The prohibition on anti-competitive agreements set out in Article L. 420-1 of the French Commercial Code is a cornerstone of French competition law. Its aim is to ensure that markets function properly for the benefit of businesses and consumers. However, this prohibition is not absolute. The legislator has provided for situations where a practice, although potentially restrictive of competition, may escape sanction.
How can a cartel be justified? The key mechanism is exemption, governed mainly by Article L. 420-4 of the French Commercial Code.. This text sets out a number of ways in which a restrictive practice can be "whitewashed", subject to strict conditions. Understanding these exceptions is essential for companies seeking to secure their agreements or assess their risks. This article explores the various cases in which a cartel may be justified.
Legal exemption: when the practice results from the application of a text
The first way out is provided by Article L. 420-4, I-1° of the French Commercial Code. This provision exempts practices which "result from the application of a legislative text or a regulatory text adopted for its application".. The idea is simple: a company cannot be criticised for doing what the law or a directly applicable regulation requires it to do.
However, the conditions of application are interpreted strictly. The restrictive practice must be the direct and inescapable consequence of the text invoked.. A classic example is the obligation for lawyers to subscribe to a collective civil liability insurance policy taken out by their bar association; this practice stems directly from the law governing the profession.. Similarly, single pricing clauses implemented by artificial insemination centres were justified because they resulted from a regulatory text adopted in application of a law.. Infogreffe's rates for the electronic transmission of legal information were also considered to derive directly from an article of the French Commercial Code..
On the other hand, a mere administrative tolerance, even a prolonged one, or the ministerial approval of a professional regulation are not sufficient to constitute a "text" within the meaning of Article L. 420-4, I-1°.. While the law leaves companies some room for manoeuvre, they cannot justify a cartel by invoking the legal exemption. The practice must be compulsory, and not simply permitted or encouraged by the legal framework.
Individual exemption for economic progress: a cost-benefit analysis
The most complex justification, but also the most debated, is that provided for in Article L. 420-4, I-2° of the French Commercial Code. Inspired directly by European Union law (Article 101(3) TFEU), this provision allows a cartel to be exempted if it meets four cumulative conditions. The underlying idea is to authorise a restriction of competition if, and only if, it generates economic benefits that outweigh its disadvantages, and these benefits are fairly shared. This is a form of economic balance sheet. To find out more about how a practice is first classified as anti-competitive before an exemption is considered, you can read our article on the difference between an agreement by object and by anti-competitive effect.
The four conditions to be met are as follows:
Condition 1: Ensure real economic progress
The practice must generate objective, quantifiable progress. This may involve improving production or distribution, or promoting technical or economic progress.. Examples accepted in case law include productivity gains (such as those resulting from the introduction of the interbank credit card system or the Cheque Image Exchange).a reduction in costs (e.g. transport)This can be achieved by improving the quality of products or services, or by setting up more efficient distribution systems, such as certain selective franchise networks that offer advantages for customers..
The legislator has even explicitly included job creation or maintenance among the effects that can constitute economic progress..
Important point: the progress must be the direct consequence of the restriction of competition. If the same progress could be achieved by less restrictive means, the exemption will be refused.. For example, price coordination was not considered essential to achieve a consumer satisfaction objective that could have been achieved by other means..
Condition 2: reserve a fair share of profits for users
The economic progress generated must not benefit only the companies involved in the agreement. A "fair" share of the benefits (lower prices, improved quality, innovation, better service, etc.) must be passed on to the end users: consumers or corporate customers.. There has to be a benefit for the community.
The example of the Monéo electronic purse illustrates this sharing: progress potentially benefited banks, retailers (reduction in cash management costs) and consumers (practical payment method).. Similarly, a franchise network may be exempt if it can be shown that it is advantageous for customers to.
Condition 3: restrictions must be indispensable
This is often the most difficult point for companies to demonstrate. The restriction of competition imposed by the cartel must be absolutely necessary to achieve the intended economic progress.. If there is a less anti-competitive alternative that achieves the same result, the exemption is excluded..
The French Competition Authority and the courts are examining this condition carefully. For example, market sharing between distributors has not been deemed essential to improve technical support for customers.. Restrictive clauses in a cooperative (quotas, ban on post-exit competition) were not considered necessary to rationalise marketing.. The introduction of a fixed interbank commission for processing cheques was not considered essential to ensure the transition to dematerialisation.. Similarly, a veterinary charter imposing a single fee structure was not essential to guarantee the quality of care..
A total ban on online sales by a manufacturer to its authorised distributors was also deemed to be an unnecessary restriction, thereby blocking the exemption..
Condition 4: do not eliminate competition for a substantial part of the products
Even if the first three conditions are met, exemption will be refused if the cartel gives the undertakings concerned the possibility of eliminating competition in respect of a substantial part of the products or services in question.. A certain degree of competition must remain in the market.
This condition is designed to prevent the exemption being used to create or strengthen a collective dominant position. An agreement organising total market sharing, for example, eliminates competition by definition and can never benefit from individual exemption..
Limited application in practice
Meeting these four cumulative conditions is an arduous exercise. In practice, individual exemptions granted by the Competition Authority are rare.. One of the rare examples concerns the Union française des orthoprothésistes, which published a price list for certain non-reimbursed appliances. At the time, the Autorité considered that, in the very specific context of rare products that were needed quickly and whose value was difficult for paying organisations to assess, the recommended pricing method (used elsewhere by the public authorities) could contribute to price moderation and avoid refusals to reimburse, thereby benefiting patients and the social protection system.. The limited impact on marginal demand and the limited scope for competition also weighed in the balance..
This rarity is also explained by the fact that the Autorité sometimes uses a "rule of reason" approach at the infringement analysis stage (Article L. 420-1), particularly for distribution agreements, which may lead it to consider that certain restrictions are not anti-competitive from the outset, without going through the exemption analysis. To understand how a cartel is initially defined, please refer to our guide on the definition of an anti-competitive agreement in french law.
Block exemption (decree): sector-specific legal certainty
Based on the model of European exemption regulationsUnder French law, certain categories of agreements may be exempted by decree, after receiving the assent of the Autorité de la concurrence (article L. 420-4, II of the French Commercial Code).. The aim is often to improve the management of small and medium-sized businesses.
This procedure provides greater legal certainty for companies operating in the sectors concerned, as agreements that comply with the decree are presumed to meet the conditions for exemption.. The procedure involves presenting the agreement to the Minister for the Economy, with detailed information on the parties, the objectives, the market, etc., followed by publication and a collection of comments before transmission to the Authority for its opinion..
Two main decrees were issued on this basis in 1996, concerning the agricultural sector:
- A decree exempts agreements between producers (or between producers and companies) benefiting from the same quality label (agricultural label, organic farming, AOC) aimed at adapting supply to demand through coordinated development.
- Another decree concerns agreements aimed at eliminating overcapacity in the event of a serious disruption to the agricultural market (supply/demand mismatch characterised by certain criteria such as falling prices or rising stocks). These agreements are limited in scope (capacity reduction, quality requirements, but no price fixing) and duration.
More recently, a 2007 decree exempted an inter-professional agreement aimed at reducing payment times in the automotive industry, following a favourable opinion from the Autorité des Marchés Financiers.. The Authority recognised the economic progress (effective reduction in lead times), the equitable sharing (benefit for the entire sector, including SMEs, and reduction in the risk of default), the indispensable nature (ineffectiveness of other legal means) and the absence of elimination of competition in a highly competitive European market.. Since then, the law has provided a framework for professionals to agree specific payment terms by sector, subject to certain conditions.
The specific case of overseas territories and exclusive import rights
The so-called "Lurel" Act of 2012 introduced a specific prohibition for overseas France: that of agreements or concerted practices granting exclusive import rights to a company or group of companies (Article L. 420-2-1 of the French Commercial Code). You will find more details on different types of prohibited agreementsincluding this one.
At the same time, the legislator has provided for a specific exemption for these situations in Article L. 420-4, III of the French Commercial Code. Such an agreement may be justified if it is based on "objective grounds of economic efficiency" and if it "allows consumers a fair share of the resulting benefit".. The conditions are similar to those for the general individual exemption, but are worded slightly differently, placing the emphasis on objective economic efficiency and consumer benefit.
Navigating the complex landscape of exemptions to the antitrust rules requires careful and detailed analysis. The conditions are strict, and their assessment by the Competition Authority and the courts is rigorous. With the help of expert advice, you can assess the compliance of your agreements and defend their possible economic justification. For an overview of the issues involved, consult our guide on anti-competitive agreements: rules and risks.
If you think that one of your agreements could be affected, or if you would like to assess the possibility of benefiting from an exemption, our team is at your disposal for a personalised analysis of your situation.
Sources
- French Commercial Code: in particular articles L. 420-1, L. 420-2-1, L. 420-4, R. 420-1
- Treaty on the Functioning of the European Union (TFEU): in particular article 101
- Decree no. 96-499 of 7 June 1996 (agriculture exemptions - quality signs)
- Decree no. 96-500 of 7 June 1996 (agricultural exemptions - crisis)
- Decree no. 2007-1884 of 26 December 2007 (car payment terms exemption)
- Act 2012-1270 of 20 November 2012 (overseas economic regulations)
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