On June 17, 2020, the Paris Court of Appeals (“the Court”) ordered Orange and its subsidiary Orange Caraïbe to pay (jointly and severally) €181.5 million in antitrust damages and €68 million in interest to rival Digicel (formerly Bouygues Telecom Caraïbe) as compensation for the Orange group’s anti-competitive behavior across several markets in the French West Indies.[1] The Court’s decision overturns a 2017 first instance ruling by the Paris Commercial Court.[2]
Background
In December 2009, the French Competition Authority (“FCA”) imposed a €63 million fine on Orange (then France Telecom) and Orange Caraïbe for thwarting competition in the mobile and fixed telephony markets in the West Indies and Guyana between 2000 and 2006.[3] The fine was subsequently reduced to €60 million on appeal.[4]
In its decision, the FCA found that Orange Caraïbe, the then-incumbent operator in the West Indies, had implemented a series of practices that hindered the development of competition in the mobile telephony sector and raised barriers to entry for competitors, including Bouygues Telecom (which later sold its Caribbean business to Digicel). Such practices included: (i) entering into exclusivity agreements with local independent distributors and with the only authorized repair center for handsets in the Caribbean, (ii) implementing a customer loyalty program (“Changez de mobile”) which strongly deterred consumers from switching to a competing mobile operator at the end of their subscription period, and (iii) engaging in price discrimination between “on net” calls (i.e., calls within the Orange network) and “off net” calls (i.e., calls to other networks). The FCA also found that France Telecom had unduly favored its subsidiary Orange Caraïbe by (i) implementing a loyalty program (“Avantage Améris”) allowing professional customers to make free-of-charge landline calls to the Orange Caraïbe network and (ii) engaging in margin squeeze.
The FCA’s decision gave rise to two follow-on damage actions, both of which were filed with the Paris Commercial Court by Orange’s competitors. One was initiated by Digicel, which claimed damages of €494 million, and the other one by Outremer Telecom, which claimed damages of €75 million.[5] As regards Digicel, the Paris Commercial Court ruled in December 2017 that Orange’s anticompetitive practices had caused harm to Digicel, and awarded the latter €180 million in damages plus 10.4% interest per year, for a total of €346 million.
Both Orange and Orange Caraïbe (the “Appellants”) and Digicel appealed the 2017 ruling.
The Parties’ main arguments
The Appellants submitted that despite its practices, Digicel had been able to capture 35% of new customers and that the exclusivity agreements had not had any actual impact on the market. They also disputed the existence of a causal link between the two loyalty programs and the alleged harm, as these programs had a moderate impact on the market and did not result in any customer foreclosure. According to the Appellants, the damages suffered by Digicel mainly resulted from its own poor business strategy and lack of knowledge of the Caribbean market’s specificities.
Conversely, Digicel claimed that it should have been awarded a higher amount of damages. In particular, Digicel argued that Orange’s decision to refrain from paying the sums awarded by the Paris Commercial Court, and instead to place these sums in escrow pending the appeal court’s ruling, had prevented it from investing in profitable projects relating notably to the implementation of 3G or 4G. As a result, Digicel sought €520 million in compensation, an amount calculated by applying an interest rate based on the Weighted Average Cost of Capital (“WACC”) to the sums owed by Orange.
The Paris Court of Appeals’ assessment
First, the Court confirmed that the two customer loyalty programs implemented by the Appellants amounted to civil torts and had contributed to the reinforcement of Orange’s dominant position. In particular, the Court noted that Orange Caraïbe’s market shares, which had dropped from 100% to 75% between 2000 and 2002 following Digicel (then Bouygues Telecom)’s entry into the market, had increased back to 83% in late 2003, when the effects of the “Changez de Mobile” program began to materialize.
Second, the Court overturned the first instance ruling finding that the exclusivity agreements between Orange and independent distributors had not harmed Digicel. In addition, the Court considered that the Appellants’ exclusivity agreement with the sole repairer in the area, Cetelec Caraibes, had damaged Digicel’s brand image as it could not offer comparable services to its own customers. Consequently, the Court held that the overcharge suffered by Digicel as a result of the exclusivity agreements amounted to almost €8 million.
Third, the Court took the view that the price discrimination between on-net and off-net calls had reinforced Orange’s position to the detriment of Bouygues and other new entrants.
Fourth, the Court dismissed as unsubstantiated the Appellants’ argument that Digicel’s development issues were the result of its own failures.
Fifth, with respect to the calculation of damages, the Court held that the first instance court was correct in assessing the harm suffered by Digicel based on its overall lack of economic growth. Accordingly, the Court confirmed that the practices at stake had resulted in lost profits amounting to €173,64 million. The Court also decided to apply a capitalized interest rate of 5.3% to both the lost profits and the overcharge from April 1, 2003 to December 31, 2005 and a statutory interest rate from January 1, 2006 to December 31, 2018. Finally, the Court dismissed the application of the WACC method used by the Paris Commercial Court, as it considered that Digicel had failed to demonstrate that it had been forced to restrict its activity or to abandon certain investment projects as a result of the unavailability of the sums. In particular, the Court noted that Digicel had not shown that it had no alternative means to finance its projects (for example through loans from its parent company).
Implications
While the sum awarded to Digicel is far below its initial claim, it nevertheless remains three times higher than the fine imposed by the FCA, and is (at this stage) the highest damage award ordered by a French court in a follow-on case.
Orange indicated that it was “seriously examining” the possibility of appealing the Court of Appeals’ ruling before the French Supreme Court.
[1] The Court awarded €173.4 million in compensation for the lost profit; €7.12 million for extra costs relating to exclusivity agreement and €737 500 for extra costs generated by the exclusivity repair clauses for a total of around €181.5 million.
[2] Paris Commercial Court ruling of December 18, 2017 (no. 2009/016849), SA Digicel Antilles Françaises Guyane c/ SA Orange Caraïbe, SA Orange.
[3] FCA Decision No. 09-D-36 of December 9, 2009 relating to practices implemented by Orange Caraïbe and France Telecom in various telecommunication services markets in the overseas territories of Martinique, Guadeloupe and Guyana.
[4] Paris Court of Appeals ruling of September 23, 2010 (no. 2010/0063).
[5] Outremer Telecom was awarded €8 million by the Paris Commercial Court in March 2015. The damage award was reduced to €2.6 million by the Paris Court of Appeals in May 2017.