On November 14, 2019, the Paris Court of Appeals annulled a decision of the French Competition Authority (“FCA”) which, for the first time since the 2011 Fining Guidelines, had fined a company for abusing its dominant position through excessive pricing.[1] The Court set the conditions for finding exploitative abuses and held that the FCA had failed to show that Sanicorse’s price increases were “objectively unfair”.
Background
Under the public health code, healthcare establishments are required to treat and dispose of infectious medical waste. In Corsica, Sanicorse is the only provider of infectious medical waste disposal services. On September 20, 2018, following a report by the DGCCRF, the FCA found that from February 2011 onwards, Sanicorse had imposed “abrupt, lasting and significant” price increases on Corsican healthcare establishments. On average, Sanicorse had increased prices by around 88% between 2010 and 2012, and up to 100-200% for certain hospitals.
Abuses of dominance are commonly divided into (i) exclusionary abuses, where the dominant firm’s practice has the object or effect of excluding competitors from the market, and (ii) exploitative abuses, where the dominant company uses its dominant position to extract unfair advantages from its customers or trading partners. Exploitative abuses include excessive pricing and unfair contractual conditions.
The FCA found that Sanicorse had engaged in both exploitative and exclusionary abuses. The FCA noted that Sanicorse had increased prices while threatening to terminate contracts or not to bid for upcoming tenders. It also found that Sanicorse had failed to provide any objective justification, such as a cost increase, for its behaviour. On the contrary, the FCA found that Sanicorse had threatened hospitals with price increases in order to deter them from developing alternative solutions for the disposal of infectious medical waste. The FCA imposed a fine of €199,000 and Sanicorse appealed.[2]
Since 2009, the FCA had never fined a company for exploitative abuse in the form of excessive prices.[3] Similarly, the European Commission had only considered exploitative abuses in rare cases.[4]
The Court’s Ruling
While the Paris Court of Appeals confirmed that Sanicorse held a monopoly position in Corsica, it ruled that the FCA had failed to prove that Sanicorse had abused its dominant position by engaging in exclusionary or exploitative practices. The Paris Court of Appeals also confirmed that a practice may occasionally belong to both categories of abuse exclusionary and exploitative.
First, the Court ruled that the FCA had not demonstrated that Sanicorse had engaged in exclusionary practices. The Court found that Sanicorse had never admitted to threatening hospitals with price increases in order to deter them from developing alternative solutions. In this regard, a significant price increase is likely to incentivize hospitals to intensify competition, not abandon plans to develop alternative solutions. In addition, in the case at hand, none of the Corsican hospitals had abandoned plans to develop alternative solutions.
Second, and most importantly, the Court ruled that the FCA had failed to demonstrate an exploitative abuse. Citing the United Brand ruling, the Court held that for an exploitative abuse to occur, the dominant firm must have “made use of the opportunities arising out of its dominant position in such a way as to reap trading benefits which it would not have reaped if there had been normal and sufficiently effective competition.”[5] The Court thus held that two conditions must be fulfilled to establish an exploitative abuse: (i) the allegedly infringing company must have obtained the advantages in question as a result of its dominant position; and (ii) these advantages must be unfair. In regards to the second condition, the Court ruled that the FCA could not take the place of the dominant firm’s management in determining what the firm’s commercial policy, including prices, should be with respect to the market. It is only when the conditions of a transaction between the dominant firm and its trading partners are “objectively unfair” in light of all relevant circumstances that the FCA has jurisdiction to step in.[6]
With regard to the first condition, the Court acknowledged that the price increases resulted from Sanicorse’s dominant position in Corsica. Indeed, it is because Sanicorse held a monopoly position that it could charge higher prices without fearing that hospitals would switch to competitors.
Concerning the second condition, however, the Court ruled that the unfair nature of Sanicorse’s prices was not established. It noted that the FCA had not proven, and had not sought to prove, that the price increases were “not reasonably related to the economic value” of the service provided and had therefore failed to prove that the price increases were excessive. While doing so, the Court indicated that in a case where a dominant firm breaches an existing contract with its customer to impose a price increase, the price increase is likely to be unfair. The Court noted that, in the case at hand, Sanicorse did not challenge existing contracts but refused to renew contracts that were about to expire and implemented price increases in newly concluded contracts.
Implications
This ruling is a major setback for the FCA. It is the first time since the FCA’s 2011 Fining Guidelines that the Paris Court of Appeals has fully quashed a FCA decision for abuse of dominant position.
Substantively, the ruling clarifies the conditions for establishing an exploitative abuse, which had been somewhat unclear given the limited number of precedents. It states that exploitative abuse is not established unless the allegedly dominant firm (i) has made use of its dominant position to extract an advantage, or (ii) has extracted “unfair” advantages from its customer or trading partner, i.e., advantages that bear “no reasonable relation to the economic value” of the service provided to it.
While the FCA’s President referred to the Sanicorse ruling as a useful tool for the FCA to address unfair condition issues across all economic sectors, particularly the platform industry,[7] the Paris Court of Appeals’ ruling may make it more difficult for the FCA to use the exploitative abuse theory more extensively.
[1] Judgment of the Paris Court of Appeals of November 14, 2019, No. 18/23992 (the “Sanicorse ruling”).
[2] Decision of the French Competition Authority of September 20, 2018, No.18-D-17.
[3] See Decision of 28 July 2009 in Case No 09-D-24 – France Télécom.
[4] See, for instance, Commission Decision of 25 July 2001 in Case COMP/36.915 – Deutsche Post AG; Commission decisions of 23 July 2004 in Case COMP/36.570 – Sundbusserne and Case COMP/36.568 – Scandlines Sverige AB; and Commitment Decision of 9 December 2009 in Case COMP/38.636 – Rambus.
[5] Judgement of the European Court of Justice of February 2, 1978, United Brands Company v. Commission, case C-27/76, para. 249, cited by the Sanicorse ruling, para. 33.
[6] Sanicorse ruling, para. 92.
[7] “France may apply excessive pricing law to non-price conditions”, GCR, Pallavi Guniganti, September 12, 2019. The FCA President declared in an interview with GCR: “We’ll be looking closely at what the Court of Appeal has to say on our [Sanicorse] decision to see if we can continue using that type of framework for other cases. I think for the platform industry, it is quite interesting we have this tool in our toolbox.”