The Macron bill, which is currently being debated in the French parliament, contains a number of flaws. It feels like a law from another era, dictating what is right for businesses without consulting them and it fails to address the real economic problems facing the country today. Under the guise of market liberalization, the new legislation increases State interventionism adding yet another layer to the regulation of the economy. These inherent flaws in the text are accentuated by a multitude of amendments which have been added on without any impact assessment having been carried out. The result is a catch-all statue without clarity in many respects which creates negative effects for the French economy. Distribution law is no exception to the rule and has been the subject of numerous proposals for reform, several of which would appear to be counterproductive in the extreme.
1. The redrafting of conditions governing duration, termination and post-contract provisions for a large number of distribution agreements.
In order to streamline the networks of the big retail distributors and make it easier for franchisees to move from one network to another, Amendment 1681, now included in Article 10 of the bill, limits the duration of affiliation contracts to 9 years, prohibits the tacit renewal of such contracts, forbids post-contract clauses restricting the freedom of exercise of the operator, standardizes the duration of all contracts concluded with the same operator and requires the extension of the termination of any one contract with a distributor to all contracts concluded with that operator. The scope of application and the reach of what can only be called “contractual interventionism” is very wide. In effect, it applies to most agreements between, on the one hand, natural or legal persons governed by private law grouping together traders (with some exceptions) or providing the services referred to in the first paragraph of Article L. 330-3 of the Commercial Code (provision of a trade name, trademark or sign to another person), and, on the other, any person exploiting, for his own account or for the account of a third party, at least one retail outlet with the joint purpose of operating one of those stores and containing terms that may potentially limit that operator’s freedom to exercise his/her commercial activity. The law is likely to affect not only affiliation contracts between large retailers and their independent stores, but will also extend to most exclusive and selective distribution agreements between suppliers and their distributors. In order to deal with an issue specific to the large retail distribution sector, the legislator has, once again, created new problems affecting the rest of the economy. In addition to the weakening of independent trade in relation to integrated trade, this interventionism thwarts the will of the parties and prevents the termination of individual contracts for multiple distribution contracts with the same distributor and the post-contractual protection of know-how. The legislator has clearly not understood the undesirable effects of the proposed regime and has completely ignored the fact that its intended provisions are contrary to European law. It is purporting, under national law, to prohibit contracts or terms which are automatically exempted under EU law for undertakings with a market share of less than 30%.
2. Structural injunction.
In the event of a dominant position and a market share of greater than 50 % for a catchment area, the French Competition Authority can issue an order requiring the sale of stores or the modification of contracts if it finds high prices or margins. This provision has been the subject of considerable criticism because it amounts to the authorization of de-mergers without establishing any abuse of dominance, undermines free enterprise and ownership rights and compromises innovation. The Assessment Committee for the Macron Law, headed by Anne Perrot, has advised that it be reviewed.
3. Increase of the sanction for unfair commercial practices.
The civil fine payable for the infringement of Article L. 442-6 of the Commercial Code, is raised from EUR 2 million to 5% of turnover realized in France. Although this is only a ceiling, it still seems highly disproportionate in view of the nature of the behaviors in question ranging from the termination of commercial relations with insufficient notice to imbalances in contract clauses.
4.Preventive control of purchasing consortia.
The Auchan-Système U, Casino-Intermarché and Carrefour-Cora alliances which are currently under scrutiny by the Competition Authority in the context of an opinion procedure have demonstrated the weaknesses in the supervision of purchasing agreements. Above certain turnover thresholds to be fixed by decree, the Authority must be informed at least 2 months before the implementation of any agreement – between undertakings exploiting one or more mass-market retail outlets or operating in the distribution sector as retail trade listing and purchasing centers – for the negotiation as a group of the purchase or the referencing of products or the sale of services to suppliers.
5.Extension of renegotiation clauses to own-brands.
The scope of application of Article L. 441-8 of the Commercial Code, which provides for a mandatory renegotiation clause in the case of a significant variation in the price of raw materials is extended to “contracts of a duration exceeding three months for the conception and the production, according to the modalities that meet the specific needs of the buyer [of the products listed in paragraph 1 thereof]”.
6.A framework for the single commercial agreement.
Amendments to the bill have limited the scope of the single commercial agreement (convention unique), the conditions of which are set out in Article L. 441-7, to relations between the suppliers and the retail trade undertakings. Regardless of the wording ultimately chosen, the provision of a strict framework for the single commercial agreement is necessary in view of the very high level of formality required in supplier-distribution relations in the whole economy.
7.A return to abuse of economic dependence?
Some of the expected amendments would appear to favor a more effective use of the offense of abuse of economic dependence. Hardly any claims have sought to rely on it in French law. However, experience also shows that over-regulation, which operators are very worried about, leads them to drastically reduce their relations with trading partners they consider to be dependent and is thus likely to be counterproductive.