The Macron Law of 6 August 2015, which was adopted after several months of parliamentary debate and invoking on three occasions Article 49.3 of the Constitution (allowing a government to pass a law without parliament’s approval), affects sectors as varied as coach transport, motorways, airports and driving schools. Competition and distribution law have not been overlooked in the process, although ironically the major changes expected in these areas will not take effect immediately.
The Macron Law of 6 August 2015, which was adopted after more than seven months of parliamentary debate and invoking on three occasions Article 49.3 of the Constitution (allowing a government to pass a law without parliament’s approval), affects sectors as varied as coach transport, motorways, airports and driving schools. Competition and distribution law have not been overlooked in the process, although ironically the major changes expected in these areas will not take effect immediately. Fortunately, the flagship competition provision, the “structural injunction” mechanism, was invalidated by the Conseil constitutionnel (Decision 2015-715 DC of 5 August 2015). This would have allowed the French Competition Authority to force any undertaking in a dominant position operating one or more retail outlets to sell off stores or assets or to terminate or amend its contracts if it had more than 50% of the market share, in the absence of any abuse, simply on the grounds that its prices or margins were considered high relative to the economic sector in question.
The Conseil constitutionnel held that such power to order a de-concentration without abuse of dominant position constituted a manifestly disproportionate breach of the freedom of commerce and of property rights. Despite the Minister’s statement, it is to be hoped that this project will not be revived: a measure of this type would pose a constant threat of de-concentration for innovative undertakings having earned their position on themarket through merit. It undermines legal certainty and economic efficiency and has rightly been rejected in the US. The Conseil constitutionnel has also invalidated the power for competition authorities to obtain itemized phone bills without court authorization, on the grounds of violation of privacy rights. settlements in competition cases, provided for the preventive regulation of joint purchasing agreements in the mass retail distribution sector, made obligations with regard to the single commercial agreement more flexible for wholesalers and improved merger control. On the negative side, apart from excessively reinforcing fines for restrictive practices, the law has set up a rigid regime for certain distribution agreements to come into effect in a year’s time. Ultimately though, the real problems have not been addressed. The Macron Law can be viewed as a failure for having omitted to deal with the actual issues. The following will describe (I) the changes to the law of commercial negotiations, (II) the impact on competition law and (III) the changes affecting distribution law.
I – Commercial negotiations
- Single commercial agreement – wholesalers
Rather than totally exempt wholesalers from the obligation to draw up a single commercial agreement, the Macron Law has opted to subject them to less stringent formalities (new Article L. 441-7-1 of the Commercial Code). This new provision only concerns relations between wholesalers and their suppliers. A wholesaler is defined as “any natural or legal person which, for professional purposes, buys products from one or several suppliers and resells such products, as its main activity, to other traders, wholesalers or retailers, processors or any other traders themselves purchasing supplies for the purposes of their activity”. Central wholesale purchasing/listing agencies are also regarded as wholesalers but the law expressly excludes undertakings or groups of natural or legal persons, which directly or indirectly exploit one or more retail stores or are involved in the distribution sector as a central purchasing or listing agency for retail trade undertakings.
Unlike the single commercial agreement under ordinary law, the single wholesaler agreement is not required: to state the supplier’s price index with its general terms and conditions of sale, or the methods of consultation of that index in the version which has served as the basis for the negotiations; to provide for a remuneration proportionate to their value for services rendered; to be provided three months before March 1 or two months before the selling period for products subject to particular sales cycles, which are the dates before which the single commercial agreement must be signed.
Wholesalers will also be exempt from the obligation to answer requests from suppliers for information about the execution of the agreement. The parties do not necessarily have to make 1 March the date of entry into force of the agreed price. Finally, outside of the supplier/consumer relationship, the wholesaler agreement will not contain any provision relating to promotional advantages.
Article L. 441-7-1 of the Commercial Code lays down a specific provision in the wholesaler agreement: it may, if necessary, fix the types of situation and the modes according to which conditions derogating from the operation of sale are likely to be applied. The wholesaler may agree with the supplier to settle on different terms of remuneration (e.g. prices) than the ones agreed on 1 March, in such situations or types of situations as defined in the single commercial agreement.
Any relaxing of the excessively rigid formal requirements of the single commercial agreement is to be welcomed, in particular for wholesalers who are already subject to strict up-and downstream formalities and to the constraints of constantly having to renegotiate prices with their business clients.
- Renegotiation clauses
The Hamon Law of 17 March 2014 had included the requirement – subject to an administrative fine – of a price renegotiation clause in the event of « both upward and downward » fluctuations of the costs of agricultural raw materials and foods in contracts of a duration exceeding three months (Art. L. 441-8 Commercial Code). The loi Macron has extended its scope and now also covers distributors’ own brands (private labels).
- Payment periods
The Macron Law has brought the French rules of contractual payment periods fully into line with EU Directive No 2011/7 of 16 February 2011. Payment periods are limited as a general rule to 60 calendar days, with the 45 days end-of month system becoming the exception. The latter will only be possible where the parties have made express provision for it and provided that such extension is not grossly unfair to the creditor. At the same time the law also strengthens the exemption scheme established by the Law of 22 March 2012 for the sale of products connected with sectors of a particularly marked seasonal nature. Thus, as an exemption to the usual contract periods allowed under ordinary law the parties will, for such products, be able to agree to “a payment period which may not exceed the maximum period applicable in 2013 pursuant to an agreement concluded on the basis of section III of Article 121 of Law No. 2012-387 of 22 March 2012 on the simplification of the law and administrative procedures”. The period must also be expressly stipulated in the contract and not be grossly unfair to the creditor. A decree will be issued defining the sectors concerned.
- Civil fines
The LME Law gave the Minister of the Economy extended powers of sanction for restrictive practices by making it possible to increase the maximum EUR 2 million civil fine to three times the amount of the sums unduly perceived. The Macron Law continues the same repressive policy and considerably increases the financial risks incurred by businesses.
By approximating the civil fine to the sanction for anticompetitive practices, there is now an additional method of determining the fine which can be as much as 5% of the pre-tax turnover achieved in France by the infringer in the last financial year ended since the financial year preceding the year the practices came to light. The law specifies, however, that the courts will have to calculate the fine “in a manner proportionate to the benefits derived from the breach”.
- Pricing-parity clauses
Denounced by the Commercial Court in Paris on the basis of the significant imbalance that they create in the rights and obligations of the parties, pricing parity clauses in relations between hotels and online booking platforms are now the subject of a specific infringement which has been inserted into the French Tourism Code. Such clauses are expressly prohibited and contracts concluded before the publication of the law should cease to produce their effects as of its entry into force.
- Inter-company credit
Article 67 of the Macron Law provides for the facilitating of inter-company loans provided that they do not circumvent payment deadlines, which can be tricky to implement in practice.
II – Competition law
- Preventive regulation of purchasing groups
In Opinion No 15-A-06 of 31 March 2015 relating to the relationship between central purchasing and referencing bodies in the large-scale retail sector, the Competition Authority advocated the introduction of a legal obligation for distributors to inform it of the conclusion of any new joint purchasing agreements “to allow [the Authority] to carry out its supervisory role in an effective manner”. In effect, the Authority considers that it should be alerted as to the existence of operations which, although not pertaining to merger control, can raise competition problems and, if necessary, justify the initiation of ex officio proceedings by the Authority.
The Macron Law adopted this proposition; now new Article L. 462-10 of the Commercial Code – according to which the Competition Authority must “be informed at least two months prior to implementation” of “any agreement between undertakings or groups of natural or legal persons exploiting one or more mass-market retail outlets or operating in the distribution sector as retail trade referencing and purchasing centers for the negotiation as a group of the purchase or the referencing of products or the sale of services to suppliers”. Two turnover thresholds – to be fixed by decree – must however be exceeded for the transaction to be subject to the prior information obligation.
- Powers of investigation
The Macron Law strengthens the powers of government officials in the context of basic investigations pursuant to Article L. 450-3 of the Commercial Code. Although stripped of the right to seize itemized telephone bills, the law now allows officials to require disclosure and obtain or take copies, in addition to accounts and invoices, of other professional documents “of any type, whoever holds them, in order to facilitate the accomplishment of their mission”. On such occasions they may demand that “all means necessary to carry out the investigations be put at their disposal”.
- Dismissal of complaint in favor of Minister of the Economy in matters of localized anticompetitive practices
In order to lighten the Competition Authority’s caseload, the Macron Law has amended Article L. 462-8 of the Commercial Code allowing it to reject complaints and refer them where relevant to the Minister of the Economy in application of Article L. 464-9. The article confers jurisdiction on the Minister to settle cases of anticompetitive micro-practices, i.e. practices that affect a market of local dimension and do not fall under Articles 101 or 102 TFEU, committed by businesses whose individual turnover, achieved in France in the last financial year for which the accounts have been closed, does not exceed EUR 50 million euro and where the combined turnover does not exceed EUR 200 million.
One of the few advances brought by the Macron Law consists in the replacement of the non-contestation of objections procedure of Article L. 464-2, III by a settlement procedure. Although used more and more frequently, the non-contestation of objections procedure suffered from a major drawback: the lack of certainty of any reduction in the fine rewarding the undertaking’s cooperation. In effect, until now, the chief case-handler of the Authority (Rapporteur général) could only propose a percentage reduction of the fine to be subsequently set by decision of the College of the Authority. Under the new provision, which aligns national law with the law of the EU, the Rapporteur général may propose a reduction in absolute value and provide a minimum and maximum range for the fine. Legal certainty for undertakings is strengthened even though the College retains a discretionary power to set the fine within the range proposed by the Rapporteur general and the Macron Law has removed the 50% reduction in the ceiling of the fine. The new rules will be applicable to procedures for which complaints have been notified after the publication of the law (Art. 218, II).
The new law simplifies and accelerates the leniency procedure laid down in Article L. 464-2, IV. Now, an exemption or reduction of a fine may be granted once the Government Commissioner (commissaire du Gouvernement) and the company concerned have been heard without it being necessary to establish a preliminary report.
The Macron Law aims to render merger control more effective. First, it adds to the provisions relating to the second notification threshold for concentrations of which at least one party exercises its activity in one or more overseas departments and collectivities (DOM/COM). Article L. 430-2, III of the Commercial Code now specifies that the pre-tax turnover threshold (achieved individually by two of the undertakings concerned in at least one of the DOM/COM territories and which must be more than EUR 15 million – or EUR 5 million in the retail trade sector), does not necessarily have to be exceeded by “all the undertakings concerned in the same department or the same territorial collectivity”.
The new law regulates the exemption from suspension mechanism provided for in Article L. 430-4, paragraph 2, making it possible for the parties to ask to carry through the operation before a clearance decision has been given, now adding that exemption is subject to conditions and “that it ceases to be valid if, within a period of three months from the effective realization of the operation, the Competition authority has not received the full notification of the operation”.
The reform introduces, in phase I, the possibility to suspend the examination period (« stop the clock ») for the same causes as during phase II pursuant to Article L. 430-7, II, paragraph 2. Under the terms of Article L. 430-5, II, paragraph 3, the Competition Authority may suspend the twenty-five day time-limit where the notifying parties have not informed it, from the moment of its occurrence, of any new fact which should have been notified if it had occurred before a notification within the meaning of Article L. 430-3. This is also the case if the notifying parties or third parties, for reasons attributable to the notifying parties, have not provided it within the required period with all the information requested. The time-limit begins to run once the reason which justified the suspension is resolved. No maximum period of suspension is provided.
The Macron Law also institutes the possibility of extending the original time-limit of the in-depth examination of 65 working days by a further 20 days where the parties have submitted proposals for commitments. Article L. 430-7, II, thus extends the phase II period to a maximum of 85 working days where commitments or changes to commitments already proposed are submitted to the Competition Authority of the less than twenty working days before the expiry of the 65 day period (whereas previously the extended deadline expired twenty working days after receipt of such commitments).
Where undertakings fail to comply with commitments or injunctions contained in the merger authorization decision, the Competition Authority now has the power to directly order them to comply with new commitments or injunctions replacing the non-executed obligations, subject to penalties (Article L. 430-8, IV, 3°). This allows for the substitution of measures that may have become obsolete for new commitments without having to withdraw the authorization. This new type of injunction can also be used, amongst other measures, in the context of the Minister of the Economy’s preemption power, for breaches of commitments contained in a decision. In such cases, under the terms of Article L. 430-7-1 as amended, the Minister has the possibility of withdrawing the authorization decision or to order the parties, subject to penalties, (i) to implement the prohibitions, commitments or injunctions contained in its decision or (ii) to comply, within a fixed time-limit set by the Minister, with new injunctions or requirements replacing the previous ones.
III – Distribution Law
The Competition Authority, in Opinion No 10-A-26 dated 7 December 2010, was highly critical of certain types of clauses found in contracts concluded by traders affiliated to retail food distribution groups which affect the mobility of distributors. It stressed the inordinately long-term nature of the obligations, the number of contracts with non-synchronized expiry dates intended to artificially prolong the duration of the relationship, as well as the restrictions created by non-compete or “non-reaffiliation” clauses contained in affiliation or cooperation agreements, and priority clauses remaining valid throughout the duration of contracts and even sometimes years after such contracts have reached their term.
In light of those practices, the Authority called for legislative action proposing that in order to combat excessively long contractual obligations, parties should limit to five years the duration of affiliation agreements containing exclusive purchase obligations. To address the issue of the opacity resulting from having a number of contracts on the go at the same time with varying end dates, the Authority recommended the establishment of a single agreement, similar to the agreement in Article L. 441-7 of the Commercial Code. It also advocated that post contractual non-compete on non-reaffiliation clauses be limited to one year, as in European law, and that their territorial scope not go beyond that of the catchment area of the stores themselves.
Following the withdrawal of the Lefebvre bill, the legislator took up the issue again on the occasion of parliamentary debates on the future Macron Law. An amendment was tabled in the National Assembly with a view to “laying down the principles for regulating the manner in which retail trade stores are connected to a network”. According to its author, it was necessary to “strengthen competition in the large-scale distribution sector by facilitating the switch by independent stores to other chains in order to increase consumers’ purchasing power [and] diversify supply in the catchment area while allowing traders to compete with other chains, especially in terms of the services they can offer (central purchasing and listing agencies, supply terms etc.)”.
Although driven by the Competition Authority opinion, the amendment did not follow it to the letter. Rather than providing for the conclusion of a single agreement, it opted for the effective maintenance of the possibility to conclude several separate contracts but having the same maturity dates “so that the duration of the contracts and the difference in their terms do not make it impossible, for a trader, to opt for independence or to join another network”.
The five-year maximum duration was substituted first for six years, and then nine during parliamentary debates. In the end, the amendment provided that any clause having for effect, after the due date or the termination of one of the contracts in question, the restriction of the freedom of exercise of the operator commercial activity, should be deemed to be unenforceable but did not, contrary to the recommendations of the Authority, provide the option of restricting the duration of such clauses to one year.
Finally, after a number of changes during the debates, the principle and the modalities of the legal framework governing supplier/distributor contracts were eventually adopted and incorporated into the Macron Law.
- Scope of application of rules
With this law a new Title IV entitled “Commercial distribution networks” is added to Book III of the Commercial Code. The provision is not limited to the food retail distribution sector and franchises but appears to extend to distribution agreements on a wider scale. According to new Article L. 341-1: “all contracts concluded, on the one hand, between a natural person or a legal person governed by private law grouping traders together, other than those referred to in Chapters V and VI of Title II of Book I of the present code, or providing those services referred to in the first paragraph of Article L. 330-3, and on the other hand, any person operating, on its own behalf or on behalf of a third party, a retail store, having as their common purpose the exploitation of this store and containing clauses likely to limit the operator’s freedom to carry out its commercial activity provide for a common end date”.
Franchises, associated retailing (commerce associé) and exclusive supply obligations, which are directly concerned by the reform, could be included within the scope of application of the law. By contrast, it does appear to exclude “participatory franchises” (where the franchisor has a stake in the franchisee’s capital), providing that it is not applicable “… to a contract of association, partnership agreement and agreement for the setting up of a commercial or cooperative company« .
In addition, there are several arguments favoring non-applicability to exclusive distribution arrangements. Firstly, the contract must have been concluded with a “person operating, on its own behalf or on behalf of a third party, a retail store”, which implies resale to consumers, whereas exclusive distribution agreements nowadays mainly concern B2B trade. In addition, the common purpose of the contracts in question must be « the exploitation of [a] store« , which is rarely the case for exclusive distribution agreements. Finally, the contracts must include « clauses likely to limit the operator’s freedom to carry out its commercial activity« . This is not the case for exclusive distribution contracts, in which the exclusivity obligation falls to the supplier and not necessarily the distributor, and which may not, or risk falling foul of the competition rules, limit the commercial freedom of distributors beyond the restriction of active sales inherent in the exclusive distribution model.
Selective distribution, including in the automobile sector, should also not be affected even if an amendment to explicitly exclude it was rejected. In fact, purely qualitative selective distribution agreements or those combining qualitative and quantitative selection do not contain restrictions on the activity of the distributor except for the ban of resale to non-network third parties and generally do not contain any exclusivity clause.
- What are the rules?
In order to facilitate inter-network mobility, the Macron Law has introduced three highly disputed measures. First, all of the contracts concluded between the distribution group and the distributor must provide the same end-date. In addition to the disruption of existing practices, does this requirement mean the mandatory recourse to fixed-term contracts? We do not think so. The Conseil constitutionnel in its decision of 5 August 2015 declared that Article L. 341-1 was constitutional insofar as it provisions “allow the contracting parties the freedom to fix the common duration and maturity of all the contracts binding them and to provide for their tacit renewal”. So, there is ostensibly nothing to prevent the conclusion of open-ended contracts. Luckily, the legislator did not take up the limitation of duration recommended by the Competition Authority and reiterated in certain amendments during the passage of the law through parliament.
Next, the law makes the harmonization of the duration of various contracts subject to a legal inter-dependency: the termination of one of the contracts in question results in the termination of all of them. Due to its extremely rigid nature, this rule will certainly create difficulties regarding its application. Will all the contracts concluded between parties automatically terminate when one of them ends if they still wish to pursue the others?
For a network containing several brands and/or several activities, such as the sales and after-sales, will the reorganization of one of them, terminate the entire network? We can only hope that the law will be interpreted reasonably.
Lastly, new Article L. 341-2, lays down that “any clause having as its effect, after the expiration or termination of one of the agreements binding the trader to the distribution network, the restriction of the trader’s freedom to carry on his commercial activity, shall be deemed unenforceable”. It does however contain a derogation for clauses which fulfill four cumulative conditions based on EU Regulation No 330/2010. Those clauses must relate to goods or services which compete with the contract goods or services; be limited to the premises and land from which the trader has operated during the contract period; be indispensable to protect the know-how, which is secret, substantial and identified, transferred by the supplier to the trader in the context of the contract; be of a duration not exceeding a period of one year after expiry termination of one of the agreement referred to in Article L. 341-1. Preemption and priority clauses, criticized in Opinion No 10-A-26, would appear to be directly affected but what about confidentiality or non-solicitation clauses? The lack of clarity here is all the more regrettable in that the derogation provided for in section II will not apply to contracts that do not transfer specific know-how.
Do ongoing contracts have to be renegotiated? This is not clear from the wording of Article 31 II of the Macron Law: “I [which introduces the new provisions] applies from the expiration of a period of one year from the date of promulgation of the present law”. Is this a transitional period or just a postponement of the entry into force of the provisions? Although the initially planned transitional regime was abandoned by parliament, the Conseil constiutionnel, in the press release accompanying its decision, leaned towards the former hypothesis in contradiction with parliament which had struck out the provision making the law applicable to ongoing contracts.
One last question remains. Does this new instrument comply with EU competition law? Currently, virtually all vertical agreements are consistent with European competition law and, where they are not, they are covered by BER No 330/2010 due to having a market share of below 30% or are able to benefit from an individual exemption. Can the Macron Law, the stated objective of which – expressed in the preamble to the law introducing the amendments and statements made by the government – is the strengthening of competition in the distribution sector, add further conditions to those required under the vertical restraints regulation without violating the principle of the precedence of European Union law?
The law in fact presents three problems: i) it is contrary to European law, ii) it does not resolve the issue of the lock–in effect of contracts in mass retail distribution and iii) it creates potential problems to other distribution networks operating perfectly fluidly in terms of switching to other retail chains.
In fact, the situation could hardly be worse.