- French Competition Authority Imposes an Overall Fine of Just Less Than €1 Billion on Manufacturers of Personal Hygiene and Cleaning Products
- April 23, 2015
- Law Firm: Dentons Canada LLP - Toronto Office
- The French Competition Authority has just imposed one of the biggest fines in its history on a number of personal hygiene and cleaning product manufacturers for their involvement in two price cartels.
The first cartel, related to the cleaning products sector was reported by one of the offenders, SC Johnson, with a view to obtaining its complete exoneration from sanctions, thus allowing the Authority to carry out raids in real time during a lunch between the cartel participants in a Parisian brasserie.
These search and seizure operations led to another of the companies involved in the cartel, and present at the lunch in question, approaching the Authority, not only to provide new information regarding the practices reported by SC Johnson with a view to obtaining a lesser sanction, but also to report a second cartel in another sector, the personal hygiene products sector, so as to obtain complete exoneration from sanctions imposed for participation in this second cartel.
According to the Authority, these cartels, which took the form of secret meetings and telephone calls, sought to promote coordination in the positions adopted by the suppliers during business negotiations with the distributors.
In response to the participants of the cartels who claimed the countervailing power of distribution in order to minimize damage to the economy, the Authority acknowledged that in the mass distribution supply sector, brands have bargaining powers over suppliers.
Nonetheless, the Authority decided that the distributors’ bargaining powers vis-à-vis suppliers in the cleaning and personal hygiene products sectors must be assessed in light of the market power of these suppliers. In this respect, the Authority highlighted in particular that it is more difficult for major distributors to exercise their power when the manufacturers deal with renowned brands, as is the case in this instance where the companies concerned by the practices represent almost all major national brands.
That being said, the Authority does not seem to completely dismiss the argument concerning the countervailing effect of mass distribution and its assessment thereof seems to be circumstantial. It highlights that in certain branches of the agro-food sector, the often fragmented nature of the offer, the variations in production which result in volatile prices, the unstable nature of demand which is dependent on climatic vagaries and sanitary crises, and the often perishable nature of products, place producers of certain agricultural or agro-food products in an imbalanced position in relation to mass distribution; this is not comparable to the personal hygiene and cleaning sectors.
It should be noted that the Authority refuses to allow certain companies to benefit from the mitigating circumstances related to their single-product offer, despite the fact that 100 percent of their turnover comes from the products concerned by the practices.
To justify this stance, the Authority argues that as each of the companies in question involved in the cartels belongs to an international group which recorded only a small percentage of its consolidated turnover for the concerned products through the cartels. As a result, it is concluded that the company is not in fact a single-product company.
This reasoning is surprising as it seems to openly contradict the recent order handed down by the Paris Court of Appeal in the pork products case: in order to assess status as a single-product company the Court had taken into account the circumstances of the offender and not those of its group.
Several companies have already announced that they will appeal the decision. The discussions before the Paris Court of Appeal on the individual fines will no doubt be intense.