Following a two-year investigation, the DGCCRF and the Minister of the Economy brought proceedings against the online sales giant Amazon for significant imbalance in its relations with “third party vendors”. The latter consist mainly of SMEs selling their products on the platform in competition with Amazon’s own products, making sales on the platforms amount to more than half of Amazon’s turnover.
The Minister of Economy identified eleven clauses in Amazon’s contracts likely to be abusive and imposed, in addition to their amendment or removal, a fine of EUR 9.5 million. The various Amazon group companies party to the proceedings challenged their status as trading partners of third-party sellers, the applicability of Article L. 442-6, I, 2° (now Article L. 442-1, I , 2 °) of the Commercial Code to relations with third-party sellers domiciled abroad, the jurisdiction of the French court due to contracts attributing jurisdiction to the courts in Luxembourg and argued that third-party vendors were able to obtain unrivaled advantages by being referenced on its platform.
Status as commercial partners
The requirement of a commercial partnership, which no longer exists in the new version of the law arising from the Ordinance of 24 April 2019 was not an issue for platform manager, Amazon Services Europe (ASE) , but seemed more difficult to establish for Amazon France Services (AFS), provider of support and assistance services to other companies in the group, and Amazon Payments Europe (APE), the electronic money institution that manages payments from Amazon customers. As regards AFS, the Court acknowledges that it had not itself concluded any contract with third-party sellers but considered that it is associated with ASE in an action for the development of the platform and provides it with means that allow the execution of contracts containing unfair terms.
“The economic partnership extends to the companies, even if they themselves have not entered into contracts with the customer (here the third-party seller), who have personally taken part in practices which are restrictive of competition, have contributed to the harm caused by their partner because of those practices by providing the means and ensuring the performance of the contract containing manifestly imbalanced terms; moreover, [whereas] in this case, although AFS is not party to the contract concluded between the sellers and ASE, it did enter into an agreement with the latter to provide part of the services relating to those contracts; the links between AFS and ASE therefore have as their object the development of the latter’s activity which is specifically centered on relations between AFS and the third-party sellers and co-contractors of ASE”.
On the other hand, the court refused to apply the Commercial Code to APE, as payment and electronic money activities are exclusively governed by the French Monetary and Financial Code.
Applicable law and territorial jurisdiction
In holding French law applicable, the court finds that:
* the Minister acts on the basis of tort liability,
* Article L. 442-6 is a mandatory public policy provision,
* a large number of third-party vendors are located in France,
* the great majority of consumers are also located in France,
* France is the place where deliveries of goods take place,
* amazon.fr is in direct competition with other marketplaces located in France.
All of these factors thus establish, according to the court, that France is the place where the harmful event occurs and that the litigation is sufficiently related to France to justify the application of its mandatory law.
Consequently, the clauses attributing jurisdiction to the Luxembourg courts in the contracts concluded between the platform and the third-party sellers are unenforceable against the Minister (see Commercial Court, Paris, 7 May 2015, Expédia, LawLex15573, upheld in CA Paris, 21 June 2017, LawLex171094).
Finding of “subjecting or attempting to subject” to imbalanced obligations
The case is a novel one, as in recent years, the decisive criterion of the ‘subjecting or attempting to subject to imbalanced obligations’ has been the absence of negotiation (see CA Paris, 20 December 2017, LawLex172134). However, in this case, Amazon managed to convince the court that it could not be reproached for absence of negotiation as it was inherent (“consubstantial“) to the marketplace business model. Noting that the contracts in question were not negotiable, the court found that:
“it is not disputed that it cannot be otherwise for a marketplace due to the fact that it has to be automated, the need to offer consumers the same terms, conditions and services for all the products present on the same screen, regardless of the third-party seller (whether the product is sold by Amazon or by any other seller) and the fact that all third-party sellers must be treated in the same way since they compete, among themselves and with Amazon, so that the place of their product on the screen intended for purchase by the consumer, on which appears the “Buy box” with its “buy” “button” is optimum; the French Competition Authority and the European Commission have come to the same finding ”.
It is therefore in the light of other criteria that the court had to verify the existence of “subjecting or attempting to subject” i.e. the power imbalance between third-party sellers and providers of marketplaces and the key role of the latter.
Establishing the power of Amazon, the court notes that it is:
“the largest online B to C seller of finished consumer goods”.
“Its global turnover was $ 250 billion in 2018 and EUR 5 billion in France i.e. 3 times higher than its biggest competitor (C Discount)”.
“Most importantly Amazon has the highest global reputation and the best image among consumers.”
“The amazon.fr website on which its marketplace is found, receives 18 million visitors, i.e. as many potential consumers, offers 136 million product references for all countries, 15 times more than the next marketplace, generates 5 billion connections per day to its systems (amazon.fr, Seller Central etc…) and gives access to 170 000 third-party sellers, some foreign, which is considerably more than the competing marketplaces”.
Moreover, the turnover of third-party sellers is, according to Amazon’s statements, between EUR 500,000 and 19 million. A large majority is small enterprises and 15-35% of their sales are made on Amazon’s marketplace.
The court concludes that the disproportion of relative strength is considerable in respect of third-party sellers when compared to other existing marketplaces in France, and that the economic power of Amazon has no equivalent due to the level of its liquidities, cash flow and investments.
To establish its essential nature, the court holds that there are really no alternative solutions for third-party sellers. The creation of an online sales site or the use of the one they already have is expensive and complicated. It seems impossible to compete with Amazon’s ergonomics, features and the high level of its quality and services. Above all, the effectiveness of online sales is directly linked to the number of visitors – potential customers – which is closely correlated with reputation and search engine optimization (SEO). A site that offers only a few categories of products of a single brand has little appeal to the consumer whereas on a marketplace they can find comparable products of several brands, several references, at different prices and make multiple purchases with one click.
Similarly, the other existing marketplaces do not seem comparable to Amazon in terms of visitors and reputation and are very few of them. In addition, they are not able to offer Amazon’s high value-added services such as the “Shipped by Amazon” option, which provides access for 100 million highly profitable customers to Amazon’s global storage and logistic power.
In addition, the platform has significant network effects: the more it is used by consumers, the more beneficial it is for third-party sellers to be referenced, which in turn strengthens their attractiveness to customers.
Finally, it is complicated and expensive to switch platforms. Such an operation involves a fairly thorough review of the logistics, IT/internet system, product pages, commercial policy. A significant loss of turnover can ensue in the time it takes to be referenced by another platform.
The court finds that the “subjection” criterion is fully met.
Amazon argued that the terms criticized by the Minister would not have been applied in practice. As expected, the court rejected the argument: the law sanctions both the attempt and the effective implementation of a practice (see CA Paris, 4 July 2013, LawLex131139, May 16, 2018, LawLex18727). Similarly, the fact that the system put in place by Amazon provides undisputable advantages to consumers who will benefit from high quality services and receive products that are safe and which match their description, does not deprive the practices, – which have the primary objective of maximizing Amazon’s profits – of their restrictive character (see CA Paris, 16 May 2018, cited above).
A number of the terms complained of were found by the court to be unfair:
* the clause in which Amazon reserves “the right to amend any contractual provisions … at any time and at sole discretion”, to make those changes effective as soon as they are posted on the site, without having to notify the third-party sellers, thus obliging them to consult the site on their own initiative to check whether any modifications have been made, and whereby the use of the service after any modification posted by Amazon constitutes acceptance of said modification;
* clause whereby a provider reserves the right to discontinue, at any time and at its sole discretion, without notice or notification, the provision of all or part of its services, without reference to the legitimate reasons justifying such a decision;
* clause which allows the immediate termination or suspension of the contract, without reference to any other clause containing the possible reasons for such a measure;
* performance indicator clauses, which, although not based on specific criteria, do not depend solely on the seller’s behavior and are subject to discretionary developments, may lead to an arbitrary and suspension of an account which is disproportionate to the alleged breach;
* clause which reserves to Amazon the right, at its sole discretion, to restrict access to its site for certain of the other party’s products the without stating the reasons that might justify such exclusions, where both parties’ products of are in competition;
* clause that requires a third-party vendor to refund the consumer for a product even if it has not been returned or if, after investigation, the claim proves unfounded, whereas Amazon is not bound by such an obligation for its own products;
* clause of which the ambiguous wording is likely to be understood as requiring the seller to guarantee Amazon price parity with its other distribution channels;
* Amazon’s full liability disclaimer clause for its overseas delivery service or its role as a depository or handler of goods.
As Amazon argued, the court accepts that the assessment of the imbalance is global, and that one clause can rebalance another. However, in the total absence of any negotiation, the weak party is unlikely to benefit from offsetting one clause against another. In addition, if the use of the platform is of incontestable benefit to third-party sellers, the court emphasizes that they pay commissions for that benefit, and that other marketplaces can also offer advantages.
The two constituent elements of the offense being met (subjection to and imbalance), the court ordered Amazon to modify or delete the clauses deemed abusive within 180 days of the service of the judgment, associated with an unprecedented daily late-payment penalty of EUR 10,000.
In addition, although the court accepted the Minister’s request for a civil fine, it was significantly less than the amount solicited (EUR 9.5 million) with Amazon receiving a fine of EUR 4 million, which is nevertheless a first. The court estimated that the amount of EUR 5 million, one of the caps referred to in former Article L. 442-6, III of the Commercial Code (currently Article L. 442-4), could not be exceeded as the Minister had provided no evidence quantifying Amazon’s gain due to the imbalances.
In fact, in order to exceed the EUR 5 million threshold, the wording of the provision applicable at the time required the amount imposed to be “proportionate [to] the benefits derived from the breach”. It should be noted that this requirement was not reproduced in the current law and in future, an amount such as that demanded by the Minister would not necessarily be ruled out.
In this case, the amount of the fine is set at EUR 4 million after establishing the serious disturbance that the practices caused to public order, Amazon’s leading position and the ripple effect its conduct has but also, in a moderating sense, it was able to ascertain Amazon’s pioneering role in the sector, the undeniable advantages that its platform provides to consumers as well as to small suppliers and distributors, its contribution to a downward pressure on the level of prices and its cooperation during the procedure.