The extension of the current structural injunction procedure as sought by Loi Macron
In a ruling dated 6 August 2015, the French Constitutional Council (“Conseil Constitutionnel”) found that article 39 of « Loi pour la croissance, l’activité et l'égalité des chances économiques » (hereafter “Loi Macron”, named after the French Minister of the Economy) was unconstitutional. This article provided for the strengthening of a power which had been granted to the French Competition Authority (hereafter the “FCA”) in 2012 and was referred to as a “structural injunction procedure”.
In terms of context, it should be noted that the scope of Loi Macron was wider than competition law enforcement in France. Its aim was to accelerate France’s economic growth. The bill was adopted on 10 July 2015 and was immediately challenged by 60 members of the French Parliament who contested the constitutionality of several provisions applicable to competition proceedings, including Article 39 which provided for the extension of the structural injunction procedure to all of metropolitan France and to the entire retail sector.
The structural injunction procedure which Loi Macron intended to amend was the one provided for in article L. 752-26 of the French Commercial Code. Under this procedure, which has never been applied by the FCA to date, in cases of abuse of dominant position where it considers that injunctions or fines imposed upon the dominant undertaking have not proved successful in remedying the abuse, the FCA has the power to impose two types of additional sanctions. It can order the dominant undertaking to “modify, supplement or cancel, within a specified period, all agreements and all acts by which the concentration of economic power allowing the abuse has been carried out” or to “proceed with the disposal of assets, should such disposal constitute the sole means of ensuring effective competition in the customer catchment area under consideration”.
The purpose and scope of article 39 of Loi Macron was slightly different to the extent that it was supposed to apply not only to dominant undertakings abusing their dominant positions (current version of article L. 752-26) but to any dominant undertaking operating in the retail sector, and irrespective of whether it has committed an abuse. In order to trigger the application of this provision, the FCA would only have had to demonstrate (i) the existence of a dominant position (but no longer an abuse thereof) and (ii) competition law concerns “due to high prices or margins compared to the averages usually noted in the relevant economic sector”. As is currently the case in the structural injunction procedure foreseen at article L. 752-26 of the French Commercial Code, the FCA would have had the opportunity to order the modification/cancellation of on-going agreements or the divestment of assets.
The unconstitutionality of the extended structural injunction procedure – main features
Contents of the extended structural injunction procedure. This measure was designed to extend the FCA’s power to force a dominant undertaking to divest part of its assets. In their application to the French Constitutional Council, the members of the French Parliament contended that Article 39 of Loi Macron was directly aligned with the mechanism of structural injunction procedure currently foreseen at Article L. 752-27 of the French Commercial Code and which is only applicable to French overseas territories. Under Article L. 752-27 of the French Commercial Code, given the specific competition concerns in the retail sector in these territories, the FCA has the power, following an adversarial procedure, to order the dominant undertaking to make new contractual provisions or divestments. These measures can be ordered even where there is no evidence of an abuse of dominant position. This mechanism, which was passed into law in 2012 in order to address the specific competition concerns in the retail sector in French overseas territories, was upheld by the French Constitutional Council on the ground that these territories were characterised by particular and distinct economic conditions and that, in several of their retail markets, competition was low and, in any event, much lower than in metropolitan France.
Constitutional arguments put forward by the bill’s opponents. The applicants challenged the constitutionality of article 39 on several grounds.
Firstly, they contended that metropolitan France does not present specific characteristics which would justify the extension of a mechanism specifically designed for overseas territories. The applicants pointed out that the rationale for this extension was to fight against the dominant undertaking active in the food retail sector in Paris, which is a masked reference to Group Casino. In a 2012 sector inquiry, the FCA indeed found that, in Paris, Group Casino held a 62% market share (while its main competitor, Group Carrefour, only had a 20% market share) but could not demonstrate any abuse of dominant position in the sense of Article L. 420-2 of the French Commercial Code (the French equivalent of Article 102 TFEU). For the applicants, the need to enhance the level of competition in the food retail sector in Paris cannot justify the implementation of a mechanism which can be applied to both all of metropolitan France and to the entire retail sector.
Secondly, according to the applicants, article 39 constitutes an undue interference with property rights since article 17 of the “Declaration of the Rights of Man and of the Citizen” of 26 August 1789 – a constitutional text under the French law system – provides all citizens with the right to property. According to a proportionality test, any interference with this right must be justified by a public interest objective and, in any event, shall not lead to disproportionate results regarding the objective sought. For the applicants, requiring a dominant retailer to modify its contractual conditions or to divest part of its assets within a very short timeframe (either 3 or 6 months) is a disproportionate interference with this right.
Thirdly, it was argued that the forced divestment of the retailer’s assets by the FCA could only be done under unfavourable conditions for the dominant retailer and, as such, would have constituted an undue interference with its freedom to conduct business as enshrined in article 4 of the “Declaration of the Rights of Man and of the Citizen”. For the applicants any divestment order, especially when enshrined in a very short timeframe (6 months), would necessarily jeopardise and lower the value of the undertaking.
Fourthly, the applicants contended that article 39 breached the principles of legal certainty and legality of criminal offences and penalties (“nullum crimen, nulla poena sine lege”) as enshrined in article 8 of the “Declaration of the Rights of Man and of the Citizen”. According to the applicants, the basic notions triggering the application of article 39 were vague and imprecise.
The French Constitutional Council’s ruling
At the outset, the French Constitutional Council found that the legislative power can interfere with the freedom to conduct business and the right of property only to the extent that these interferences (i) are necessary for public interest reasons and (ii) satisfy the proportionality test. Then it acknowledged that the purpose of article 39 was to regulate the economic situation in the interest of consumers.
The French Constitutional Council nonetheless found that, since the dominant position was targeted in itself and not the abuse, granting the FCA this power for the whole of metropolitan France would amount to a disproportionate and unfair interference with the freedom to conduct business and the right of property. In other words, under the proposed mechanism as examined by the French Constitutional Court, a dominant retailer could have been sanctioned, either by an obligation to (i) modify or terminate its agreements and therefore lower its margins or (ii) divest part of its assets, even though it did not abuse its dominant position.
Furthermore the French Constitutional Council held that the fact that it was supposed to apply to the whole of metropolitan France and to the whole retail sector, although the preparatory work of the bill initially limited its scope to “specific situations in the food retail market”, provided further evidence that the mechanism was disproportionate compared to the goal sought.
The French Constitutional Council considered that these grounds of annulment were sufficient to find that this mechanism was incompatible with the French constitution and therefore that article 39 could not be enacted.
What to expect from this ruling?
A recent statement by Manuel Valls – the French Prime Minister – may suggest that, despite this ruling, the French government will try to propose a slightly revised version of these measures in the coming months.