The French Competition Authority seeks to regulate LP Gas distribution to consumers

The French Competition Authority, in line with the current trend of increasing advisory activities, has recently issued an opinion on the competitive functioning of the market of bulk LP Gas distribution intended for consumers following a request by the consumers association UFC-Que choisir.

According to the Authority, essentially, the five propane suppliers, which supply more than 90% of the LPG, systematically in their contracts with consumers combine a supply exclusivity with the rental of a tank or the provision of maintenance services.  The Authority also highlighted the long duration of the commitments (three to nine years, renewable in some cases by tacit agreement and accompanied by restrictive conditions on early termination).

Without going as far as qualifying these contracts as anti-competitive practices, which it would not be able to do when consulted for an opinion, the Authority nevertheless deduced that the principal consequence of the supply exclusivity was to tie customers firmly to their existing supplier.

Dismissing the arguments put forward by various players of the sector to justify combining various services with the supply exclusivity (particularly the fact that it was necessary to ensure the profitability of their investments or for safety reasons), the Authority made several recommendations for the attention of the public authorities.

The opinion recommends particularly that LPG suppliers should be required (i) to set out in detail in their contracts with consumers the full amount of the costs net of any discounts and rebates, (ii) to indicate the supply discounts on their invoices, (iii) to propose systematically, before the signature of any new contract for an installation, the option of buying the tank instead of renting it, and (iv) to acknowledge contractually that a consumer who buys a tank is free to obtain supplies from the supplier of his choice.

The Authority also intends to undertake the economic regulation of the sector for the benefit of consumers. Even though this is just an opinion without any binding force, the Authority’s recommendations often catch the legislator’s eye, as illustrated for example by the law on overseas economic regulation enacted in November 2012, which was heavily inspired by two Authority opinions of 2009 and 2012 in the food distribution sector.

It is also interesting to note that in this opinion the Authority turns its attention to the contracts which the propane suppliers sign with consumers and not professionals, which has already led to several initiatives taken by the Abusive Clauses Commission and most recently the Hamon bill on consumer issues which is currently being discussed in Parliament. The bill proposes several measures to ensure greater legibility of contracts in the sector and prohibit contracts with excessive durations, limiting them to five years at most.

In the words of the Authority itself, it must go even further. But hopefully increased competition in this sector will not be achieved to the detriment of consumers’ safety.

The French Competition Authority hits the Castel Frères group with a 4 million euro fine for failure to notify a concentration

In a decision of December 20, 2013, the French Competition Authority once again sanctioned a French company for completing a concentration without submitting a prior notification to the Authority, but this time the fine was particularly high.

Castel Frères acquired exclusive control of some Patriarche group companies in May 2011 without notifying the Authority. A few months later, the Authority learned of the existence of the Castel Frères transaction from a third party in another transaction in the same sector and decided to investigate on its own initiative.

Omitting to notify the Authority was a risky step to take, particularly since there was no doubt about its being a controllable transaction, given that it could easily be characterized as a concentration (acquisition of 99.9% of the target’s shares) and that the turnover thresholds were exceeded. Castel Frères was not in fact mistaken about its obligations; it deliberately ignored them and chose an expeditious approach to compliance with competition law. Despite a condition precedent in the purchase agreement of obtaining the necessary merger control authorizations, the parties chose to ignore it and in the closing documents signed a month later, the purchaser expressly waive to notify the transaction.

It is very clear that this avowed intent to completely disregard the merger control rules to complete the transaction as speedily as possible was one of the aggravating circumstances seized on by the Authority to justify a high fine. The Authority also noted that there was no doubt that the transaction should have been notified and that the undertaking concerned had sufficient resources to obtain the services of suitable legal counsel. As a major group, it could not have been unaware of the merger control rules. The fact that the transaction was authorized (ex post. and after a very thorough review) is irrelevant. The gravity of the failure to notify lies in the fact of obstructing the merger control mechanism and thereby preventing the Authority from exercising its prerogatives.

In its decision, the Authority explains that when determining the amount of the fine it took into account the necessity of ensuring that the sanction would be dissuasive. A cost which the purchasers would no doubt not have wanted to add to the purchase price to complete the deal a few weeks in advance, without being able to avoid having to notify post-closing if the Authority discovered their failure to notify…

Bricks-and-mortar and internet distribution: the German Competition Authority once again takes action against differentiated pricing systems

After Dornbracht (December 13, 2011) and Gardena (December 5, 2013), it is now the turn of the Bosch Siemens household electrical appliance branch to modify its rebate system to meet the requirements of competition law. The rebate system consisted of granting rebates for the quality of the distribution, which were significantly different depending on whether the products were sold in bricks-and-mortar stores or on the internet. The rebates were calculated so that distributors paid higher prices for the products sold on the internet than for those sold in the stores.

The Competition Authority, in line with the position of the European Commission, viewed it as a de facto restriction on Internet sales, which is not covered by the block exemption on vertical restrictions and cannot be granted an individual exemption. The Competition Authority in particular dismissed the argument that the system of differentiated rebates had contributed to improving the quality of distribution. On that point it noted that the costs specific to bricks-and-mortar distribution could have been set off by a fixed contribution, which would have been a more “neutral” competition solution than differentiated rebates. Nevertheless, the Authority validated the quality rebates system for 2014, modified so that identical rebates will be granted for equivalent services on internet and bricks-and-mortar sales.