Dog and cat nutrition – a “bare minimum” review by the Paris Court of Appeal

The French Competition Authority’s decision of March 20, 2012 sanctioned NPPF (Nestlé group), Royal Canin (Mars group) and Hill’s (Colgate-Palmolive group) for an agreement with their wholesale distributors to apply various specific vertical restrictions, such as customer restrictions, territorial exclusivities and resale price maintenance. NPPF and Royal Canin chose not to contest the objections, whereas Hill’s contested them. The Paris Court of Appeal judgment of October 12, 2013 dismissed all the appeals of the undertakings involved.

The judgment is interesting first for the arguments relating to the Authority’s guidelines published in 2011 on the method used to determine fines (the fining guidelines), which was applied here to events going back to 2004-2008. Based on the argument that the fining guidelines constitute a simple directive which only restates the law as it stands on how fines are determined, the Court of Appeal considered that its application to facts which occurred prior to its publication was not contrary to the principle of non-retroactivity under criminal law. The Competition Authority could in any case have imposed the same sanctions using the same method, since the fining guidelines are merely the material expression of the legal provisions on the determination of fines. A somewhat legalistic argument, if one considers the impact of the fining guidelines on the amount of the fines.

As regards the determination of the amount of the fines, the Court of Appeal first indicated that it was not controlling the correct application of the fining guidelines, but rather that of Article L.464-2 of the Commercial Code, although it then validated one after the other the various stages in the calculation of the sanctions set out in the release. Right from the start the Court of Appeal issued a warning to the undertakings which had not contested the objections: they could not use the pretext of discussing the factors used to determine the fine to challenge the existence and characterization of the infringements. Unfortunately the judgment fails to identify which defence arguments this message is referring to. Nevertheless we do learn that for undertakings which opt not to contest the objections, the definition of the products concerned by the offence cannot be challenged during the process of determining of the fine if they were defined in the statement of objections.

Although on the face of it the Court of Appeal answered the various arguments on the calculation of the fine, namely regarding the seriousness of the practices and the extent of the damage caused to the economy, it actually merely adopted as its own the Competition Authority’s arguments in the appealed decision. The Court of Appeal confirmed the duration of the offence factor to determine the seriousness of the offences and consequently approved the duration coefficient in the calculation of the fine. For the extent of the damage caused to the economy, the judges upheld the criterion of intra-brand competition, noting in passing the low level of inter-brand competition (consumers’ loyalty to “their” brand, absence of any new entrants).

It is also interesting to note that there is no point in the parties invoking prior decisional practice in any respect (legitimate trust, legal security, level playing field): according to the Court of Appeal, the sanctions depend on the circumstances of each case. In the end, it found that an undertaking cannot seek equal treatment for its own sanction compared to the sanction imposed on another undertaking in the same decision.

In short, the Paris Court of Appeal decision illustrates a certain self-restraint to challenge the sanctions determined by the Competition Authority, which is regrettable, since the stakes do indeed deserve a more decisive jurisdictional control.

The Commission analyzes a minority shareholder’s gradual increase of its shareholding in an undertaking as a de facto acquisition of sole control

The European Commission’s IF P&C/Topdanmark decision of September 23, 2013 illustrates that the acquisition or subsequent increase of a minority shareholding can in some cases be analyzed as a concentration which has to be notified to the competition authorities.

According to the Commission’s consolidated jurisdiction notice, a minority shareholder can be deemed to have sole control on a de facto basis, in particular “where the shareholder is highly likely to achieve a majority at the shareholders' meetings, given the level of its shareholding and the evidence resulting from the presence of shareholders in the shareholders' meetings in previous years”. To determine if this is actually the case, the Commission takes into account voting patterns in the company’s past general meetings and the position of the other shareholders.

In this case, the effect of the transaction was to cause IF P&C’s minority shareholding in Topdanmark to increase from 21.24% to 25.18% and its voting rights to increase from 22.75% to 26.51%. Given the history of voting in general meetings (particularly the low presence of shareholders in previous years) and other indicators, such as the dispersed nature of Topdanmark’s shareholder structure, the Commission reached the conclusion that, after the transaction and with 26.51% of the voting rights, IF P&C was highly likely to have a stable majority of the votes in general meetings. Given that a simple majority would allow IF P&C on its own to adopt a number of important decisions, such as the appointment of the members of the Board of Directors, and to block other strategic decisions, the Commission concluded that the transaction was a concentration as it resulted in IF P&C acquiring de facto sole control over Topdanmark, meaning that the transaction had to be notified.

The European Commission, which is currently looking into extending the merger control procedure to non-controlling minority shareholdings, seized the opportunity of this case to recall that a minority shareholding can also be subject to prior approval if it leads to the acquisition of de facto sole control.

Italy ordered to take back the 295 million euros of State aid it granted to Alcoa in the form of a preferential electricity tariff

The European Court of Justice (“ECJ”) judgment of October 16, 2013 ruled that Italy had not respected its obligation to recover the State aid granted to Alcoa, an undertaking producing primary aluminium.

The undertaking had benefited since 1996 from a preferential electricity tariff for two of its sites. The Commission had initially authorized the tariff, having found that it did not qualify as State aid. However, the tariff was later modified twice with no regard for changes in the market, causing the Commission to reverse its initial finding. It then enjoined Italy to recover the 295 million euros of State aid granted to Alcoa, with interest, before March 20, 2010. However, as Italy failed to recover the full amount of the aid in the time allowed, the Commission then initiated an action before the ECJ for failure to fulfil an obligation. In its October 16, 2013 judgment, the ECJ recalled that the only defence argument on which a Member State can rely to justify its failure to enforce a decision to recover aid is its absolute impossibility to enforce the decision properly. The Court emphasized that the existence of legal or practical difficulties in enforcing the Commission’s decision, however real they may be, or the desire to reach a negotiated solution with the beneficiary, could not be characterized as such. It therefore found that Italy had failed in its obligation to recover the aid immediately and effectively. Italy will now have to enforce the Commission’s decision as promptly as possible, otherwise the Commission could initiate a further action seeking monetary sanctions against Italy.