Competition and Distribution Law Newsletter – BCLP Paris January 2021

The Competition and Distribution team of BCLP's Paris office reviews some key news from the end of 2020, in particular:

• The “Dammann Frères” decision of 3 December 2020 concerning the tea manufacturer's online sales practices. The French Competition Authority (the "FCA") vigorously emphasises that the prohibition of fixed prices also applies to online sales. The FCA also points out that the prohibition of sales on marketplaces does not necessarily constitute a hardcore restriction;
• The Court of Cassation's (French civil Supreme Court) ruling of 25 November 2020, which unfortunately validates the seizure of attorney/client correspondence by the FCA or the DGCCRF when it is not clearly established by the raided company that this correspondence is directly related to the exercise of its defence rights.

FIXED PRICES AND PROHIBITION OF ONLINE RESALE: LESSONS TO BE DRAWN FROM THE DAMMANN FRERES DECISION OF 3 DECEMBER 2020

The Dammann Frères decision is interesting for two reasons: it recalls that the prohibition of vertical agreements through fixed prices applies to online sales and under the same conditions as for offline sales (1). It also specifies that the prohibition of sales via third party online marketplaces does not necessarily constitute a hardcore restriction, even outside the framework of selective distribution (2).

1. The FCA applies its fixed prices decisional practice to online sales

The practices that led to the tea manufacturer being sentenced to a fine of 226,000 euros are actually quite classic, apart from the fact that they involved online resellers. This decision gave the FCA the opportunity to point out that the criteria for analysing price fixing practices were the same for both online and offline sales.

The practices identified are as follows:

• Dammann Frères provided its distributors with "generally observed prices" through its annual catalogue;
• Dammann Frères incited its distributors to apply these prices for online sales, in particular via its general terms and conditions of sale and distribution contracts, which required the distributor to notify Dammann Frères and obtain authorisation when it intended to sell on the Internet or carry out online promotions;
• Dammann Frères made sure that these "generally observed prices" were applied by online distributors, through its own sales representatives but also via distributors who reported their competitors' "deviant" pricing practices;
• When these prices were not respected, Dammann Frères issued warnings and threats or implemented sanctions as cancellation or modification of discounts granted, delay or cancellation of deliveries, removal of their contact details from the list of distributors on the Dammann Frères website and in some cases, unilateral termination of their commercial relations with Dammann Frères;
• Almost all distributors complied with the prices recommended by Dammann Frères or, when asked to, modified the prices applied in order to comply with them.

To characterise the offence, the FCA used its usual analysis grid.

Regarding the existence of an agreement, the FCA recalls that in cases of vertical price fixing, the most commonly used method of proof is based on the demonstration of three elements: (i) the communication of recommended resale prices, (ii) the implementation of price monitoring and (iii) the effective application of said prices.

However, it specifies that the FCA is not required to combine these three criteria as long as it has "documentary or behavioural evidence establishing, on the one hand, the manufacturer's invitation and, on the other hand, the distributors' acquiescence in the disputed practice".

According to the FCA, the manufacturer's invitation is characterised here, taking into account (i) the willingness expressed by Dammann Frères' sales director "to harmonise the prices of online sales sites", (ii) the communication of recommended prices and (iii) the incentives to comply with these prices, resulting from the general terms and conditions of sale and distribution contracts mentioned above, the interventions of Dammann Frères with "deviant" distributors and the retaliatory measures implemented in the event of non-compliance.

The evidence of the distributors' acquiescence can be seen, still in the FCA’s view, in (i) the acceptance of the contractual framework of online resale prices, (ii) the effective application by a significant proportion of the distributors of the recommended prices and (iii) the fact that some distributors have engaged in monitoring the prices charged by their competitors.

With regard to competition restriction, the FCA merely refers to European and national case law and points out that vertical agreements on fixed prices have an anti-competitive object. In addition, it states that this is a hardcore restriction within the meaning of Regulation 330/2010 on vertical restraints, and therefore not eligible for a block exemption.

The effects, if any, of the practice in question are dealt with in a single paragraph. However, it should be recalled that, in the context of its reflections on the revision of the Block Exemption Regulation applicable to vertical agreements, the Commission envisages to no longer consider imposed pricing practices as hardcore restrictions (see our December newsletter). It is therefore regrettable that the FCA has not taken these considerations into account and anticipated a possible change in the perception of fixed prices under European competition law.

2. The prohibition of online sales on third party marketplaces is not necessarily a hardcore restriction, even outside the scope of selective distribution

Besides the fixed price practice, Dammann Frères had been notified of a grievance in respect of the prohibition on its distributors to sell its products online via third party marketplaces.

Dammann Frères had included in its general terms and conditions of sale a formal prohibition to resell on "non-approved" third party sites, compliance with this prohibition was monitored both by Dammann Frères and by the other distributors, and failure to comply with it was the subject of the network head's intervention, or even retaliation measures (halting deliveries), so that it was generally effectively enforced.

In this case, only the question of the restriction of competition resulting from this clause was discussed, the existence of a will agreement not being disputed.

The FCA however very quickly dismissed the question.

It refers to the solution reached by the Court of Justice of the European Union in the Coty judgment (6 December 2017, case C-230/16), according to which the Court had held, inter alia, that under certain conditions the prohibition on authorised distributors of a selective distribution network from reselling the products on third market places did not constitute a hardcore restriction prohibited by Regulation 330/2010 on vertical restraints and was therefore capable of benefiting from a block exemption.

Applying this solution, the FCA holds that in the present case:

• insofar as Dammann Frères did not prohibit its distributors from selling over the Internet and from making themselves known via third party websites (advertising and use of search engines), the agreement in question does not constitute a hardcore restriction (although, surprisingly, the FCA only refers to a restriction of distributors' customer base within the meaning of Article 4(b) of Regulation 330/2010 and does not mention that it is not a restriction of passive sales to end users within the meaning of Article 4(c) either);
• since Dammann Frères' market shares on the market for premium teas sold online are below 30 %, the agreement in question effectively benefits from a block exemption and should therefore not be considered anti-competitive.

The FCA's decision therefore confirms that Coty’s solution on this point can be extended to open distribution networks.

THE FRENCH SUPREME COURT APPROVES THE PRINCIPLE ACCORDING TO WHICH Attorney/CLIENT CORRESPONDENCE MAY BE SEIZED IF IT IS NOT RELATED TO THE EXERCISE OF THE DEFENCE RIGHTS

The principle of exemption from seizure of attorney/client correspondence during dawn raids carried out by the FCA or the DGCCRF is not absolute. The French civil Supreme court (Court of Cassation) recalled it in a judgment of 25 November 2020 (Cass. Crim., 19-84.304), which once again undermines the principle of attorney/client privilege.

In this case, a judge had, by order dated 4 April 2018, authorised the DGCCRF to carry out a dawn raid in the premises of the Au Vieux Campeur company. The conduct of this dawn raid on 24 April 2018 subsequently gave rise to an appeal by which Au Vieux Campeur requested that certain emails exchanged with its lawyers be removed from the seizure.

On 22 March 2019, the First President of the Court of Appeal of Chambéry had granted this request and ordered the removal of all these emails after having noted that they were listed exhaustively in a summary table allowing them to be precisely identified since this table listed the computers on which these emails had been seized, the Outlook folders in which they were archived, the identity of the lawyer concerned and the recipients of the message.

The DGCCRF, considering that these documents could not be subject to automatic restitution without the President of the Court of Appeal of Chambéry having analysed them on a case-by-case basis, appealed against this order, on which the Court of Cassation was therefore called upon to rule.

In its ruling, the Court of Cassation upheld the plea raised by the DGCCRF, declared the disputed order to be overturned and referred the case back to the First President of the Grenoble Court of Appeal. The Supreme Court ruled that while Article 66-5 of the Act of 31 December 1971 provides that correspondence exchanged between clients and their lawyers is privileged in all matters, Article L. 450-4 of the Commercial Code provides that such correspondence may nevertheless be seized if it does not concern the exercise of the defence rights.

Consequently, in addition to the information enabling the precise identification of the emails for which restitution was requested, the summary table prepared by Au Vieux Campeur should have provided concrete elements to establish that these emails were related to the exercise of the defence rights, so that in the absence of such elements, the President of the Court of Appeal of Chambéry should not have agreed to withdraw them from seizure.

To sum up, the Court of Cassation therefore considers that it is not enough for the judge to find that the e-mail is from a lawyer in order to order its restitution; he must show how this e-mail can be concretely linked to the exercise of the rights of defence f the raided company.

While the reasoning on which the Court of Cassation judges relied is not new, as the Court of Cassation has considered since 2013 that only documents related to the exercise of the rights of defence are likely to be privileged, this ruling nevertheless raises questions once again, first and foremost that of the standard of proof to be provided to show that a lawyer's correspondence is related to the exercise of the defence rights. Thus, if this exercise is not carried out in a meticulous manner, the companies visited take the risk that these documents will subsequently be included in the investigation file and used against them.

The other question raised is the seizability of memorandums delivered by a lawyer outside of any litigation procedure. Does the Court of Cassation's use of the term "exercise of the defence rights" mean that consultations given by a lawyer, audit reports or risk analyses can be seized? This would be in total contradiction with the law of 31 December 1971, which is yet unambiguous since it provides that correspondence exchanged between the client and his lawyer is covered by professional secrecy in all matters (whether advisory or litigation), without the client or his lawyer having to justify it. Professional secrecy covering correspondence exchanged between a client and his lawyer is the basis of the relationship between the latter, and constitutes one of the foundations for the effectiveness of defence rights, it seems necessary to recall this.