Actions for damages: The inability to pass on higher prices proves the prejudice

The Paris Court of Appeal judgment of February 27, 2014 makes it easier for victims of anti-competitive practices bringing an action for damages to prove the prejudice they have suffered.

In this case the Doux group, a poultry producer, bought feed containing lysine from Ceva Santé Animale, Ajinomoto Eurolysine’s exclusive distributor, and supplied it to chicken farmers.

However, a European Commission decision revealed that Ajinomoto and other undertakings were involved in a cartel on lysine prices and sales volumes, resulting in prices being pushed up higher than what they would have been otherwise.

The Doux group complained that the purchase price of the lysine was higher because of the cartel, causing it a loss of margin and reducing its competitiveness, and it sued Ceva Santé and Ajinomoto to obtain damages for the prejudice suffered.

A first Court of Appeal judgment was overturned by the French Supreme Court, ruling that the Court had failed to ascertain whether the higher prices asserted by Doux had actually been passed on to its customers. The Court of Appeal to which the case was referred back was of the opinion that there were two methods of demonstrating that the increase had not been passed on: (1) the empirical method whereby it was not passed on or (2) the theoretical method whereby it could not have been passed on. The Court then recognized that the Doux group, a supplier of poultry essentially to large retailers, could not have passed on the higher prices by imposing a price increase on its distributors, because the lysine was not a major component of the product’s price which could have justified a price increase when the commercial negotiations were being conducted. In addition, many factors are taken into account when fixing poultry prices, including the bargaining power of the large retailers, which generally block price increases.

The judges deduced that as the Doux group could not have passed on the additional costs to the distributors, it had actually suffered prejudice because of the cartel. It was awarded damages of close to €1.5 million because of the higher prices and for having had to cover them with its own funds.

However, in the opposite case, when the price increase is passed on, the authors of the anti-competitive practice cannot automatically escape from being sued for damages. Those on the receiving end of the price increase, in other words large retailers or consumers, can take them to court, particularly now that class actions are available to consumers.

Abrupt termination: the continuation of business relations can be ordered in summary proceedings

The Paris Court of Appeal judgment of February 5, 2014 recalled that a party whose established business relations have been terminated abruptly can apply to the summary proceedings judge to have their continuation ordered.

Whereas the companies in question had enjoyed uninterrupted business relations for six years on the basis of one-year fixed term contracts non-renewable by tacit agreement, one of the parties notified the other of its intention not to renew the contract, giving slightly more than one month’s notice. According to the Court of Appeal, the notice period did not give the victim of the termination sufficient time to make other arrangements, which justified ordering the continuation of the business relations for another six months.

The Paris Court of Appeal takes a more lenient view of Bang & Olufsen’s prohibition of online sales by its approved retailers

In December 2012 the French Competition Authority fined the Bang & Olufsen companies €900,000 for de facto prohibiting their approved distributors from selling the brand’s products online.

Bang & Olufsen lodged an appeal against the Authority’s decision, claiming the benefit of an individual exemption. The companies relied specifically on the argument, which has become a classic in selective distribution that a total absolute prohibition of online sales protects the network against the “passing off” from which brick and mortar sales outlets suffer.

The Court of Appeal judgment of March 13, 2014 dismissed the argument, finding that Bang & Olufsen had failed to demonstrate why less restrictive solutions than a total absolute prohibition could not have been chosen to limit the risk of supposed passing-off.

However, the Court also took pains to clarify that, unlike the complex products in the Bang & Olufsen range, its less costly and less elaborate products are suited to being sold online as they do not require a demonstration by a sales assistant in a brick and mortar store or generate high storage or distribution costs. By suggesting this distinction between simple and complex products, the Court of Appeal would seem to be saying that – in practical terms – a judge might accept that an individual exemption can justify the online selling prohibition, but it is the defendant who has to initiate the discussion properly.

The contribution made by the judgment is of particular interest since it follows a French Supreme Court judgment in another case (Pierre Fabre), in which the Supreme Court judges dismissed the appeal because the manufacturer “had merely” claimed the benefit of the individual exemption without producing proof that the obligation for a pharmacist to be present in the brick and mortar sales outlet contributed to – and was indispensable for – economic progress.

Finally, the Court of Appeal turned its attention to the gravity of the infringement, considering that it should be put into perspective since, at the time of the Authority’s decision, the law and case law on prohibiting online sales were still fluctuating. Consequently, it granted a spectacular reduction of the fine from €900,000 to €10,000.

A revised block exemption regulation for technology transfer agreements

The European Commission has just adopted a revised block exemption regulation to apply from May 1, 2014 to software, know-how or patent user licenses concluded for the production of goods and services.

The market share thresholds to obtain a block exemption in the current regulation, namely
20 percent (agreements between competitors) and 30 percent (agreements between non-competitors), are maintained in the revised version. There is also no significant change to the list of hardcore restrictions in agreements between competitors; it has just been simplified.

On the other hand, certain clauses have been excluded from the scope of the block exemption, and their lawfulness will now have to be examined on a case-by-case basis: (i) restrictions of passive sales between licensees in agreements between non-competitors; (ii) termination clauses in non-exclusive license agreements allowing the licensor to end the agreement if the licensee challenges the validity of the intellectual property rights and (iii) all clauses containing exclusive grant back obligations for licensees for improvements of the licensed technology, with no distinction being made between severable and non-severable improvements.

Although the regulation does not make any important changes to the current rules, the clarifications and recommendations in the new guidelines with regard to the creation of patent pools and their resulting licensing arrangements are a welcome addition.