In a July 7, 2021 ruling, the Cour de cassation dismissed the appeal of the French Competition Authority (“FCA”) in the Sanicorse case, confirming the Paris Court of Appeals’ holding on excessive prices and, more generally, unfair terms (also called “exploitative abuses”).[1] This is a major setback for the FCA, which intended to use the legal reasoning developed in the Sanicorse decision in other (pricing or non-pricing) unfair terms cases.
Background
As reported in a previous newsletter,[2] in September 2018, the FCA fined Sanicorse, a company that collects and processes healthcare waste in Corsica, for “increasingly abruptly, significantly, durably and in an unjustified manner” the waste disposal prices it charged hospitals and clinics in Corsica.[3] Sanicorse was one of the rare cases qualifying an abuse of dominant position resulting from excessive prices. The FCA had used the notion of unfair terms (or “exploitative abuse”), relying on the landmark United Brands case.[4]
In November 2019, the Paris Court of Appeals quashed the FCA decision.[5] From a literal reading of United Brands ruling, the Court held that to establish an exploitative abuse, two conditions must be met: (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. Importantly, concerning the second condition, the Court held that it is not for the FCA to substitute itself to an undertaking’s management bodies and determine what its commercial policy, including on pricing, should be. Thus, it is only if the terms of the transactions between that undertaking and its trading partners can, in the light of all the circumstances of the case, be objectively described as unfair, that the FCA is entitled to intervene. The Court found that the second condition was not met in Sanicorse because 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. Therefore, given the burden of proof lies on the FCA, the prices should be presumed to be fair. The FCA appealed.
Cour de Cassation Ruling
In its July 7, 2021 ruling, the Cour de Cassation dismissed the FCA’s claims, and confirmed the legal test for unfair terms laid out in the Paris Court of Appeal’s decision.
The FCA argued that unfair prices can be qualified either (i) by demonstrating that the prices as charged bore no relation with the economic value of the service provided or (ii) by comparing those prices with reference prices, showing there is a significant gap between those prices and the reference prices which is not justified by the undertaking.
The Cour de Cassation rejected this argument. It held, first, that the argument is not admissible because the FCA did not put it forward before the appeal judges. Instead, before the Paris Court of Appeals, the FCA argued that an increase in price can, in itself, qualify as an abuse.
Second, the Cour de Cassation confirmed the Paris Court of Appeals’ legal reasoning, finding that absent a demonstration by the FCA that the prices charged by Sanicorse “bore no reasonable relation with the economic value of the service provided”, the prices had to be presumed to be fair, and it was not for the Paris Court of Appeals to assess whether the prices charged by Sanicorse bore a reasonable relation with the economic value of the service provided to its clients. Therefore, the Paris Court of Appeals rightly found that the alleged abuse had not been established.
Take-away
It is the first time since the FCA’s 2011 Fining Guidelines that an FCA infringement decision is entirely quashed by the Paris Court of Appeals and the Cour de Cassation. The FCA’s President was hoping to use the Sanicorse precedent on exploitation as a legal framework for assessing and fining unfair condition types of issue across all economic sectors, particularly the platform industry.[6] However, the Paris Court of Appeals’ and the Cour de Cassation’s rulings will likely make it more difficult for the FCA to use the exploitative abuse theory beyond the boundaries of the established case-law.
[1] Judgment of the Cour de Cassation of July 7, 2021, No. D 19-25.586 and W 19-25.602.
[2] Cleary Gottlieb, European Competition Law newsletter, November 2019, available at: https://www.clearygottlieb.com/-/media/files/french-competition- reports/french-competition-newsletter-november-2019.pdf.
[3] Decision of the French Competition Authority of September 20, 2018, No.18-D-17.
[4] As explained in our previous newsletter, 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 unfair pricing terms (i.e., excessive prices) and other unfair commercial conditions (e.g., contractual terms).
[5] Judgment of the Paris Court of Appeals of November 14, 2019, No. 18/23992. See “The Paris Court Of Appeals Quashes A Landmark FCA Decision On Excessive Pricing”.
[6] “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.” (free translation)