We are used to companies being fined for cartels acting undercover to agree on prices or other market parameters. What about companies openly agreeing together through a joint venture company?

On November 8, 2016, the French Supreme Court (Cour de cassation) overruled a decision of the Court of Appeal of Paris regarding horizontal agreements set up among French millers through two joint venture companies for the purpose of co-marketing their products, one of which sold flour to the retail industry, and the other to discount outlets.

The two joint companies had been incorporated by the majority of French flour producers respectively in 1965 and 1971, at a time when the market’s structure and the booming retail industry compelled producers to organize themselves in groups in order to adapt to the market, so the millers argued. This is allegedly what led them to make agreements on the selling conditions of their flour for over forty years, through these two companies.

Thus, from 1966 until 2012 for the retail market, and from 2002 until 2011 for the hard discount industry, French millers agreed on the selling price of their flour and on the allocation of customers and delivery volumes according to geographical areas that had been previously assigned to each producer.

According to the French Competition Authority (the “FCA”), these practices led to an actual centralized organization of the flour market in France and resulted in the elimination of any type of competition amongst the millers. This, the FCA found, caused serious harm to French consumers due to the size of the cartel and to their particularly long-lasting agreements. Therefore, the FCA imposed a heavy fine on the members of the flour cartel for breach of Article L. 420-1 of the French Commercial Code and Article 101 TFEU.

The Court of Appeal, however, heard the arguments of the flour producers and ruled that the commercial agreements within the two joint companies did not constitute anti-competitive practices. As a matter of fact, the Court of Appeals considered that millers had been constrained to gather together through joint companies due to economic conditions, because they were not able to make market-satisfactory offers to distributors if acting individually. Therefore, they had no choice but to make combined offers though joint companies.

Accordingly, these joint venture marketing structures were compliant with competition law, and they allowed the millers to cooperate in order to meet the requirements of distributors and discounters.

The case was brought before the French Supreme Court, which overturned the decision of the Court of Appeal. The Supreme Court ruled that the criterion to be used to assess whether joint venture marketing structures are compliant with competition law is whether or not the structure exceeds what is strictly necessary for the businesses to be able to enter and remain on the market. By inference, any agreement made outside of this scope may be considered an unlawful agreement.

This decision serves as a reminder that even open horizontal commercial agreements are not “safe harbor” protected from the scope of competition laws where the parties involved have sufficient market power.

Decision : Cass.com. 8 November 2016 no. 14-28.234.

[View source.]