The term "cartel" often conjures up images of secret meetings where competitors agree to manipulate the market. While this image is not entirely false, the legal reality is more nuanced. Understanding exactly what is meant by an anti-competitive agreement is essential for any company wishing to operate in compliance with the law and avoid potentially heavy penalties. Article L. 420-1 of the French Commercial Code sets out the principle: concerted actions, agreements, express or tacit understandings or coalitions whose purpose or effect is to prevent, restrict or distort competition are prohibited. on a market. But what does this definition really mean? What constitutes a cartel under French law? This article deciphers for you the fundamental components of this concept.
The need for an agreement
At the heart of the concept of an agreement is the idea of a combination of wills between several economic players. It is not a unilateral decision taken by an isolated company, but a form of coordination, however minimal, between at least two distinct entities. This "agreement" can take extremely varied forms. It can be a formal contract, written and signed, but also much less formal arrangements: a verbal agreement, a "concerted practice" resulting from exchanges of information or meetings, or even a simple tacit acceptance of a commercial policy proposed by a partner.
Both French and European case law take a broad view of this agreement. It is sufficient if undertakings knowingly substitute practical cooperation between themselves for the risks of competition. Regardless of the legal form or degree of formalisation, it is the manifestation of a common will not to act totally independently on the market that is sought. This broad approach makes it possible to understand a wide range of behaviour, from structured cartels to more diffuse forms of coordination. You can find out more about how these agreements are uncovered in our article dedicated to proof of agreements and evidence used by the authorities.
It is therefore essential for companies to understand that even informal discussions with competitors, if they lead to an alignment of behaviour on the market (for example, on prices or commercial strategies), can potentially be classified as a cartel. Mere passive participation in a meeting where anti-competitive information is exchanged may be enough to engage a company's liability, unless it distances itself publicly.
Who can enter into an agreement? The notion of business
Article L. 420-1 of the French Commercial Code applies to agreements concluded between companies. Company status is therefore a prerequisite. Although the question may have arisen for a time, it is now accepted that only entities with this status may take part in a cartel.. But what do we mean by "undertaking" in competition law?
The definition is functional and very broad, drawing heavily on European Union law: a company is any entity engaged in an economic activity, regardless of its legal status or the way in which it is financed.. Economic activity, on the other hand, refers to any activity consisting of offering goods or services on a given market.
This means that cartel law is not limited to traditional commercial companies (SA, SARL, SAS, etc.). Companies can also qualify as undertakings and therefore be parties to an agreement:
- Individuals A sole trader, a craftsman or a self-employed professional (doctor, architect, chartered surveyor, etc.) can be considered as a company for the purposes of their economic activities.
- Public bodies Article L. 410-1 of the French Commercial Code states that the rules apply to production, distribution and service activities, "including those carried out by public bodies". Public companies such as SNCF and France Télécom (now Orange) have been sanctioned in the past. The fact that an entity pursues a public service mission does not automatically exclude it from the scope of competition law for its economic activities.
- Non-profit organisations Associations, trade unions, professional bodies, mutual societies and cooperatives can be classified as companies if they carry out an economic activity. The social or non-profit nature of part of their activity is not an obstacle, as long as they operate in a competitive market (for example, mutual societies in the supplementary health insurance market). In principle, only activities involving purely national solidarity, such as basic social security schemes, escape this classification.
- Economic interest groupings (EIGs) An EIG can be seen as a business, but also as a vehicle for agreement between its members.
This very broad conception of the concept of a company shows the authorities' desire to apply the competition rules to all players in the economy, whatever their legal form or stated corporate purpose.
The requirement for independence between companies
For there to be an agreement, there must be an agreement between entities that should compete with each other, i.e. are economically independent of each other. The question of autonomy is therefore central.
Antitrust law is not intended to apply to the internal relations of a single economic group, where the various companies that make up the group do not have real decision-making autonomy. For example, an agreement between a parent company and its 100% subsidiary, which merely carries out the parent company's instructions, is generally not considered to be an agreement.. The subsidiary is not seen as a distinct and autonomous economic entity, but as part of the economic whole constituted by the group. Both the Court of Justice of the European Union and the French authorities consider that in such a situation there is only one economic will at work.
The situation is identical for agreements between sister companies belonging to the same group and controlled by the same parent company, if they have no strategic autonomy in relation to each other or to the parent company..
However, this "intra-group" immunity is not absolute. It ceases as soon as the subsidiary has real autonomy to determine its commercial policy on the market.. How is this autonomy assessed? The authorities examine several criteria on a case-by-case basis:
- The percentage of capital held by the parent company (a holding of 100% creates a strong presumption of non-autonomy, but this presumption is not irrefutable).
- The subsidiary's ability to define its own industrial, financial and commercial strategy.
- The degree of control exercised by the parent company over the subsidiary's management bodies.
- The existence of precise instructions given by the parent company to the subsidiary concerning its behaviour on the market.
The mere fact that a subsidiary manager has delegated authority to sign contracts or manage staff is not enough to establish the strategic autonomy required. It is the ability to act independently in the marketplace that counts. The distinction may be subtle, but it is fundamental because it determines whether an agreement is part of the internal workings of a group or a potential anti-competitive agreement. Understanding this nuance is all the more important when analysing the difference between an agreement by object and an agreement by effect.
The specific case of intra-group agreements in public contracts
For a long time, a notable exception to intra-group immunity existed in the area of public procurement in France. The former Conseil de la Concurrence and the Paris Court of Appeal considered that even non-autonomous companies in the same group could be penalised for collusion if they submitted separate and apparently independent bids in response to a call for tenders, without informing the public purchaser of their links.. The idea was that this practice misled the buyer about the real intensity of competition. Voluntarily submitting separate bids created a "legitimate belief" in their independence..
This French position was isolated, as European case law had not formally enshrined this exception.. Finally, a judgment of the Court of Justice of the European Union in 2018 ("Écoservice projektai") clarified the situation by holding that the prohibition of restrictive practices (Article 101 TFEU) does not apply to practices consisting, for related undertakings of the same group, in submitting separate bids in response to a call for tenders in a coordinated manner, even if they appear to be independent..
Following this ruling, the French Competition Authority aligned its practice. Henceforth, the fact that non-autonomous subsidiaries of the same group submit coordinated bids, even if they appear to be separate, in response to a public invitation to tender, is no longer considered in itself to be an unlawful agreement, even if the purchaser is not informed of the links. This does not mean, however, that any practice by a group in a public contract is lawful, but the mere coordinated submission of bids by linked entities is no longer automatically punishable as an agreement.
Freedom of consent
For there to be an agreement, there must be a combination of wills free. Could a company escape classification as a cartel if it proved that it had not freely consented to the agreement, for example because it had acted under duress or pressure from other, more powerful companies?
In theory, vitiated consent could call into question the very existence of the agreement. In practice, however, the competition authorities and the courts are extremely reluctant to accept such justifications.. The argument of economic constraint or the need to "go with the flow" in order to survive is very rarely accepted.
Similarly, invoking the fact of having taken part in a cartel to defend oneself against practices deemed unlawful by a competitor (for example, an aggressive discounter) does not constitute a valid excuse.. The Paris Court of Appeal ruled that the potentially illegal nature of the practices of a discounter optician did not justify its competitors agreeing to exclude it from the market..
The complicity of a third party, even if it is the public purchaser (the contracting authority) in a rigged call for tenders, does not exonerate the companies involved in the cartel from their liability..
In short, to be valid, the agreement of wills must exist between independent undertakings and be the result of a consent which, although it may be influenced by the economic context, is only very exceptionally considered to be vitiated to the point of eliminating the agreement itself. Once these constitutive elements have been established, it is then necessary to examine whether the cartel has an anti-competitive object or effect, and whether it could not, exceptionally, benefit from an legal exemption.
The definition of a cartel is therefore based on precise criteria that are interpreted widely by the authorities. All companies need to be vigilant in their dealings with competitors, suppliers and customers. A simple exchange of information can sometimes be enough to cross the line. Knowing exactly what constitutes a cartel is the first step in preventing the risks. For a more comprehensive analysis of the dangers and control mechanisms, see our summary article on anti-competitive agreements.
If you think you are facing a situation that could be a cartel, or if you would like to check the compliance of your commercial practices, our team is at your disposal for personalised assistance.
Sources
- French Commercial Code, in particular articles L. 410-1, L. 420-1
- Case law from the Autorité de la concurrence, the Cour d'appel de Paris, the Cour de cassation and the Court of Justice of the European Union.
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