On February 6, 2024, the French Competition Authority (“FCA”) imposed a four million euros fine on chocolate maker De Neuville (“De Neuville”) and its parent company Savencia Holding for restricting their franchisees’ freedom to sell De Neuville chocolates online and to professional customers.[1]
Background
De Neuville is a French company specializing in the wholesale and retail of fine chocolates and has the largest franchise network in this sector. It is part of the Savencia group, a France-based food conglomerate present across around 120 countries. The relationship between De Neuville and its franchisees hinges on a seven-year agreement along with an operating manual to which the franchisees must adhere. They notably set rules regarding the use of the De Neuville brand, product descriptions, sales tactics, store management, online sales and customer outreach efforts, and non-compliance may result in the termination of the franchise agreement.
Following an investigation by the Directorate General for Competition Policy, Consumer Affairs and Fraud Control, the FCA, acting ex officio, found that De Neuville’s arrangements with its franchisees constituted anticompetitive vertical agreements restricting, on the one hand, the online sales by franchisees and, on the other hand, the latter’s sales to professional customers.
The sanctioned practices
In line with consistent case law to assess compliance of an agreement with Article 101 of the Treaty on the Functioning of the European Union (“TFEU”) and Article L.420-1 of the French Commercial Code (“FCC”), the FCA assessed for each practice (i) the existence of an agreement between De Neuville and its franchisees, (ii) whether such agreement had the object or effect of restricting competition, and (iii) the potential exemption it could benefit from under Article 101(3) of the TFEU and L. 420-4 of the FCC.[2]
Online sales’ ban
According to the FCA, De Neuville established its own website in 2006 as a centralized online sales distribution channel. Between 2006 and 2014, De Neuville’s franchise agreements explicitly prohibited franchisees from engaging in online sales. Between 2014 and 2019, this restriction continued to be included in the operating manual annexed and/or referred to the franchise agreements. The FCA further found that although franchisees could theoretically seek approval from De Neuville to sell on their own website, such an exception was at De Neuville’s discretion and limited to online sales within the franchisee’s designated catchment area.
The FCA considered that these elements demonstrate the existence of an agreement aimed at limiting online sales and the fact that some franchisees did not comply with the policy in practice (one franchisee had developed its own online sales portal) does not undermine the characterization of the practice.
Referring to its decision-making practice since the Pierre Fabre case,[3] the FCA found that such a limitation on online sales constituted a restriction of competition by object within the meaning of Articles 101, paragraph 1, and L. 420-1 of the Commercial Code, which could not benefit from an exemption under the Vertical Block Exemption Regulation[4]. The FCA also found that the practice could not benefit from an individual exemption since it was neither demonstrated nor even alleged that the practice in question would contribute to improving De Neuville’s production or distribution of products or to promoting technical or economic progress.
Restrictions of sales to professionals
According to the FCA, De Neuville imposed rules to its franchisees ensuring that contracts with business customers were allocated among franchisees based on their geographical catchment area between 2006 and 2022. De Neuville imposed detailed rules to its franchisees on how to target potential business customers and organize canvassing campaigns. Franchisees had to initially focus on reaching out to business customers within their catchment area and could only then prospect professional customers in other territories. Moreover, franchisees could only respond to unsolicited requests from business customers if those requests aligned with the rules governing active solicitations.
The FCA found that such elements suffice to establish an agreement aimed at allocating sales to professional customers between the franchisees, which constitutes a particularly serious territorial restriction by object within the meaning of Articles 101, paragraph 1, and L. 420-1 of the Commercial Code, that cannot benefit from a categorical exemption. Similarly, the FCA also found that the practice could not benefit from an individual exemption.
Sanction
The FCA fined De Neuville, jointly and severally with its parent company Savencia Holding, 2.312 million euros for the online sales ban and 1.756 million euros for the restriction of sales to professionals.
Rather surprisingly, the FCA retained severity coefficients of 1% for the online sales limitation and 3% for the restriction of sales to professionals without further explanation. By comparison, in a decision concerning an online sales restriction in the luxury distribution sector two month earlier, the FCA had applied a much higher severity coefficient of 4%.[5]
[1] FCA Decision No. 24-D-02 of February 6, 2024 regarding practices implemented in the chocolate distribution sector.
[2] Certain restrictive agreements can be considered lawful if they contribute to improving the production or distribution of goods or to promoting technical or economic progress while allowing consumers a fair share of the resulting benefit.
[3] See Judgment of the Court of Justice of the European Union (CJEU) dated October 13, 2011, Pierre Fabre Dermo-Cosmétique, C-439/09; Judgment of the Paris Court of Appeal dated January 31, 2013, Pierre Fabre, n° RG 2008/23812
[4] Commission Regulation (EU) 2022/720 of 10 May 2022 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices. The 2022 VBER revised the 2010 VBER, which itself revised the 1999 VBER.
[5] Decision No. 23-D-13 of December 19, 2023 relating to practices implemented in the luxury watch distribution sector.