EU Commission publishes final report on consumer Internet of Things sector inquiry

On January 20, 2022, the European Commission published the results of its consumer Internet of Things sector inquiry (IoT), which it launched on July 16, 2020. The purpose of this inquiry was to better understand the IoT sector and to identify potential competition concerns.

Consumer IoT includes various services, devices and technologies that encourage consumer interaction with smart devices (the things) that collect and exchange information over the internet. In this respect, the IoT comprises four segments: manufacturing of smart home automation devices, provision of voice assistants, provision of consumer IoT services and the manufacturing of various mobile devices.

• In its report, the Commission identified several competition issues and concerns, including, for example:
• The existence of barriers to entry and expansion in this sector. The high cost of technical and development investments makes entry into the market difficult for new players likely to compete with the main market players (Apple, Amazon and Google) that are vertically well integrated and have built their own “ecosystem.”
• The ability of some suppliers to control, alone and unilaterally, interoperability processes. Yet, as the Commission explained, interoperability between various IoT devices but also between brands is essential for the creation of IoT ecosystems for consumers.
• The gathering by some players (such as voice assistant providers) of large amounts of consumer data that allows them to reinforce their position on markets adjacent to the IoT market. Other players, on the other hand, do not seem to be able to enter this market due to lack of access to such data.
• Tie-in sales practices for voice assistants. It is often seen that providers grant a joint license for the voice assistant device and other software or applications, without making it possible to grant a license on the voice assistant alone.
• The ability to use only one voice assistant in most connected devices. To address this issue, the Commission stated that it is necessary to not have any exclusivity preventing more than one voice assistant from being simultaneously integrated on a same device.
• Finally, services are preinstalled or selected by default in smart devices, generally favoring the main providers to the detriment of the smaller players.

In conclusion, the Commission found following this inquiry and the public consultation that followed that actions have to be implemented in the future to ensure full compliance with competition rules in this sector. This sector inquiry also allowed the Commission to gain more understanding about its digital strategy and ongoing legislative work related to digital markets.

French Competition Authority recalls rules for the creation of groupings to answer calls for tenders

In a decision No. 22-D-04 rendered on February 2, 2022, the French Competition Authority sanctioned Ambulance Sannac and its parent company for having answered calls for tenders in the medical transport market via an economic interest grouping (in French groupement d'intérêt économique (GIE)) created with other market players.

In this case, two healthcare facilities launched calls for tenders in 2015 to renew their ambulance transport markets. Ambulance Sannac and five other companies active in this sector decided to create a GIE and submit a joint tender in this call for tenders and in subsequent calls for tenders until 2018.

Only one of the companies that took part in this GIE was the subject of a procedure before the French Competition Authority. This can be explained by the refusal of this company (alone) to settle with the Directorate General for Competition Policy, Consumer Affairs and Fraud Control (DGCCRF) after an inquiry it undertook. It is in these circumstances that the DGCCRF transferred the file on this case to the French Competition Authority.

On this occasion, the French Competition Authority recalled that companies are permitted to create a GIE to answer calls for tenders, provided, however, that the GIE has a pro-competitive effect. The creation of a GIE should enable the grouped companies to compete, whereas they would not have been able to do so on their own or they would have submitted a less competitive tender or a tender of worse quality.

But this was precisely not the case here. In this respect, the French Competition Authority noted that the companies involved had not provided any convincing economic or technical justification for the GIE. The Authority found the GIE to be oversized, as it grouped the main players in the relevant markets and allowed them to have disproportionate means compared with what was necessary in practice for the proper implementation of the markets concerned. This finding was reinforced by the fact that companies alone implemented these markets in the past and no evolution on these markets justified such a mobilization. Moreover, the Authority considered that the creation of this GIE had been detrimental for public hospitals due to the resulting locking of competition as they were unable to receive alternate tenders and therefore to take advantage of competition.

As such, the French Competition Authority sentenced Sannac and its parent company to a fine of €32,600. Although the fine imposed is not excessive, it encourages companies to remain vigilant when creating economic interest groupings in order to answer calls for tenders.

France’s highest court again dismisses prohibition of online sales - even for hazardous products

By a decision dated January 26, 2022, France’s highest court, the Court of Cassation, confirmed the judgment of the Paris Court of Appeal dated October 17, 2019, in the “Stihl” case, considering notably that the online sales restriction on Stihl-branded chainsaws and brush cutters - although justified by safety issues - constituted a restriction by object.

The Court of Appeal had refused to acknowledge the existence of a block or individual exemptions. Furthermore, it had considered - which the French Court of Cassation approved - that Stihl had not provided evidence that online buyers are more prone to accidents than those having purchased the same tools in-store and who had thus received safety instructions orally. The judges considered that the getting started assistance, videos or video-assistance are means that are "economically and technically feasible" online, thus achieving the same result, while being less restrictive of competition than the online sales prohibition.

In any event, the Court of Cassation dismissed the appellant’s reasoning, which tried to invoke the protection principle of legitimate expectations. In the past different national competition authorities (German, Swiss and Swedish) had decided not to initiate a formal procedure for nonconformity or not to pursue inquiries with respect to Stihl’s distribution system. According to the French Court of Cassation, these decisions do not serve as justification for not imposing fines on the practice implemented in the Stihl France network between 2014 and 2017.

Consequently, no online sales restriction by approved distributors can be permitted, even if it is justified by reasons related to the safety of purchasers and therefore are seemingly legitimate reasons.

The Court of Cassation grants confidentiality to emails from in-house lawyers reproducing advice from lawyers protected by professional secrecy

In the context of an inquiry relating to the establishment of a system of prohibited restrictive agreements between manufacturers, wholesalers and large retailers in the distribution of the household appliances sector, the liberties and detention judge of the Paris Tribunal de Grande Instance had authorized dawn raids of Whirlpool’s premises by an order dated May 21, 2014.

On June 5, 2014, Whirlpool filed an appeal before the first presiding judge of the Paris Court of Appeal against the dawn raids, and applied for their cancellation. Whirlpool challenged the seizure of documents covered by professional secrecy, including internal exchanges, between in-house lawyers, containing defense elements taken from a legal consultation related to the inquiry, as well as comments from the in-house lawyers on elements of the consultation.

The deputy first presiding judge of the Paris Court of Appeal granted Whirlpool’s request and cancelled the seizure of these elements, considering that, even if they did not come from or were not sent to a lawyer, these documents referred to the dawn raids and the prohibited practices, and were intended to prepare Whirlpool’s defense with its lawyers.

The Court of Cassation approved the reasoning of the first presiding judge of the Paris Court of Appeal and considered that these documents were indeed covered by the secrecy of the correspondence exchanged with a lawyer. As in-house lawyers’ emails are not yet covered by legal privilege, caution is still called for with respect to emails that do not result from a legal consultation.