France: FCA metes out harsh penalties, targets digital sector

In summary

The French Competition Authority (FCA) has continued to sanction undertakings with high fines and to apply a policy of deterrence when tackling abuses of dominance and anticompetitive agreements. Beyond sanctions, the FCA has demonstrated through its recent decisions and statements that it aims to utilise competition law to achieve more policy-oriented goals. Through its competition policy, the FCA appears to be encouraging more sustainable behaviour, both ecological and social. Enforcement in the digital economy also remains a key priority.

Discussion points

• FCA emphasis on effective deterrence has resulted in new fining guidelines that provide the FCA the ability to impose higher fines, raising questions of proportionality, fairness and legal certainty
• Digital sector and digital infrastructure remain a top priority – bumper fines imposed on industry players, but FCA also showing signs of adopting a balanced approach to big tech
• Full implementation of ECN+ Directive has given FCA greater enforcement powers against companies and associations, and greater discretion on what to investigate, and high fines seem likely to result
• FCA has signalled focus on environmental protection considerations

Referenced in this article

• FCA Decision No. 21-D-07 dated 17 March 2021
• FCA Decision No. 21-D-17 dated 12 July 2021
• FCA Decision No. 21-D-11 dated 7 June 2021
• Directive (EU) 2019/1 dated 11 December 2018
• FCA new Guidance on Antitrust Fines dated 30 July 2021

Harsh sanctions underline FCA quest for effective deterrence

In 2021, the French Competition Authority (FCA) continued to impose significant fines to sanction undertakings for breaches of articles L 420-1 and L 420-2 of the Commercial Code (or articles 101 and 102 of the Treaty on the Functioning of the European Union). The FCA imposed fines totalling approximately €375 million for anticompetitive agreements and abuses of dominance, in addition to the €500 million fine on Google for non-compliance with some of the FCA’s injunctions (the heaviest fine imposed in this area).

There seem to be at least two main reasons supporting this trend of high FCA fines.

First, the increasing amounts of the fines seem to reflect the FCA’s policy of deterrence – affirmed several times in the past decade and frequently recalled in its recent decisions (eg, the Eyewear manufacturers and brand owners decision for retail price maintenance and the Industrial sandwich producers decision for bid rigging and agreeing on price increases to retailers). The new FCA guidelines on the setting of antitrust fines, adopted in July 2021, also demonstrate the FCA’s willingness to pursue greater deterrence.

Second, the highest fines seem to target digital players in particular. In recent years, the FCA has not hidden its strategy of investigating and tackling anticompetitive behaviour in the digital sector, highlighting that competition law is a particularly effective way to maintain the competitive dynamic of the digital economy.^[1] In October 2021, the former FCA President asserted in her end-of-tenure speech that ‘the major challenge remains that of the digital transformation of the economy’.^[2]

Among the different digital players, the Big Five – Google, Amazon, Facebook, Apple and Microsoft – have faced several FCA investigations and received some of the heaviest fines. In 2020 Apple was given the largest penalty (€1.1 billion) ever imposed by the FCA.^[3] In June 2021, Google was fined €220 million,^[4] the third-highest FCA fine to date for abuse of dominance (after the €444 million fine imposed on pharmaceutical groups Novartis Roche and Genentech in 2020,^[5] and the €350 million fine against Orange in 2015).^[6] Google was also fined €500 million for its breach of the FCA’s injunction to negotiate remuneration with publishers.^[7]

The heavy fines imposed by the FCA may be viewed by companies as disproportionate and unpredictable and are usually challenged before the Court of Appeal, sometimes successfully. In a 2 December 2021 ruling, the Court of Appeal of Paris annulled FCA fines totalling €385 million imposed in 2010 on 11 banks for alleged collusion on cheque handling fees. (The FCA has challenged the Court of Appeal’s annulment decision.)

More generally, it may be asked how the FCA justifies such huge fines and whether they fully comply with its own guidance for setting antitrust fines.

It is important to recall the methodology the FCA uses to determine pecuniary sanctions. The FCA must comply with article L 464-2 of the Commercial Code, providing that ‘pecuniary sanctions are assessed with respect to the seriousness and the duration of the infringement, the situation of the organisation or undertaking sanctioned or the group to which the undertaking belongs, and the possible reiteration of practices prohibited’.

To increase transparency and legal certainty, the FCA adopted its first Guidelines on the setting of Antitrust Fines in May 2011. The FCA recently issued new Guidelines on 30 July 2021, which are more stringent in several respects and will lead to higher fines, within the constant maximum legal cap. which remains 10 per cent of the worldwide consolidated turnover of the relevant undertaking.

In particular, the new Guidelines still provide that the FCA may adjust the fine upwards to take into account the economic power of the company or its group ‘to ensure the dissuasive and proportionate nature of the financial penalty’, which can massively increase the fines for large undertakings. Since the 2017 Janssen-Cilag case,^[8] in which the FCA applied a 70 per cent add-on factor to reflect the economic power of the group, this provision has proven to be a great tool for the FCA to significantly increase fines. For instance, in its Decision No. 20-D-11 dated 9 September 2020, the FCA sanctioned three pharmaceutical groups for abusing their collective dominant position to promote the sale of age-related macular degeneration drug Lucentis. In this decision, the total amount of the fine of around €444 million was greatly bolstered by increases of 50 per cent for Novartis and 70 per cent for Roche and Genentech, in light of their overall economic power. In Decision No. 20-D-04 dated 16 March 2020, the FCA sanctioned Apple and two of its wholesalers, Tech Data and Ingram Micro, with a record fine of €1.3 billion for two vertical anticompetitive agreements (allocation of products and customers between the two wholesalers and vertical price-fixing agreements). Apple was also sanctioned for abusing its premium resellers’ economic dependence. The fine incorporated a very high increase based on the economic power of the three undertakings, in particular a staggering 90 per cent escalation against Apple. Recently, in Decision No. 21-D-20 dated 22 July 2021, the FCA fined several eyewear brands and manufacturers for imposing selling prices on opticians and prohibiting them from selling on the internet, applying a 100 per cent increase to the basic level of LVMH’s fine to take into account its economic power. This policy shows the uncompromising stance of the FCA towards companies involved in anticompetitive practices and holding significant economic power.

However, an increase grounded on the economic power of the undertaking may appear disproportionate, especially when applied to an FCA objection of low seriousness.

In any event, the relevance of the Guidelines is questionable when fines significantly exceed the suggested amounts. The FCA may deviate from its Guidelines provided that it explains, in its decision, the particular circumstances or the public interest reasons justifying it.^[9]

For instance, in Decision No. 19-D-26 dated 19 December 2019, the FCA sanctioned Google for abuse of dominance in the search advertising market. The FCA considered that the operating rules of the Google Ads advertising platform were opaque and difficult to understand and, in practice, were applied in an unfair and discriminatory manner. It decided to depart from its Guidelines, stating that their standard application would have resulted in insufficient deterrence and in a fine that would not reflect the seriousness of the infringement and the effects on the economy,^[10] and adopted a flat-rate amount.

The FCA gave no indication on how it calculated the €150 million fine against Google. It affirmed that it ‘significantly increased’ the fine to take into account the power and the contributory capacity of the Google group. It is estimated that the percentage of decisions of the FCA sanctioning anticompetitive agreements and applying a flat-rate amount equates to 30 per cent in 2018 and 17 per cent in 2019.

Deviation from the Guidelines is not new and generates a real issue as to the predictability of fines. Undertakings should, at a minimum, be able to roughly anticipate the likely range of a fine and to allocate a sufficient amount in their account for litigation provision. Further, deviation from ‘standard’ fines arguably prevents undertakings from understanding how the fine has been calculated, depriving them of the possibility to adequately challenge the FCA’s reasoning.

This trend of issuing fines above the amounts in the guidance undermines the greater predictability that was the original rationale for issuing the Guidelines and increases the number of appeals. It is expected that some of the record recent fines will be reduced on appeal.

Nearly two-thirds of the cartel fines brought before the Paris Court of Appeal between November 2004 and April 2021 were decreased, either because one or several objections were dropped (about 39 per cent of the total cases appealed) or because the fine was reduced although the objections remained (about 24 per cent). The average decrease was approximately 24 per cent. However, these rather high rates are mostly fed by appeal decisions before 2015; figures for more recent years regarding reduction in fines appear less favourable for appellants.

Between 2017 and 2019, two-thirds of appeals against findings of abuse of dominance have resulted in a decrease in the sanction.

Digital sector still in FCA crosshairs

The digital economy remains one of the FCA’s top priorities. The FCA had already decided to dedicate substantial resources to analysing the digital sector in 2020/2021 (notably by launching its Digital Economy Unit in 2020) and this effort should continue. The new FCA President confirmed before the National Assembly in January 2022 that the digital sector would be one of the priorities of his mandate.

The President stated he intends to focus on the emergence of new critical infrastructure and announced that the FCA would rapidly undertake in-depth work on the consequences of the cloud in all sectors, in conjunction with the relevant sectoral authorities. The FCA then started proceedings to analyse competition conditions in the cloud computing sector.^[11] The FCA stated that its opinion will in particular scrutinise the competitive dynamics of the sector and the presence of players in the various segments of the value chain, as well as their contractual relationships. The focus will also be on defining the relevant markets in the cloud sector. This initiative comes after the French government decided to launch a new national plan to support the French cloud industry.

The publication of the G7 compendium, presenting approaches taken by different competition authorities to promote competition in digital markets, also shows the FCA’s willingness to participate in international forums to address this issue.^[12]

Like the European Commission and other national competition authorities, the FCA’s recent decisions against major digital players are clear proof of its willingness to sanction anticompetitive behaviour in the digital sector. This focus will continue in 2022, as digital players are still under investigation.

In 2021, the FCA penalised Google in separate matters, imposing €720 million in fines in total.

In Decision 21-D-11 dated 7 June 2021, following a referral by several publishers who monetise their content through the supply of advertising space using two advertising technologies sold by Google, the FCA fined Google for having abused its dominant position in the market for ad servers for publishers of websites and mobile apps. The FCA imposed a fine of €220 million and made binding a series of commitments voluntarily proposed by Google.

In Decision 21-D-17 dated 12 July 2021, the FCA sanctioned Google with a €500 million fine for failing to comply with the interim measures issued in its Decision 20-MC-01 dated 9 April 2020, following requests for interim measures from press agencies and publishers. As a reminder, in this latter decision, the FCA found that Google’s behaviour following the implementation of Law No. 2019-775 of 24 July 2019 on the creation of neighbouring rights for the benefit of press agencies and publishers (the Neighbouring Rights Law) was highly likely to amount to an abuse of dominance and was causing serious and immediate harm to the press sector. Those findings led the FCA to issue interim injunctions against Google, forcing it to conduct ‘within three months’ negotiations ‘in good faith’ with publishers and news agencies regarding the remuneration of their neighbouring rights for reusing their protected content.

To comply with the Neighbouring Rights Law, Google decided that it would no longer display article extracts, photographs, infographics and videos within its various services (such as Google Search) so as not to make use of neighbouring rights, unless the publishers granted it the authorisation to use them free of charge. As a result, most of the press content owners had no choice but to enter into non-negotiated and non-remunerated licence agreements with Google for using and displaying their content, if they wanted to retain access to its essential display outlets.

The FCA remedy appeared quite controversial. The first part of the FCA’s injunction is an obligation to ‘good faith’ negotiations, without, however, any formal obligation to get a result or any list of concrete indications on what Google should do. The question arises whether this is fully compliant with the need for legal certainty and whether such a broad and vague injunction increases the FCA’s margin of manoeuvre when reviewing Google’s compliance. Besides, the third part of the FCA’s injunction is also questionable, as it obliges Google to preserve the display of the concerned content (extracts, etc) during the negotiations and ensure that the negotiations do not impact other economic relations existing between Google and the publishers, which could be viewed as impinging on the constitutional freedom of trade and industry. This third part is effective for the three-month duration of the negotiation only, probably so as not to make it too obviously contrary to constitutional freedoms.

Against this background, it came as no surprise that the FCA fined Google €500 million for allegedly breaching these injunctions, following complaints from publishers and the dismissal of Google’s appeal against the FCA injunction in October 2020. The case team’s report, some of which was disclosed in the French press,^[13] stated the need for a ‘sufficiently dissuasive pecuniary fine for a company such as Google’, given the ‘quite exceptional breach of the law’.

The investigation into the merits of this Neighbouring Rights Law case is on the FCA’s agenda for 2022.

Finally, in the context of an investigation opened by the FCA in the online advertising sector concerning alleged lack of clarity and objectivity in accessing Meta’s advertising services, Meta offered to commit to provide its partners with clear and objective conditions of access to its advertising services. These commitments, in response to the FCA’s competition concerns, were market-tested in June 2021. Should the proposed commitments be accepted, the FCA would close its case without any finding of infringement.

Having said that, the FCA also seems keen to show it can adopt a balanced approach to major digital players. In Decision 21-D-07 dated 17 March 2021,^[14] it ruled against implementing interim measures to suspend Apple’s iOS privacy policy update regarding targeted advertising, even acknowledging the planned changes as potentially ‘helpful’ for consumers. However, the FCA is still investigating the case on the merits, in particular to check whether the controversial changes, which would force all applications to ask for a user’s permission to track their behaviour, may or may not be regarded as a form of discrimination or self-preferencing.

Greater enforcement powers under transposed ECN+ Directive

The ECN+ Directive,^[15] harmonising operating rules between national competition authorities in the European Union, has now been implemented in French law, strengthening the FCA’s enforcement powers.

First, the FCA may, from now on, reject formal complaints when they do not match its enforcement priorities. This new ‘discretionary prosecution’ principle contrasts with the previous French model, in which the FCA could only reject formal complaints on legally limited grounds (under article L 462-8 of the Commercial Code), mainly for lack of sufficient evidence.

Second, while the FCA previously needed a prior formal complaint to trigger interim measures proceedings, it may now launch proceedings on its own initiative. This may be key in the FCA’s strategy to pre-emptively address anticompetitive behaviour by digital players.

Third, the ECN+ Directive also gave the FCA broader sanction powers, in particular regarding fines.

The ECN+ Directive harmonises the criteria for determining the amount of the fines by taking into account the seriousness and duration of the infringement. In this respect, article L 464-2 of the Commercial Code no longer refers to the concept of ‘damage to the economy’ as a criterion for setting antitrust fines, which was a French peculiarity.

The harmonisation with the ECN+ Directive of the maximum amount of fines – 10 per cent of the total global turnover – allows the FCA to sanction trade associations and unions more severely. Until now, associations and unions were still not acknowledged as formal undertakings by the Commercial Code and couldn’t be fined more than €3 million. From now on, article L 462-4 of the Commercial Code provides for a cap of 10 per cent of the sum of the annual turnover of the offending association or, where the infringement relates to the activity of its members, of 10 per cent of the worldwide turnover of its members active on the market affected by the infringement. Undeniably this constitutes a major change. Recent enforcement practice revealed several infringements within the framework of professional associations: the flooring cartel^[16] and the washing machine and household appliances cartel,^[17] for example, have led the FCA to have a particular focus on trade associations’ compliance with competition law.

Following the Directive’s implementation, as mentioned above, the FCA revised its Guidelines on Antitrust Fines on 30 July 2021. The new Guidelines are more stringent in several respects and will lead to higher fines, although the maximum remains 10 per cent of the worldwide consolidated turnover of the relevant undertaking. In particular, the new Guidelines empower the FCA to increase, for the most serious antitrust infringements, the basic amount of the fine by an additional amount ranging between 15 per cent and 25 per cent of the value of the sales (known as ‘entry fee’). It remains to be seen how this will be applied in practice. Also, regarding the duration of the fine, the new Guidelines align the coefficient used to factor the duration of an infringement with the one applied by the European Commission: each full year of implementation of an anticompetitive practice will henceforth count as a multiplier of 1 rather than the 0.5 multiplier under the former guidelines. These changes will lead to even higher fines.

Fourth, the implementation of the ECN+ Directive resulted in a broader scope for simplified proceedings before the FCA, with the aim of speeding up proceedings but also potentially jeopardising the adversarial principle and the rights of defence. As in proceedings before the European Commission, the aim is to have one sole round of discussion between the investigating authorities and the undertakings before the hearing (the reply to the statement of objections issued by the FCA), instead of the current double round of discussions (reply to the statement of objections followed by the reply to the FCA investigators’ report). The report stage has nonetheless often proved to be particularly useful, notably in complex cases, as it allows the investigators and the parties to exchange arguments more fully and go into the detail of the analysis. This step also makes it possible to focus on the substantive elements to discuss at the hearing, setting aside the points with less impact, and even sometimes making it possible, before the hearing takes place, to withdraw insufficiently grounded objections. For the time being, it suffices to note how the reports often significantly differ from the statements of objections, to understand how this change will significantly affect the due process and the FCA decisions themselves. One might wonder whether any time gained from simplified proceedings may be lost in appeals.

Importantly also, the reduced €750,000 fine cap formerly applicable under the simplified proceedings has been abolished, meaning that the cap of the ‘normal’ proceedings with two rounds of discussions (10 per cent of the worldwide consolidated turnover of the relevant undertaking) now applies to the simplified procedure. This will also lead to higher fines against undertakings.

Towards greener competition

The FCA is ready to introduce sweeping and lasting changes into its antitrust enforcement and consider new criteria as part of its analysis, beyond that of the immediate risks to competition.

In the coming years, the FCA will target more closely competition law concerns that also call into question environmental protection in the broad sense.

The FCA reasserted sustainable development as one of its key priorities for 2021 and its incoming President stated before the Senate that the FCA will need to take an active role at European level on environmental sustainability.

On 5 May 2020, the FCA, with seven other independent French administrative authorities, published a working paper presenting their roles in addressing climate change issues and the tools available to them. Although the mandate given to the FCA by the legislation is to protect competition and not, as such, to protect the environment, in this working paper, the FCA states that behaviour presented as aiming at ensuring a better protection of the environment could breach competition law by leading companies to set up anticompetitive agreements. The FCA acts in favour of environmental protection either by sanctioning anticompetitive agreements that have led undertakings to neutralise a competition parameter relating to improved protection of the environment, or by taking into account, under merger control reviews, the environment as part of its consumer welfare assessment.

The FCA has also announced that it will spearhead international and European discussions on promoting sustainable development, particularly in the context of the Green Deal launched by the European Commission in December 2019, and the FCA participated in the Commission’s consultation.

In 2021, the FCA took concrete enforcement action by notifying 101 companies and 14 professional organisations of its objections. These entities allegedly agreed not to communicate on the presence or on the composition of certain materials in contact with food, to the detriment of consumers.

The FCA therefore appears willing to take an enforcement role that not only involves punishing anticompetitive behaviour but also guides economic operators towards more sustainable ways of doing business. This specific role is in line with the constitutional provisions of the EU treaties that also require consideration of sustainability and environmental protection when implementing EU policies and so is not totally new.

Therefore, as the FCA’s competition assessment is encompassing broader environmental aspects, we should expect the development of new theories of harm and of similar enforcement policies across the world.

Notes