The aim of competition law is to guarantee fair and balanced competition between economic players. At the heart of this system is article L. 420-1 of the French Commercial Code, which lays down the principle that anti-competitive agreements are prohibited. Although this article gives a few examples of prohibited practices, the list is not exhaustive. In fact, any agreement between companies, in whatever form, which has the object or effect of restricting competition on a market is liable to be penalised. Understanding the main categories of prohibited agreements is therefore essential for any company wishing to secure its commercial practices. For an overview of the mechanisms and issues involved, please consult our introductory article on anti-competitive agreements: understanding the rules and the risks for your company. This article looks more specifically at the most common forms that these illegal agreements can take.
Restricting market access or free competition
A first category of agreements aims to close off market access to new entrants or to restrict the freedom of action of companies already present. This can take the form of various clauses or agreements.
Exclusivity clauses, for example, although sometimes necessary for the proper functioning of a distribution network, can pose a problem if they are not justified or proportionate. Territorial exclusivity granted to a distributor may be legitimate, but if it is accompanied by an absolute ban on passive sales (responding to unsolicited requests from customers outside the zone), it becomes suspect.
Non-competition clauses also come under close scrutiny. These clauses, which are often included in the sale of a business or in certain distribution or franchise agreements, are designed to protect know-how or a customer base. However, to be valid, they must be limited in time, space and the activity concerned, and be proportionate to the legitimate interests to be protected. A non-competition clause that is excessively broad or long could be considered an unjustified restriction on competition. For example, a prohibition on canvassing between cooperatives belonging to the same group has been deemed disproportionate because it artificially partitioned their market shares. Case law distinguishes these clauses from non-reaffiliation clauses, which simply prohibit a former member of a network from joining a direct competitor network for a certain period of time, but often subjects them to similar conditions of validity. Naturally, the question of whether a restriction is required can be complex, and certain situations may qualify for justification, as explained in our article on possible exemptions.
Obstructing free market pricing
This is undoubtedly the best-known and most severely punished category of cartel. Any practice aimed at manipulating prices in a concerted manner, rather than allowing them to be formed naturally by supply and demand, is prohibited.
The most classic example is direct agreement on sales prices between competitors. Agreeing to raise prices simultaneously, setting minimum prices or coordinating discounts is a clear-cut infringement, often described as a restriction "by object", i.e. the very nature of which is considered to be harmful to competition. You will find more details on this concept in our article dedicated to the difference between an agreement by object and by anti-competitive effect.
The ban also applies to more indirect practices. The distribution of indicative price lists by professional organisations can be penalised if these lists act as a de facto price reference, encouraging members to align their prices.. Similarly, the imposition of a minimum resale price by a supplier on its distributors is a prohibited practice, although to prove this it may be necessary to demonstrate genuine "price policing" going beyond mere price recommendations..
The exchange of strategic information between competitors is also being targeted by the authorities.. While it is normal to know one's market, exchanging confidential and recent information on future prices, costs, sales volumes or commercial strategies can facilitate collusion.. The analysis is carried out on a case-by-case basis, taking into account the nature of the information exchanged, whether it is secret or public, how long it has been in existence and the structure of the market.. An exchange of very precise, non-public information in a concentrated market will be considered riskier.
The special case of public contracts
Public procurement contracts are subject to particular scrutiny when it comes to cartels, as the tendering mechanisms are supposed to guarantee optimum competition for the benefit of public funds. Any collusion between companies bidding to distort this process is severely punished..
This obviously includes direct agreements on the prices to be quoted or the allocation of lots. But the prohibition goes further: the simple exchange of information prior to the submission of bids on the intention to tender, the price level envisaged, or even the availability of personnel or equipment may be sufficient to constitute a cartel.. The aim is to preserve the real independence of the offers submitted.
A common practice in this context is that of "cover bids": a company agrees to submit a deliberately non-competitive bid to enable a designated competitor to win the contract. Communicating a costing to a competitor for this purpose is an offence by object. Proof of these manoeuvres, which are often concealed, is often based on a bundle of corroborating evidence inexplicable similarities in bids, abnormal price differences, suspicious stability in the allocation of lots, etc.
It should be noted, however, that the formation of a temporary grouping of companies (GME) to respond jointly to a call for tenders is not prohibited per se.. It can even be beneficial to competition if it enables companies, particularly SMEs, to bid for contracts when they would not have been able to do so on their own, due to lack of size, resources or complementary skills.. However, a grouping becomes unlawful if it is not economically justified (for example, if each member could respond on its own) and is actually used to conceal a price agreement or market sharing.. If companies exchange confidential information with a view to forming a consortium or subcontracting, they can no longer bid individually for the same call for tenders..
Limiting or controlling production, markets, investment or technical progress
Less frequent in decision-making practice, but just as prohibited, are agreements aimed at controlling the quantities placed on the market or at slowing down innovation.. Agreeing to limit production in order to maintain high prices (production quotas) is a classic example..
The authorities can also penalise agreements aimed at blocking the development or marketing of competing products or technologies, for example by denigrating an innovation or agreeing not to adopt a cheaper or more efficient material.. Recently, companies have been condemned for having forbidden each other to communicate on their individual environmental performance, thus giving up competing on this criterion.. Boycott practices organised to limit the entry of new economic or technological models into a market have also been sanctioned..
Sharing markets or sources of supply
This category of agreements is often described as "unjustifiable".This involves competitors sharing the "cake" rather than competing for it. The aim is to freeze acquired positions and avoid direct commercial confrontation.
The division can be geographical: each company undertakes not to operate in the territory reserved for the others.. It can also concern customers: competitors share existing or potential customers according to certain criteria (type of customer, history, etc.)..
These sharing agreements are often highly organised and can be reinforced by control and compensation mechanisms. For example, the members of the cartel may set up a system for exchanging information on sales to check that everyone is complying with the quotas or zones allocated.. If a member exceeds its agreed share, a compensation mechanism may be provided: financial payment to the others, return of customers, forced allocation of subcontracted work, etc.. These practices are considered particularly serious because they directly eliminate competition between participants.
The specific case of exclusive overseas import rights
Lastly, there is a specific provision in French law concerning overseas departments and regions. Article L. 420-2-1 of the French Commercial Code, resulting from the 2012 "Lurel" lawprohibits agreements or concerted practices the object or effect of which is to grant exclusive import rights to an undertaking or group of undertakings. This ban is intended to combat situations where a limited number of importers control the supply of a territory, limiting intra-brand competition and encouraging potentially higher prices.. This ban is general in scope and is not limited to mass-market products..
This typology is not exhaustive, as the imagination of companies to restrict competition can be fertile. It is therefore essential to carefully analyse any concerted commercial practice with regard to its purpose and its potential effects on the market.
The complexity of the rules and the severity of the penalties incurred make constant vigilance essential. If you have any doubts about the compliance of your practices or if you suspect a cartel on the part of your competitors or suppliers, appropriate legal advice is essential. Our team is at your disposal to analyse your specific situation and provide you with support.
Sources
- French Commercial Code, in particular articles L. 420-1, L. 420-2-1 and L. 420-4.
- Case law from the French Competition Authority and French and European courts.
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