In collaboration with Sarah Darmon
The French Law on the Modernisation of the Economy (LME),
which came into force on August 6 2008, and its executive Order
dated November 13 2008, bring important changes to French
competition and distribution law, of which any foreign company
doing business in France should be aware.
The authors of the LME aimed to develop competition and
encourage the development of enterprise in order to promote
French economic growth, and to improve employment and
consumers' purchasing power.
A strengthened Authority
The LME created a new strengthened Competition Authority,
which replaces the Competition Council and transferred the
decision-making power with regard to merger control from the
Minister of Economy to this new entity. In addition, the
competition investigation procedure was amended by the
Executive Order (ordonnance) dated November 13 2008.
Finally, the LME modified the thresholds and time periods
applicable to mergers, and made micro-anticompetitive practices
subject to the control of the Minister of Economy as provided
by the Executive Order.
The new Competition Authority centralises most of the powers
that used to be shared between the Competition Council and the
Ministry of Economy. It became effective upon the Government's
adoption of an Executive Order on November 13 2008.
The Competition Authority benefits from wider powers in the
merger-control field than the Competition Council. In this
respect, the Competition Authority, rather than the French
Ministry of Economy's services, receives notifications of
concentrations and investigates proposed mergers, both in Stage
I (initial investigation) and in Stage II (in-depth
The Ministry of Economy will only retain a subsidiary role
regarding: (i) in depth merger investigations: within five
business days following a Stage I clearance decision by the
Competition Authority, the Ministry of Economy may request that
the Competition Authority opens a Stage II and undertakes an
in-depth investigation on the concentration; and (ii) reviews,
on the grounds of public interest, of a transaction that has
already been subject to an in-depth investigation and
authorised or prohibited, by the Competition Authority, within
twenty-five business days of the notification to the Ministry
of the Authority's Stage II decision.
According to the LME, the Ministry of the Economy may
exercise this right of contestation "for general interest
purposes other than the protection of competition and which
may, if applicable, compensate the harm to competition
resulting from the transaction". As examples of general
interest purposes, the LME mentions industrial development,
international competitiveness and the creation or preservation
A last point of reform of the LME is the creation of an
investigation service within the Competition Authority, which
will act in collaboration with the investigation service of the
Minister of Economy.
Prior to the Executive Order, the Competition Authority had
been criticised for failing to distinguish its investigation
activities from its decision-making role. The Executive Order
has responded to this criticism by separating these two aspects
of its work.
As a result, the Chief Case Handler (Rapporteur
Général), head of the investigation services of
the Competition Authority, is now vested with some of the
duties formerly granted to the head of the Competition
It is up to the Chief Case Handler to decide whether the
simplified procedure should be followed or not. In addition,
contrary to the situation existing prior to the Executive
Order, the Competition Authority may no longer undertake
investigations on its own initiative: this power is now vested
in the Chief Case Handler who may recommend that the
Competition Authority undertake an investigation into
anti-competitive practices (Article L462-5 of the Commercial
Finally, the Chief Case Handler's duties include management
of requests for procedural time extensions as well as requests
for application of the provisions regarding business secrets
and of access to the case file.
Article L464-8 of the French Commercial Code provides for
the possibility, for the President of the Competition
Authority, to appeal to the Supreme Court (Cour de cassation) a
Court of Appeal decision that has cancelled or reformed a
decision of the Competition Authority. Before the Executive
Order, only the Minister of Economy was granted this
Investigators are now authorised, during investigations, to
carry out hearings of "the occupant of the premises or his or
her representative so as to obtain useful information or
explanations for the purposes of the investigation".
Previously, the Law did not mention any such power of the
investigators and as a result those investigators that were
willing to achieve their investigation as fast as possible did
not ask for any explanations on the documents they were
planning to seize.
So now the investigators will be able to carry out real and
serious interrogations of company officers or their
representatives while benefiting from the surprise of the
investigation. More caution will thus be required from company
In addition, when an undertaking or an organism does not
reply at all, or replies after the requested delay, to summons
or to a request of information or communication of documents
from the investigators, the Competition Authority is entitled,
at the request of the Chief Case Handler, to deliver an
injunction with a penalty payment limited to 5% of the average
daily turnover for each day's delay.
Article L464-2 V paragraph two provides that the undertaking
that obstructed the investigations by providing incorrect or
incomplete information or by communicating incomplete or
misleading documents may be ordered by the Competition
Authority at the request of the Chief Case Handler to pay a
fine of up to 1% of the worldwide turnover without tax.
Regarding the rights of the entity under investigation,
these have been increased both at the stage of investigation
and with regard to any subsequent proceedings.
Concerning the investigations, the new Article L450-4 of the
Commercial Code provides, first, that the judicial
authorisation to conduct inspections and seize documents given
by the freedoms and custody judge (Juge des libertés et
de la détention) to the European Commission, the
Minister of Economy or the Chief Case Handler's requests to
initiate inspections must "mention the ability, for the
occupant of the premises or its representatives, to be assisted
by the counsel of their choice".
This represents an improvement in the rights of enterprises
that were refused the benefit of a counsel by the Cour de
cassation, which did not wish to hinder the speed of
investigations and used to justify its position by the presence
of a police agent on the premises [supposed] to ensure the
validity of the operations.
However, Article L450-4 provides that "the exercise of the
possibility does not entail the suspension of the search and
the seizure". It results from this provision that such hearings
may be held outside the presence of the company's counsel if
the latter is unable to go immediately to the premises.
Secondly, Article L450-4 paragraph six states that the
judicial authorisation to conduct inspections and seize
documents given by the freedoms and custody judge is now
subject to appeal before the chief justice (premier president)
of the competent Court of Appeal on a non-suspensive basis
within a period of 10 days from the notification of this
authorisation and not only to a review by the French Supreme
Court (Cour de cassation), as used to be the case. This
solution complies with the Ravon case, decided by the
European Court of Human Rights on February 21 2008, which
stated that the possibility to subject the judicial
authorisation only to a review by the French Supreme Court did
not comply with Article 61 of the European Convention on Human
Rights, which provides a right to a fair trial, since this
appeal does not allow any review of the factual elements on
which the authorisation relies but only the elements of law.
The Law of May 12 2009 specifies that only the public
prosecutor and the person subject to the inspections and
seizures are entitled to lodge this appeal.
Article L450-4 paragraph 12 also allows the undertaking to
contest the conduct of the inspections and seizures before the
chief justice of the Court of Appeal, on a non-suspensive
basis, within a period of 10 days from the delivery or
reception of the minutes and inventory or, where the defendant
is not the object of the inspections and seizures, from the
date of the reception by the defendant of the notification of
the minutes and inventory. The Law of May 12 2009 specifies
that not only the public prosecutor and the person subject to
the inspections and seizures are entitled to lodge this type of
appeal but also any person summoned on the basis of documents
seized during these operations. The judicial decision of the
chief justice can be appealed before the Supreme Court.
Concerning the proceedings, new guarantees for entities
under investigation lie in the prescription period and in the
creation of a hearing officer position.
The Executive Order of November 13 2008 states, as already
was the case under ex-Article L462-7 that "facts dating back
more than five years may not be referred to the Competition
Authority if no attempt has been made to investigate, establish
or punish them". Please note that a new paragraph two provides
that the actions interruptive of the prescription of the public
prosecution mentioned in Article L420-6 are also interruptive
of the prescription before the Competition Authority. However,
a new paragraph three states that an action shall not be
brought before the Competition Authority if a period of 10
years has expired since the end of the anticompetitive
practices regardless of any interruption of the prescription
periods. This limitation brings a new guarantee and more
security to the undertakings.
Finally, the LME, created, in Article L461-4, the position
of a hearing officer within the Competition Authority, whose
task will be to collect, "as the case may be, the comments of
the challenged and filing parties concerning the manner in
which the procedures affecting them are carried out once the
statement of objections is sent" [and to] transmit "a report to
the chairman evaluating these comments and proposing, if
necessary, any measure that will enhance the ability of the
parties to exercise their rights".
However, unfortunately, the hearing officer is not expected
to participate in the Authority's hearings, unlike officers in
the European Commission.
Modifying merger thresholds
The time period for mergers are now expressed in business
days (instead of calendar days) and equal 25 working days for
phase I and 65 working days for phase II.
However, these time periods may be suspended at the request
of the parties "on an ad hoc basis, such as in order to
finalise commitments", and at the Authority's initiative in the
case of a delay in the provision of certain information.
In addition, specific turnover thresholds (75 million
and 15 million instead of 150 million and 50
million for the general thresholds), may apply when the parties
to the merger are active in the area of retail or in overseas
The Executive Order of November 13 2008 (Article L464-9 of
the Commercial Code) provides for the right of the Minister of
Economy to settle or order measures regarding
micro-anticompetitive practices. Such practices will be subject
to the control of the Minister where: (i) the combined turnover
in France of all the undertakings involved does not exceed
100 million; (ii) the turnover of each of the
undertakings in France does not exceed 50 million; and
(iii) the practices do not fall within the scope of Articles 81
and 82 of the EC Treaty.
If the parties agree to a settlement, the amount of any fine
imposed will not exceed 75 million or 5% of the parties'
latest turnover achieved in France, if this amount is
Timely compliance with the obligations resulting from the
injunction or the acceptance of a settlement puts an end to any
actions brought before the Competition Authority regarding the
same facts. The Minister of Economy cannot suggest a settlement
nor order an injunction when the same facts have previously
been the object of a referral to the Competition Authority by
an entity mentioned in Article L462-1.
If the parties refuse to settle or do not comply with the
injunction orders or with the obligations resulting from the
acceptance of the settlement, the Minister may refer the case
to the Competition Authority.
The most notable changes brought by the LME in distribution
law are the reduction of payment periods in order to support
small and medium companies, the abolition of the prohibition of
discrimination between distributors and the reduction of the
The LME (Article L441-6 paragraph nine of the Commercial
Code) provides that the payment period shall not extend beyond
45 days from the end of the month or 60 days from the invoice
date, this being applicable to agreements entered into after
January 1 2009. This reform is intended to bring payment terms
in France in line with the European average and to support
small and medium companies.
Such maximum time limit may be increased by means of
inter-professional agreements which must have been entered into
before March 1 2009 but this possibility is very strictly
regulated and such agreements must end at the latest on January
1 2012. Around 40 of them were concluded in different sectors
such as toys industry, paper industry, edition of books,
jewellery and so on.
Pursuant to Article L442-6 I 7 of the Commercial Code,
imposing payment terms that do not comply with the new ceiling
for contractual payment terms or which are obviously abusive or
requesting the creditor, without any objective reason, to defer
the date of issue of the invoice, may be sanctioned by a civil
fine which shall not exceed 2 million but which may "be
raised to three times the amount of the sums unduly paid".
Article L442-6 I 7 was considered by the DGCCRF (French
government agency responsible for Competition Policy, Consumer
Affairs and Fraud Control) to be a matter of international
public order which implies that it will apply to international
agreements whatever the law contractually chosen by the
Finally, the interest rate for late payment penalties is
also amended. These penalties may not be contractually fixed at
less than three times the legal interest rate and, in the
absence of a specific contractual provision, their rate shall
be equal to the European Central Bank refinancing rate
increased by 10 points.
Discrimination between distributors
One of the LME's main contributions was to introduce the
principle of freely negotiable prices between suppliers and
distributors. Previously, discrimination with respect to prices
and terms and conditions was prohibited unless economically
justified by effective consideration.
If a seller offers different terms of sale, in particular
different prices, to various purchasers in the same position,
this will no longer give rise to any claim for damages or any
civil fine. However, the LME introduced some limits to the
freedom of negotiation of prices and terms and conditions.
First, the LME added new prohibited restrictive behaviours
to those already contained in Article L442-6 of the Commercial
Code. It is now forbidden to impose, or attempt to impose,
obligations creating a significant imbalance in the rights and
obligations of the parties. In addition, obtaining or
attempting to obtain conditions that are manifestly abusive
with respect to prices, payment terms, conditions of sale or
services, by threatening to totally or partially terminate
commercial relations is prohibited. Finally, English clauses
providing that a party will automatically benefit from the most
favourable terms granted to its competitors by the other party
are now null and void.
Second, the LME increased the level of civil sanctions
applicable to restrictive behaviours listed in Article L442-6
of the Commercial Code, which may not exceed 2 million,
to "be raised to three times the amount of the sums unduly
Reduction of the back margins
The principle stated by Article L441-7 of the Commercial
Code, of a single agreement between a supplier and its client
to be entered into before 1st March of each year, remains.
However, article L.441-7, paragraph five now specifies that
"obligations aimed at promoting business relations between a
supplier and a distributor or service provider [...] contribute
to the determination of the agreed price", which implies,
according to the DGCCRF, that such obligations will now be
deducted from the supplier's invoice and will no longer be the
subject of an invoice issued by the distributor. This implies a
reduction of the back margins for services rendered and is part
of the general policy of the Government aimed at reducing
prices for the benefit of the consumers.
As part of this policy, one must note that the Chatel Act,
of January 3 2008, stated that the resale at a loss threshold
below which a distributor may not sell without committing an
offence is now at the triple net which is defined as "the net
unit price listed on the purchase invoice, less the amount of
all other financial benefits granted by the vendor expressed as
a percentage of the net unit price for the product, plus
turnover taxes, specific taxes pertaining to the resale and the
cost of transport" (Article L.442-2 of the Commercial
Jean-Christophe Grall is the founding and managing
partner of MG Avocats Grall & Associés.
He has been a litigator and an antitrust practitioner for
more 20 years and has handled a broad range of complex
litigations and transactions.
MG Avocats Grall & Associés
156, boulevard Haussmann
75008 Paris France
Tel: +33(1) 53 57 31 70
Fax: +33(1) 47 20 90 40
Thomas Lamy joined MG Avocats Grall &
Associés in 2001 and has been a partner at the
firm since December 2004. He has been practicing French
and EU competition and distribution law for 11 years.
Jean-Christophe Grall and Thomas Lamy both regularly
provide antitrust and distribution law advice in French
and UE matters.
MG Avocats Grall & Associés
156, boulevard Haussmann
75008 Paris France
Tel: +33(1) 53 57 31 70
Fax: +33(1) 47 20 90 40