’s decision-making and periodic reporting of commercial performance.
In the past, the FCA had already fined companies for failing to notify or for breach of commitments, but this is the first case in which it ruled on the early implementation of a merger prior to authorization (so called gun-jumping). The fine is also the highest ever imposed for a gun-jumping offence, and is four times higher than the highest sanction registered in Europe to date. According to the FCA, the high amount of fine is justified by the importance of the acquisitions in terms of purchase price and the impact on the telecommunications industry, the breadth, duration, reiteration and deliberate nature of the conduct. Remarkably, the FCA added that in setting the amount of the sanction it had taken account of the fact that the companies had not questioned the circumstances behind the fine and their legal characterization.
This sanction confirms an increased global attention by competition agencies in challenging the practice of gun-jumping. It also denotes a shift in the enforcement leadership on the matter from U.S. to European competition authorities. On a more practical ground, the judgment contributes to shedding legal certainty on the behavior to be avoided in the no man’s land between antitrust notification and clearance. Also, it opens up the debate on how to immediately achieve all the synergies expected from M&A transactions without violating competition law.
The French Competition Authority holds that the relevant market for retail distribution of electronic product comprises both physical and online stores
By Valerio Cosimo Romano
On 18 July 2016, the French Competition Authority (FCA or the Authority) cleared the acquisition of Darty by the Fnac group, a move which will allow for the creation of France’s largest electrical goods retailer. In a pioneering decision anticipated by a press release, the FCA held that the relevant market for retail distribution of electronic product includes both physical and online stores.
Fnac and Darty are France’s two largest click and mortar retailers, respectively active in the music and book and consumer electronics markets.
When Fnac notified the FCA in February 2016 that it intended to acquire Darty, the Authority opened up an in-depth investigation to look into the competitive pressure exerted by online stores on retail markets of electronic products. As anticipated, for the first time in its merger cases history, the FCA considered that the retail distribution of electronic products through both physical stores and online channels forms a single relevant market. The FCA has indeed ruled that, on the basis of a change in consumers’ habits, the competitive pressure exerted by online players (as comprising both pure e-commerce and websites belonging brick-and-mortar retailers) has now become significant enough to be integrated in one single market.
The Authority conducted its analysis on local-sized markets. After analyzing the competitive scenario on different areas, it observed that, despite a quite concentrated market, in the entirety of the markets located outside Paris, consumers will enjoy several alternatives for their shopping (such as large specialized supermarkets with significant aisles for electronic products or specialists in so called brown or grey products). The Authority concluded that Fnac will still face heavy competitive pressure outside the capital. However, FCA recognized that in certain areas the transaction carried competitive risks. For this reason, Fnac agreed to divest six stores in Paris and its suburbs to one or more retailers of electronic products, in order to ensure a variety of realistic choices for consumers, with the intent of maintaining competitive pricing and services conditions.
Further, FCA noted that manufacturers of electronic products are often global players enjoying a very strong negotiation power, which would maintain sufficient alternatives for the retailing of their products even after the occurrence of the proposed merger. Therefore, FCA could not identify any risk connected with the creation or enhancement of suppliers’ economic dependency.
FCA’s reasoning is groundbreaking and is destined to echo well outside national boundaries. With this leap forward, the French watchdog is not only signaling discontinuity with its traditional analysis on the matter, but is also paving the way towards the establishment of an innovative approach towards the identification of relevant markets, which is likely to spill over to the wider spectrum of competition matters.
By Gabriele Accardo
On 10 May 2016, French and German Competition Authorities published their joint report on competition law and Big Data. Separately, the French Competition Authority announced the launch of a full-blown sector inquiry into data-related markets and strategies.
The joint report provides an overview of how the two authorities would look at relevant competition issues raised by the collection and commercial use of data, in particular the assessment of data as a factor in establishing market power
Interestingly, the authorities make reference to established antitrust principles (e.g. data as a barrier to entry, or use of data in exclusionary or exploitative abuses), and not to new theories to look at such issues. In fact, a number of past cases illustrates how competition authorities have analyzed the “data advantage” in “non-digital” markets, and provides useful guidance on which issues the authorities are likely to focus on in future cases.
While it is noted that there are several possible “data-based” conducts, whether exclusionary or exploitative, which may lead, depending on the circumstances, to enforcement action, however, the theories of harm underlying the prohibition of such conducts are premised, mainly, on the capacity for a firm to derive and sustain market power from data unmatched by competitors. Yet, before concluding whether a company’s “data advantage” has created or strengthened market power, enforcers should undertake case-specific assessments on whether data is scarce or easily replicable, and whether the scale and scope of data collection matters.
Two considerations are worth singling out.
First, the two authorities recall that refusal to access to data can be anticompetitive if the data is an essential facility to the activity of the undertaking asking for access. Based on existing EU case law, compulsory access to essential facilities can be granted only in exceptional circumstances as even a dominant company cannot, in principle, be obliged to promote its competitors’ business. In this context it is further noted that access to company’s data may raise privacy concerns as forced sharing of user data could violate privacy laws if company exchange data without asking for consumer’s consent before sharing their personal information with third companies with whom the consumer has no relationship.
Secondly, with specific regard to privacy concerns, it is recalled that under EU case law, any issues relating to the sensitivity of personal data are not, as such, a matter for competition law, but may be resolved on the basis of the relevant provisions governing data protection. Still, according to the two authorities, Decisions taken by an undertaking regarding the collection and use of personal data can have parallel implications on economic and competition dimensions. Therefore, privacy policies could be considered from a competition standpoint whenever these policies are liable to affect competition, notably when they are implemented by a dominant undertaking for which data serves as a main input of its products or services. In such instances, there may be a close link between the dominance of the company, its data collection processes and competition on the relevant markets, which could justify the consideration of privacy policies and regulations in competition proceedings.
For instance, looking at excessive trading conditions, especially terms and conditions which are imposed on consumers in order to use a service or product, data privacy regulations might be a useful benchmark to assess an exploitative conduct.
Facebook investigation in Germany
The presence of excessive trading conditions is the underlying theory of harm for the investigation launched by Germany’s Federal Cartel Office (FCO) Bundeskartellamt into Facebook to assess whether it has abused its dominant position in the market for social networks through its specific terms of service on the use of user data. In particular, the FCO will assess whether Facebook’s position allows it to impose contractual terms that would otherwise not be accepted by its users.
Andreas Mundt, President of the FCO, stated that dominant companies are subject to special obligations, including the use of adequate terms of service as far as these are relevant to the market. For internet services that are financed by advertisements such as Facebook, user data is very important. For this reason, it is essential to also examine the abuse of market power and whether consumers are sufficiently informed about the type and extent of data collected.
In order to access the social network, users must first agree to the company’s collection and use of their data by accepting the terms of service. It is difficult for users to understand and assess the scope of the agreement accepted by them. According to the FCO, there is considerable doubt as to the admissibility of this procedure, in particular under applicable national data protection law. If there is a connection between such an infringement and market dominance, this could also constitute an abusive practice under competition law.
The FCO is conducting the proceeding closely with the competent data protection officers, consumer protection associations as well as the European Commission and the competition authorities of other EU Member States.
By Gabriele Accardo
On November 25, 2015, the Paris Court of Appeal (PCA) reversed the December 2012 ruling of the Commercial Tribunal of Paris (CTP) , which found that Google (specifically Google France and Google Inc.) abused its dominant position in the French market for “online mapping allowing for the geolocalisation of sales points on company websites,” in breach of Article L.420-2 of the French Commercial Code, and ordered Google to pay damages, amounting to Euro 500,000, to its French competitor Evermaps (formerly Bottin Cartographes).
The CTP essentially held that Google abused its dominant position insofar as it offered its geographic search engine “Google Maps” for free with the goal to exclude competition from the market and, ultimately, to further exploit its dominant position in the commercialization of targeted advertising (see Newsletter 2/2012, p. 8 for additional background).
Evermaps damage claim chiefly concerned Google’s predatory pricing of its mapping service Google Maps API, which allows companies to embed maps on their website (companies can either choose an upgraded paid version or a free version of Google Maps). Evermaps claimed that the offering of free services by Google constituted a form of predatory pricing.
However, the PCA actually followed the opinion of the French Competition Authority handed down in December 2014. The French Competition Authority was of the view that Google did not pursue a predatory or exclusionary strategy by offering a free version of Google Maps API.
In particular, the PCA found that Google’s pricing policy could not be considered as predatory, after taking into account the results of twenty tests on pricing. The Court held that although Google offered some of its mapping products for free, income from other sources, such as advertising should also be taken into account to determine whether its pricing conduct can be deemed predatory. Accordingly, eighteen out of twenty of the costs tests carried out indicated that the revenue Google generated from its online mapping services were above long-run average incremental costs and thus fully covered costs, including those generated by the free version.
The two tests that “failed” to meet that standard actually showed that although revenue generated by its online mapping tools were below long-run average incremental costs, they were nonetheless above average avoidable costs.
In addition, the PCA found that Google did not have the intention of forcing competitors out of the market, since for operators that are active on multisided markets “…It may be rational to offer products or services for free on a market not to oust competitors but to increase the number of users on another market” whereas “the free business model is quite widespread on electronic markets”, as the French Competition Authority had noted in its opinion.
The PCA also held that, in any case, Google did not have the ability to keep competitors out of the market given the presence of strong competition, as well as the possibility that other strong competitors, such as Amazon or Apple may enter the market.
By Gabriele Accardo
On April 21, 2015 the French, Swedish and Italian competition authorities jointly announced they have accepted—and made legally binding—the commitments (see FRA, ITA, SWE) offered by Booking.com, thus closing their respective investigations into the online hotel booking platform. The three authorities had also opened proceedings against Expedia. These proceedings are still pending.
The investigations concerned the clauses in the contracts between Booking.com and hotels that obliged hotels to offer Booking.com the same or better room prices and conditions as the hotels made available on all online and offline distribution channels (so-called “Most Favored Nation” or “MFN” clauses), including, for instance other Online Travel Agencies (“OTAs”) as well as hotels’ direct sales channels (see, Newsletter 1/2015, p. 17 Newsletter 3/2014, p.12 Newsletter 1/2014, p.15, Newsletter 5-6/2013, p.9 and 11, Newsletter No. 4-5/2012, p. 15, for additional background).
Such MFN clauses were deemed in breach of both national and EU competition rules, by restricting competition between Booking.com and other OTAs and hindering new booking platforms from entering the market.
The commitments offered by Booking.com consist of reductions in the scope of the MFN clauses.
Price parity vis-à-vis other OTAs. First, Booking.com committed to abandon the parity requirement in respect of prices which hotel make available to other OTAs. This would enable hotels to offer different room prices and/or better commercial conditions to different OTAs, and allocate them larger quotas of rooms.
Price parity vis-à-vis hotels direct sales. Secondly, hotels may also offer prices at a lower rate than those displayed on the Booking.com website via their offline sales channels (on-site bookings, by telephone, fax, email, instant messaging, physical sales outlets of travel agencies, etc.) as long as these prices are not published on the hotel’s website. They may also offer prices at a lower rate than those displayed on the Booking.com website to customers who are members of loyalty programs.
However, hotels would still have to offer the same or better room prices to Booking.com as are offered to the general public on the hotel’s own online booking channels. Nonetheless, hotels’ websites accessible by the general public may display qualitative information regarding the prices offered via their offline channels, such as “attractive prices”, “good prices”, etc. Furthermore, hotels will be allowed to send emails and SMS messages to consumers informing them of the prices offered via their offline channels, as well as to reach out to previous customers and offer them special discounts.
Other conditions. In addition, hotels may reserve a greater number of rooms to their direct online or offline sales channels than are allocated to Booking.com. Hotels will also be completely free to offer consumers more favourable conditions than those offered on Booking.com via other platforms and via their own offline channels. This includes breakfast or any other service (e.g. gym, spa, Internet access, etc.) as well as booking conditions (e.g. cancellation).
In essence, the commitments accepted by the competition authorities increase the hotels’ margin for maneuver, while acknowledging that price parity may be important in preventing free-riding on Booking.com’s investments and thus ensuring the continued offering of user-friendly search and comparison services free of charge.
In this respect, the three NCAs appear to have acknowledged that MFN clauses may bring about some efficiency. That is somewhat surprising given that during the market tests, stakeholders pointed to the fact that OTAs—not hotels—are the free-riders, notably on the investments made by hotels (e.g., brand, hotel facilities, quality of services provided to customers etc.), e.g. by purchasing hotels brands as keywords for online search. Also, hotels and other stakeholders actually expressed concerns that even a “narrow MFN” clause would produce the same effects as the fully-fletched MFN clause, since hotels would have basically no incentives to grant other OTAs lower prices than the price displayed on their own online sales channel (due to the risk of cannibalizing their direct sales).
It is not clear whether, in the light of their concerns, the intervening parties will decide the appeal the commitment decision(s).
Investigations in Germany…
While the French, Italian and Swedish competition authorities cheered the outcome of their cooperation and the coordination of the European Commission, the Federal Cartel Authority (“FCA”) in Germany was actually heading in the opposite direction on the very same issues in an ongoing investigation against Booking.com.
In fact, on April 2, 2015, the FCA sent formal charges to Booking.com regarding the use of “best price” clauses in its contracts with hotels in Germany.
In so doing, the FCA followed the same path it had already walked against HRS, another online booking portal once dominant in Germany.
In fact, according to the FCA, the statement of objections against Booking.com was necessary because the hotel booking portal had continued to use its best price clauses despite the fact that the FCA had prohibited similar clauses with a decision in the parallel proceedings against HRS.
The FCA’s decision was recently upheld by the Düsseldorf Higher Regional Court, which confirmed that HRS’s “best price” clauses restricted competition to such a degree that they could not be exempted under the EU Block Exemption Regulation (HRS’s market share was higher than 30%) or with an individual exemption (arguably, because the FCA found that such clauses brought about no efficiencies).
…and in the UK
These recent developments are particularly relevant in the context of the new investigation that the UK Competition and Markets Authority (“CMA”) has to carry out into Booking.com’s MFN clauses (the CMA replaced the Office of Fair Trading or “OFT” on April 1, 2014).
On September 26, 2014 the UK’s Competition Appeal Tribunal (“CAT”) reversed the OFT’s January 20th decision to accept commitments from online travel agents Booking.com B.V. (“Booking.com”, and its ultimate parent company Priceline.com Incorporated) and Expedia Inc. (“Expedia”), together with InterContinental Hotels Group plc. (“IHG”) (see Newsletter 4-5/2014, Newsletter 1/2014, Newsletter 5-6/2013 and Newsletter No. 4-5/2012 for additional background).
In the wake of the CAT’s decision, the case has been sent back to the CMA, which has been ordered to reopen the investigation into hotel online booking practices.
In its ruling the CAT noted that “by pursuing its investigation on the basis that it had identified restrictions ‘by object’ the OFT may have deprived itself of the ability properly to appreciate the significance of the role of operators such as Skyscanner, even though it had initially acknowledged the importance of price transparency as a force for competition and was aware, at least, that meta-search operators existed.”
It is worth recalling that in November 2013, the FCA and the OFT closed their respective investigations into Amazon’s price parity policy on its Marketplace platform following Amazon’s decision in August 2013 to end its Marketplace price parity policy across the European Union (see Newsletter 5-6/2013, p. 12, for additional background). The policy prohibited third party retailers from offering products through other online sales platforms cheaper than on Marketplace.
While it is hard to predict the outcome of the new investigation by the CMA, third parties and complainants may point to the recent developments illustrated above to call for a stricter approach by the CMA. In turn, the businesses under investigation may arguably prefer to settle the case once and for all by offering improved commitments in line with the French, Italian and Swedish cases. If that occurs, the German approach will be “singled out” as the stricter one in the European competition arena.
The issues assessed by several national competition authorities in Europe in the online booking sector were the perfect candidate for an EC investigation, which would have provided greater legal certainty at a faster speed. The reasons why this did not happen are unclear to most, and certainly the coordination efforts recently undertaken are no substitute for clear-cut enforcement. Historians of EU competition law may find the issue interesting to investigate
By Marie-Andrée Weiss
The commercial chamber of the Cour de cassation, France’s highest civil court, held on January 20, 2015, that a search engine which had used famous marks as keywords had not infringed these marks, nor could it be considered an editor and denied the benefit of the safe harbor provided by French law to Internet intermediaries.
The Société Nationale des Chemins de Fer Français is a French railroad company known since 1937 by its acronym “SNCF.” SNCF is registered as a mark, whether alone or as part of a composite mark, such as “Voyages-SNCF.”
SNCF discovered in late 2008 that the lo.st search engine site used SNCF marks as keywords without authorization. When searching for “SNCF”, users of lo.st. were led to competitors’ sites offering services similar to the ones offered by the SNCF. Such results appeared even ahead of the SNCF’s own sites on the lo.st search results page.
The SNCF filed suit against the Eorezo company, which rented the servers hosting lo.st. Eorezo has since changed its name to Tuto4pc. For purpose of clarity, it will be referred to as Tuto4pc throughout this article.
The court of first instance, the Tribunal de Grande Instance de Paris (TGI) had found on June 11, 2010, that Tuto4pc infringed the SNCF’s marks. Tuto4pc appealed, but the Paris Court of appeals upheld the TGI’s decision on October 28, 2011. Tuto4pc took the case to the Cour de cassation.
Use of Famous Mark as Key Words is not a Trademark Infringement
Article L. 713-5 of the French Intellectual Property Code prevents the unauthorized use of a famous mark. The TGI and the Court of appeals had found that the SCNF’s marks were indeed famous and had been infringed when used as keywords.
But the Cour de cassation disagreed, quoting the European Union Court of Justice (ECJ) Google France v. Louis Vuitton Malletier 2010 case, also known as the Adwords case. The ECJ had explained that an Internet referencing service is indeed storing as keywords signs which are identical to trademarks, so that advertisers may select these signs as keywords, store them and display ads on the basis of these signs. However, this is not a use within the terms of Article 5 of Directive 89/104/EC (the Trademarks Directive). The ECJ concluded: “[a] referencing service provider allows its clients to use signs which are identical with, or similar to, trademarks, without itself using those signs” (at 56). As such, the Cour de cassation held that the decision of the Court of appeals had violated article 5 of the Trademarks Directive.
Is a Search Engine an Intermediary or a Publisher?
The June 21, 2004 law on confidence in the digital economy (LCEN) implemented article 14 of Directive 2000/31/EC (the E-commerce Directive). Article 6-I-2 of the LCEN provides a safe harbor to hosts and shields them from liability if they are able to show that they acted “expeditiously” to remove illegal information or make its access impossible.
Tuto4pc argued before the TGI that it had a partnership with Google, and that the lo.st site was a search engine in which only “natural results” were shown. Such natural results proceeded exclusively from the flow of data available through its partnership with Google and corresponded to the selection of web pages indexed by Google in response to a particular user query. As such, Tuto4pc claimed it had no power to change the rank or frequency of these links, nor could it add or delete them. As it had no control over the search results, Tuto4pc claimed it was merely a host, not a publisher.
However, this argument had not convinced the TGI, nor the Court of appeals, which both noted that Tuto4pc had failed to prove its partnership with Google. Also, a bailiff report provided as evidence by the SNCF showed that, for the same query search terms using SNCF marks, the search results provided by lo.st and Google were different. Also, the Court of appeals noted that Tuto4pc had deleted the SNCF mark from its main page following the judgment of first instance, which proved that Tuto4pc “had access and control over the keyword.” The TGI and the Court of appeals found that Tuto4pc could not benefit from the LCEN safe harbor, because it had played an active role in the choice of content displayed online, and, as such, had to be considered an editor.
But for the Cour de cassation, the decision of the Court of appeals denying Tuto4pc the benefit of the LCEN safe harbor lacked legal basis, for two reasons. First, merely claiming as SNCF did, that the lo.st search engine and the Google search engine published different results when using the same keywords was not enough evidence to prove that Tuto4pc had knowledge or control of the data stored by the advertisers. Second, the Court of appeals failed to explain why “inserting a keyword as shortcut, leading users to a result page displayed by the search engine, and its subsequent removal, characterized the active role played byTuto4pc … would give them the knowledge and control of the data stored by advertisers.”
The Cour de cassation “broke” the Court of Appeal’s decision and sent the case back to the court, albeit composed of different judges. Most of the time, the judges then abide by the decision of the Supreme Court, but not always. It remains to be seen if the Paris Court of appeals will rule this time in favor of lo.st/Tuto4pc.
By Béatrice Martinet Farano
In a decision of 2 December 2014, the Paris court of appeal confirmed a judgment issued a couple of years ago (see Newsletter No 4-5/2012 p. 14-15) by the Paris trial Court holding video-platform Dailymotion, (“The French Youtube”) liable for failing short of its obligation as a hosting provider.
In this case, TF1 and other French TV broadcasters brought a copyright infringement action against Dailymotion after they found some of their videos posted on Dailymotion without their authorization.
While the appellate court rejected the claimants’ first contention that Dailymotion was liable as the “publisher” of their videos because they had allegedly played an “active role” in the selection and highlighting of such videos (see Google France, Newsletter No 2-2010 p. 7 and L’Oreal v. eBay, Newsletter 4-5 2011 p. 7-8 for further discussions on the “active role” criteria), the court however affirmed the trial court’s decision that Dailymotion was nevertheless liable as an intermediary for not taking down promptly enough infringing content and for not having taken any measures against repeat infringers.
To reach this conclusion, the court examined closely the number of days elapsed between the reception of each take down notices and the effective date each notified content was effectively taken down, holding that a failure to take down infringing content for a time period as short as four days was a breach to the hosting provider’s obligation to take down content promptly.
To assess the damages suffered by TF1, the Court took into consideration the money invested by the TV broadcaster in each of these programs to assess the damage at $2000 by videos. The court then listed a total of 166 links that had not been taken within a period of 4 days to two months from the right holder’s notification to get to a total damage of 1.3 million euros to be paid by Dailymotion to TF1. This very substantial indemnification for a mere delay in taking down infringing content will remind intermediaries of the importance of taking down content promptly upon the reception of compliant take down notice.