Antoine Choffel, Yann Utzschneider

Gide Loyrette Nouel AARPI

A Year of Change in French Competition and Merger Control: a Quick Overview

The Loi de Modernisation de l'Economie (LME), Law No. 2008-776, enacted on 4 August 2008, and the government's Order No. 2008-1161 dated 14 November 2008 (Order), have amended numerous competition law provisions under Book 4 of the Code de Commerce (Code of Commercial Law), creating a real upheaval in the practice of competition law in France.

With the new regulatory package the core of French antitrust rules remain similar to the former ones. However, organisation and functioning of the new Competition Authority and the modernisation of the proceedings related to antitrust regulations constitute a major step in French competition law. As far as merger control is concerned some significant changes have been implemented. The Competition Authority qualifies these changes as being 'emblematic' of the legislative reform that occurred with the LME.

This change, strongly influenced by the European standards, aims to transform the current administrative structures into a one-stop-shop authority. This authority is embodied by the Competition Authority replacing the former Competition Council and taking over the scope of activities formerly exercised by one of the General Directorate of the minister of economy, namely the General Directorate for Competition, Consumer Affairs and Fraud Control (DGCCRF); especially as regards merger control.

Organisation and functioning of the new Competition Authority

General overview

Article 95 of the LME provides for the creation of a new independent administrative authority whose mission is to regulate market competition. The Competition Authority has wider powers and larger means than the former Competition Council. This new organisation of the French competition authorities is now more similar to its European counterpart.

As far as the formation of the Authority is concerned, the number of members of the College of the Competition Authority remains stable at 17. Professionals are now more numerous (five instead of four), whereas the number of magistrates has decreased (six instead of eight). The president of the Competition Authority is appointed according to his legal and economic abilities - after consultation of the Parliament. His mandate is only renewable once.

Some aspects of the LME also show a step forward in favour of a competition law more respectful of the rights of the companies involved in a competition process. For this reason, powers of the College have been transferred to the general rapporteur of the Competition Authority. Finally, the LME has created the position of the hearing officer, who will report observations to the president and may propose solutions to ensure the parties' rights are respected. The role of the hearing officer might be of great importance as regards the rights of defence of the parties involved in the proceedings initiated by the Competition Authority's investigations. In this respect, one may observe that although article L. 461-4 of the Code of Commercial law states that the hearing officer may possess the quality of magistrate, the law No. 2009-526 dated 12 May 2009 indicates that the hearing officer might also be a person offering equivalent qualities of independence and expertise. In this Notice No. 09-A-41 dated 1 July 2009 related to the proposal of nomination of the hearing officer, the Competition Authority made it clear that the role of the hearing officer shall be the one of a procedural expert separated from the members of the College who are the only ones able to take a decision.

As far as merger control is concerned, one can also notice that the reform entailed the creation of a department specialised in merger control, which will be a part of the Competition Authority's investigation services. This department will be in charge of the definition of the policy of the Authority as regards merger control as the DGCCRF is no longer in charge of those aspects. The investigation services also include the economic department service of the Competition Authority. This department service's capacities have been strengthened thanks to the new economists added to the team.

Merger control

General overview

As previously mentioned, the LME states that the Competition Authority is now sole competent to rule notified mergers operations, whereas this competency previously belonged to the minister of economy (more precisely to the DGCCRF). The former Competition Council was only consulted to give an advice on operations raising competition issues which require a Phase II investigation.

In order to cope with the increasing number of mergers to be examined, the LME sets up a wide policy of rationalisation of the proceedings by, beyond the reorganisation of the competition authorities, shortening the duration of said proceedings. Thus, instead of the previous period of five weeks, article 96 of the LME provides for an initial examination phase (Phase I) lasting a maximum of 25 business days (except in the case of commitments, when a maximum of a 15 business days time period can be added). Regarding Phase II examination, the Authority has a 65 business days time period to rule on the merger, instead of the about 90 business days previously set forth by the merger control proceedings (except in the case of commitments presented more than 20 days before the end of the 65 days time period and which expires 20 business days after that the commitments have been received).

The president of the Competition Authority is the only one authorised to rule on the merger transactions that do not imply competition difficulties (Phase I). If necessary, the president can discuss commitments with the undertakings concerned.

The minister of economy has the ability to ask the Competition Authority to open a Phase II procedure in a five business day delay from the date on which he has received the notification of the decision authorising a merger transaction in Phase I should this decision include or not include commitments. The LME does not impose to the Competition Authority the obligation to accept the demand of the minister of economy. Indeed, fully independent, the new Competition Authority is the only one able to rule on merger control.

As far as Phase II is concerned, the shortening of the time period in which the Competition Authority has to rule on the case is permitted by the possibility given to the parties to have a written contradictory exchange with the instruction services. Such 'persuasion effort' made by the parties in their discussions with the Competition Authority will concern all the aspect of the case, including the necessity of remedies, and will allow a deep analysis of the competition impact of the transaction.

It is also worth mentioning that at the end of Phase II after that the Competition Authority has adopted its decision, the minister of economy can, within a 25 business day delay, decide to 'evoke' a merger transaction that would imply strategic issues, not related to competition issues and thus take a motivated decision on this aspect, without modifying the competition analysis of the Authority. In fact, this specific procedure should be 'exceptional', as confirmed by Christine Lagarde, the current minister of economy. This situation should be governed by 'general interest' considerations. In any case this specific provision will probably lead to further discussions.

Creation of new turnover thresholds

The LME introduces, in particular, new provisions regarding the thresholds of turnover beyond of which a merger has to be notified. The regular thresholds are not modified (ie, the combined aggregate worldwide turnover of all the undertakings, legal or natural persons concerned exceeds h150 million, and the turnover achieved in France by at least two of the undertakings, legal or natural persons concerned exceeds h50 million).

However, other kinds of thresholds are lowered for operations about retail trade (ie, the combined aggregate worldwide turnover of all the undertakings, legal or natural persons concerned exceeds h75 million, and the turnover achieved in France in the retail sector by at least two of the undertakings, legal or natural persons concerned exceeds h15 million). These thresholds are applied when at least two of the undertakings run retail stores. It shall also be mentioned that these thresholds also apply to mergers between companies located in French overseas departments and collectivities.

Draft guidelines on merger control dated 9 July 2009

With the major changes brought by the LME, new guidelines were necessary to give some clarifications about the implementation of these new rules. That is why the Authority issued a draft of new guidelines to replace the ones of the DGCCRF and submitted it to public consultation. According to the Competition Authority its main goal is to provide a useful guide to companies for them to face with a real upheaval of the practice of their merger operations. Transparency seems to be one of the major concerns of the Authority that was opened with a period of public consultation until 24 September 2009 in order to collect observations from operators on the draft guidelines. The draft underlines notably the scope of the new regime, the new applicable rules of proceeding and the methods to be used by the Competition Authority in drafting the competitive analysis of merger operations. In addition, the annex of the draft guidelines advocates how to present economic studies provided by companies to back their file of notification, in order to ease the dialogue between operators and the different departments of the Competition Authority.

Enforcement of the new regime

Regarding the enforcement of this new legal regime, one might observe that for the time being the Competition Authority has not published yet numerous decisions.

However, it is worth mentioning that the Competition Authority has authorised in June 2009 its first major merger case, namely, the merger between the Banque Populaire and the Caisse d'Epargne, under the condition that the parties concerned commit to improving competitive pressure in the French overseas department of the Reunion.¹ The Authority has noticeably examined the effects of the merger on the banking market, differentiating services to private individuals (retail banking) and services to companies (commercial banking). According to the Competition Authority, the created group will become the second actor on a majority of markets (deposits, saving, real estate credit, consumer credit, credit cards) on the retail banking market, after the French banking company Crédit Agricole. However, the Authority considered that the new entity's market-shares remain less than 25 per cent on most of the relevant markets. Therefore, the Authority considered that the operation would not affect competition on the metropolitan French market and that competition will remain effective. Nevertheless, the Competition Authority pointed out that a national approach could hide local problems regarding the SMEs' access to credit. Finally, the Authority considered that, despite the merger, the diversity of the banking offer will remain acceptable (except in the overseas Reunion island where, with the merger, the new entity would have owned 50 per cent of the local market). The transaction was therefore authorised under the condition of some commitments related to the competition context in La Reunion.

One can also mention that the Competition Authority seems to intend to adopt its own doctrine on merger control. In this regard, decision No. 09-DCC-06 dated 20 May 2009 is quite an interesting decision. This decision sets forth an innovation regarding merger control. The Competition Authority considered for the first time in France that a franchising contract could constitute a merger. What is interesting about this decision is the qualification of the joint control over the target before the notified gain of exclusive control. Before the achieving of the notified operation, the Competition Authority considered that the franchisor exercised joint control over the target company with the family owning the company. Such joint control was acknowledged because of the minority stake held by the franchisor in the capital of the company, the possibility of the franchisor to block a change of commercial sign and the existence of a first right of refusal on the stakes of the target company. Even if the impact of this decision is difficult to evaluate at this stage, it might allow the Competition Authority to control numerous operations, mixing minority stake, franchising contract with clauses that restraint franchise capacity to leave the network or to conduct its commercial policy. The impact of such a decision seems to be even more significant since it is related to retail businesses for which the LME lowered the controlling thresholds.

Moreover, one can also mention more 'classic' decisions such as the authorisation by the Competition Authority of the exclusive gain of control by Geodis, a 100 per cent subsidiary of SNCF Participations, over Giraud CEE and Giraud Sidérurgie, two holding companies regrouping all the entities constituting the East and Central Europe and the Siderurgy activities of the Giraud group of companies. First of all, the Competition Authority referred to the European Commission precedents. Thus, the Authority defined a road freight transportation market and a market of the organisation of road freight transportation. Then, the Competition Authority observed that the new entity will have a minor market share and that there will be an important competition pressure on the relevant markets. The Competition Authority also observed that the SNCF group will strengthen its position on the road freight transportation market and on the market of the organisation of road freight transportation whereas SNCF is present on numerous connected markets such as the railroad transportation market, the dedicated transportation market, the dangerous material transportation market, the express market and the logistic services market. However, the Competition Authority considered that the only market on which the SNCF group could exercise a leverage effect is the railroad transportation market because of its approximately 90 to 100 per cent market share. Considering that there would be no line effects, that the aggregation of market shares is low and that the railroad transportation and road transportation activities are operated by two distinct companies, the Competition Authority decided to authorise the transaction without conditions.

Overview and future perspectives: antitrust and mergers

General tendency

According to the last published Annual Report of the Competition Authority adopted on 18 March 2009, in 2008, the former Competition Council registered 117 new cases, including 72 seisins (merits of the case, demands of conservatory measures and respect of injunction), and 45 demands for advice (including 18 about leniency). If the number of litigation seisins remains stable, the amount of demands for conservatory measures and for advice (due in particular to the rise of demands for leniency) has noticeably increased. In this context, the Competition Authority indicates that it intends to reach a 'cruising speed' of 100 new seisins for 100 ended cases. Regarding the examined cases, the total amount of decisions and advices in 2008 was 87 (including 26 advices).

Targeted economic sectors

Although the sector of telecommunications (with eight decisions and advices in 2008) is a sector in which the Council intervenes quite often, the number of cases regarding transports (nine decisions and advices) and services (eight decisions and advices) has obviously increased by 2008. In addition, sectors of building and public works, and media, remain particularly surveyed by the French competition authorities (with six decisions and advices each).

However, even if a quantitative approach can give an idea about the current tendency, each decision or advice does not have the same importance. In this perspective, the activity of the Council was particularly vivacious in the sector of telecommunications. For example, ceased by the minister of economy, the Council issued an advice advocating the improvement of the competitive pressure on the mobile phone market. It pointed out that the attribution of a fourth licence might create a positive dynamic.²

As said above, the Competition Council has been also particularly active in the sector of transport in 2008 and early 2009. This activism is also vivacious in the services sector. Thus, the Competition Authority fined 19 moving companies for having implemented an understanding by producing estimates of convenience on the market of militaries' house movings.³

Pecuniary sanctions

The Competition Council imposed 16 sanctions in 2008 equalling a total amount of s631,3 million. However, exceptional fines have been inflicted to members of a cartel in the steel industry.⁴ This high level of fines confirms a long-term tendency of a growth of the amount of fines. Since the entry on force of the NRE (New Economic Regulations) law in 2002, the total amount of inflicted fines has been around s2 billion, including s1,7 billion only for the four past years.

Merger control

The Competition Authority intends to use the synergies created by the integration of all the teams within an unique administrative body. Moreover, it seems that the fastening of the proceedings will lead also to the shortening of the motivation of the Authority's decisions adopted in Phase I. The decisions with 'precedent value' should be reserved only to cases where such analysis should be really necessary. According to the Competition Authority services, quickly adopted decisions related to typical well-known analysis will probably be adopted more frequently.

However, according to those services, the existence of a competition issue in Phase I will not automatically open a Phase II analysis. Indeed, the undertakings concerned can propose commitments as of Phase I. The proceedings even authorise the parties to obtain a maximum of 15 business days delay in order to finalise the commitments.

Notes

1.

Decision 09-DCC-016 of 22 June 2009.

2.

Advice 08-A-16 of 30 July 2008.

3.

Decision 09-D-19 of 10 June 2009.

4.

Aforementioned Decision of 16 December 2008.

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