French Competition Law provides a comprehensive review of the French rules relating to competition: restrictive agreements, commercial negotiation, abuses of a dominant position, procedure and merger control.

French Competition Law

Other financial benefits (AAF - "autres avantages financiers") are not defined. Logically they should include all benefits not mentioned on the invoice, i.e. back margins (payments made for marketing services) and off-invoice rebates . Some of the issues, however, still remain unresolved. For the calculation of off-invoice rebates, the question arises of whether firm conditional rebates, or also r …

Other financial benefits

French law promotes price competition with certain restrictions. First, price competition should not lead to abuses, appropriating customer bases, or misleading consumers. Such practices are considered unfair. Equally, certain restrictive acts are simply illegal. This is the case with resale below cost (RBC), which has been forbidden in France since 1963. Resale below cost is forbidden for a number of different reasons. Firstly, opponents of the practice consider that below cost reselling offers consumers a deformed image of competition. The trader in question is mainly trying to give the impression of conducting a pricing policy that is favorable to end users, when in fact the real purpose is the appropriation of a competitor's customer base. Secondly, resale below cost does not necessarily benefit consumers, as often the reduction is accompanied by hefty price hikes on other products. For these reasons, Article L. 442-5 (former Art. L. 442-2) of the Commercial Code prohibits all traders from reselling or advertising the resale of a product “(...) at a price lower than its actual purchase price”. This provision aims at protecting small commercial outlets and checking the excesses of mass retailer price wars. The OECD, very critical of the French regulations on below cost resales and also of most laws on prohibitions of sale or resale below cost, has advocated getting rid of them . It concluded that there is no evidence that reselling below cost necessarily deceives the consumer and that the efficiency of regulations prohibiting the practices is highly dubious, especially the claim that they protect local traders. RBC regulations, according to the OECD, have virtually no benefits but on the contrary have manifestly negative effects: preventing consumers from purchasing more cheaply and having access to those cheaper goods when they could have done so in the absence of regulations.

The Court of Justice does not appear to particularly favor an outright ban on resale below cost where it is aimed at protecting consumers . In a landmark ruling based on Directive No 2005/29 of 11 May 2005 on unfair commercial practices , it declared Belgian legislation - which was very similar to the French law - implementing a general prohibition on offering for sale or reselling goods below cost, to be in violation of EU law . The solution would be capable of application under French law only if, at least in part, it pursued the objective of protecting consumers. The Court of Justice has stated that the directive does not apply to a national law if it merely serves to regulate the competitive relations between traders and does not contribute effectively to consumer protection . It is therefore possible that, in the event of litigation, the French law on resale below cost would give rise to debate on either the exclusive purpose of protecting competitors or the ancillary aim of protecting consumers.

For the time being, the case law has preserved the French rules, holding that Article L. 442-2 of the Commercial Code does not fall under the scope of Directive No 2005/29 either because their aim is fairness and balance in trade relations, not consumer protection , or , without taking any position regarding the objectives of the regulations, because the cases in question did not concern consumers, but rather the relations between central purchasing bodies and retailers . This solution may be inconsistent with the case law of the Court of Justice, which has deemed the directive applicable even to a dispute concerning the relationship between wholesalers and small merchants insofar as the provisions in question were intended to protect  consumers . The essential criterion for the applicability of the directive would therefore seem to be the objective pursued by the legal provisons and not the status of the parties. The Court of Cassation will not be able to indefinitely avoid taking a stance with regard to the objectives of the French rules.

The EGalim Law of 30 October 2018  authorized the government to legislate by way of ordinance before 1 March 2019 to raise by 10% the resale below cost threshold for foodstuffs and products intended for pet feed, resold as is to the consumer, for a period of two years . The measure, accompanied by a framework relative to promotions, aimed to avoid price wars on food products and the downward pressure on prices that may result throughout the supply chain in the hope that the profit margins generated will be passed on to farmers. According to Article 2 of the Ordinance  of 12 December 2018,  implementing this aspect of the EGalim Act ,“the actual purchase price [...] shall be multiplied by a factor of 1.10 for foodstuffs and products intended for pets resold “as is” to the consumer”. Ordinance No 2019-359 reorganized the resale below cost provisions which are now found in Article L. 442-5 of the Commercial Code. The ASAP Law  of 7 December 2020 repealed the ordinance of 12 December 2018 while extending its provisions unchanged until 15 April 2023. However, an information report on behalf of the Senate's Economic Affairs Committee   revealed that the increase in the below cost threshold had in some cases produced perverse effects and in particular a deflation of the price paid to producers for fresh fruit and vegetables and bananas. Drawing lessons from this observation, the EGalim 2 Law   provided that an Order of the Minister of Agriculture may draw up a list of specific products for which the increase in the resale below cost threshold will not apply, if this is likely to result in a reduction in the income of the agricultural producer due to the seasonal nature of the products and their sales, or the specific marketing methods for those products. 

The EGalim 3 Law  extended the scheme for a further two years, to 15 April 2025. To make the scheme more effective, it also imposed greater transparency obligations on distributors. In effect, before 1 September each year, they will be required to provide the Minister for the Economy and the Minister for Agriculture with detailed information on the increase in sales recorded following the implementation of the 10% mark-up on sales below cost, which has resulted in an increase in the purchase price of food and agricultural products from their suppliers. The document provided by the distributors, which cannot be made public, must then be sent by the government to the President of the Economic Affairs Committee of the National Assembly and the Senate. These provisions are designed not only to protect suppliers from potential value-destroying practices by supermarkets, but also and more importantly to protect the earnings of farmers and other links in the chain, such as wholesalers.

OECD, 23 February 2006, Roundtable discussion of resale below cost laws and regulations, http://www.oecd.org/dataoecd/13/30/36162664.pdf 

However, it should be borne in mind that the ECJ had previously held that the rules on resale below cost were not contrary to the principle of free movement of goods: Case C-267/91 Keck and Mithouard [1993] ECR I-6097, LawLex201100000270JBJ.

Law No 2020-1525 of 7 December 2020 for the acceleration and simplification of Public Action  (ASAP).

Information Report 89 (2019-2020) by Daniel Gremillet, Michel Raison and Anne-Catherine Loisier.

Law No 2021-1357 of 18 October 2021 for the protection of farmers' remuneration, OJ 19 Oct. 2021, Art 9.

Law No 2023-221 of 30 March 2023 aimed at strengthening the balance in commercial relations between suppliers and distributors, OJ 31 March 2023, Art. 2, 4°.

Directive No 2005/29 of 11 May 2005, OJEU L 149 of 11 June 2005, 22.

Case C-343/12 Euronics Belgium CVBA, LawLex201300001556JBJ. 

Case C-126/11 Inno NV, Order of 15 December 2011, LawLex201200002171JBJ.

CA Douai, 31 March 2016, LawLex201600000751JBJ.

Cass. com., 22 November 2017, LawLex201700001961JBJ; Cass. crim., 19 December 2017, LawLex201800000050JBJ.

Case C-295/16 Europamur Alimentación SA, Judgment of 19 October 2017, LawLex201700001687JBJ.

Law No 2018-938 of 30 October 2018, OJ 1 November 2018.

Law No 2018-938 of 30 October 2018, Art. 15.

The nature of the offense

Article L. 442-5 prohibits the sale or the advertising of the resale of goods at a price lower than their actual purchase price, i.e. resale below cost. The prohibition does not apply to the provision of services. It is aimed at the resale of any products in an unaltered state. Thus, any intermediary acts on the part of the reseller must not transform the goods in any way if the prohibition is to apply. Consequently, goods and services resulting from the activity of manufacturers or craftsmen do not come within the terms of the prohibition. However, to escape the prohibition, an actual transformation must take place. Cutting up products is considered to transform them sufficiently, but acts such as unfreezing or repackaging goods may raise doubts. In this context it is worth mentioning the DGCCRF's position on mobile phones. A note from the DGCCRF considers the simple insertion of a memory card into a mobile phone as a sufficient transformation. The Court of Cassation has held that supplying a modem along with internet access service is a single indivisible transaction and thus subject to the prohibition . However, to prevent abuse under this heading, the law provides that the sale of transformed products at abusively low prices can in certain circumstances be punishable under Article L. 420-5.

Article L. 442-5 refers to all merchants or traders and no exception is made. Thus, all economic operators who purchase goods for resale, notably importers, wholesalers and retailers, are subject to its provisions. Resale below cost is equally punishable where it occurs between a central purchasing pool and its subsidiaries .

Foreign traders doing business on the French territory must also comply with the retail below cost regulations.

Cass. crim., 7 May 2002, LawLex200200000021JBJ; CA Paris, 12 November 1991, LawLex200200000270JBJ; Cass. crim., 21 June 1993, LawLex200200000144JBJ; Cass. crim., 22 November 2006, LawLex200700002597JBJ.

The scope of the prohibition

Offering goods for sale below cost is where the selling price is lower than the actual purchase price. The actual purchase price is the net per-unit price stated on the invoice. This does not refer to the average purchase price from suppliers but the purchase price per lot . Where there is a combination of sale of product/provision of service, the Court of Cassation deems that this is an inseparable whole, even if for advertising reasons prices have been artificially apportioned separately .

The actual purchase price is the net per-unit price appearing on the invoice minus the total of all other financial benefits (AAF - "autres avantages financiers") granted by the vendor, expressed as a percentage of the net per-unit price of the product . The aim of the provision is to allow the buyer to resell at a lower price by using all back margins granted by suppliers (invoiced rebates, off-invoice rebates and services invoiced by distributors to suppliers). 

Lastly, the EGalim law “for balance in trade relations in the agricultural sector and healthy and sustainable food” of 30 October 2018 allowed the government to raise the resale below- cost threshold by 10% for experimental purposes for two years. Article 2 of the ordinance adopted on 12 December 2018 stipulates that “the actual purchase price defined in the second paragraph of Article L. 442-2 of the  Commercial Code is adjusted by a coefficient of 1.10”. This increase is limited to food products and aims to ensure better trading conditions for suppliers in order to ease the price pressure from their own suppliers. The ASAP Law  of 7 December 2020 repealed the ordinance of 12 December 2018 while prolonging all of its provisions until 15 April 2023.

CA Douai, 6 February 2003, LawLex200300002887JBJ; Cass. crim., 6 December 2006, LawLex200700000096JBJ. 

Cass. crim., 7 May 2002, LawLex200200000021JBJ. 

Calculation of the RBC threshold is made before tax considerations, with VAT and taxes relating to resale and the cost of transport added to the RBC threshold once the calculation has been made, see Dutreil Circular of 8 December 2005. 

Law No 2020-1525 of 7 December 2020 on the acceleration and simplification of public action (ASAP).

Resale below cost threshold: the actual purchase price

The “net per-unit price” refers to the “unit price excluding VAT of the products sold and services provided” of Article L. 441-9 of the Commercial Code minus “any price reduction applying on the date of the sale or provision of services and directly linked to this sale or service provision, excluding discounts not specified on the invoice”. 

Conditional rebates, which cannot be considered to be acquired at the date of the sale, include rebates granted by the seller on condition that the distributor maintain a certain quantity of his products for sale over a fixed period of time, incremental target discounts, and also rebates granted by the supplier linked to turnover targets, where those targets have not been achieved. 

Net per-unit price

Other financial benefits (AAF - "autres avantages financiers") are not defined. Logically they should include all benefits not mentioned on the invoice, i.e. back margins (payments made for marketing services) and off-invoice rebates . Some of the issues, however, still remain unresolved. For the calculation of off-invoice rebates, the question arises of whether firm conditional rebates, or also rebates which are in principle acquired, or even rebates which are not acquired but those for which the distributor is sure of meeting the conditions, should be taken into account.

The Dutreil Circular of 8 December 2005 opted for a wider interpretation of the law, finding that “other financial benefits” include conditional rebates irrespective of the date the rebate is liquidated - subject to the negotiation of an agreement between buyer and seller. According to the authorities, when determining the RBC, the party having included those rebates in the actual purchase price is responsible for justifying to the review authority that it is lawful to take them into account. On a wider level, the Dutreil Circular asserted that there was cause to take into account the financial benefits granted to the client's agent when determining the RBC, even where the agent does not transfer back the monies received to the principal.

During its passage through parliament and after being voted in, the legal framework for the New Promotional Instruments (NIP - nouveaux instruments promotionnels) gave rise to discussions about their being integrated into AAFs (other financial benefits) . The Dutreil circular made the distinction depending on whether the NIP is governed by an agency agreement, according to which the supplier agrees to grant the consumer a financial benefit advanced by the distributor at the time the consumer pays at the checkout (AAFs are excluded as the benefit is not granted to the distributor), or a commercial cooperation agreement (integrated into AAFs). The authorities consider that penalties do not fall under the category of “other financial benefits” insofar as they sanction one of the parties for failing in his obligation.

See Dutreil Circular II of 8 December 2005, section 4.1.2. 

In favor of integration into special services for "agency agreements for new promotional instruments" see Cornu Report, Senate, No 333, p. 149. Against integration of NIPs into other financial benefits insofar as they are granted to consumers not distributors, see Grall, Meffre and Gluet, Dutreil Law of 2 August 2005 to favor small and medium- sized enterprizes: critical analysis of provisions concerning relations between trade and industry, D. 2005, 2149.

Article L. 442-5, paragraph 3 of the Commercial Code allows wholesalers to sell to retailers with a coefficient of 0.9 to allow them to compete with the large-scale distribution chains. Contrary to the hopes of certain parliamentarians, “cash and carry” wholesalers can benefit from this provision in order to avoid additional complications. This coefficient benefits “the wholesaler who distributes products or services exclusively to professionals who are independent and who exercise the activity of final retail seller, processor or service provider”. Independent, according to the law, means “any undertaking freely able to determine its commercial policy having no capital links or affiliation with the wholesaler”. Such is not the case for the members of a central purchasing body when the interrelationship created by the affiliation contract largely exceed the obligations  between a wholesaler and its clients and deprive the latter of any commercial independence .

CA Douai, 31 March 2016, LawLex201600000751JBJ, upheld by Cass. com., 22 November 2017, LawLex201700001961JBJ. 

Wholesaler coefficient

The Court of Justice has ruled on the compatibility of national prohibitions on resale below cost and EU law, finding that such a prohibition does not contravene the free movement of goods as long as all products marketed, whether national or imported from other Member States, are affected in the same way both in law and in practice . For its part, the Court of Cassation has held that Articles 3, 5, 101, and 102 TFEU do not preclude national laws against resale below cost . France is not the only Member State to have adopted such rules. Belgium and Spain also have a ban on resale below cost, but both nations consider this offense as a civil rather than a criminal matter.

ECJ judgment of 24 November 1993, Case C-267 and 268-91 Keck, LawLex200200000141JBJ.

Cass. crim., 28 September 1992, LawLex200200000279JBJ.

Resale below cost and free movement of goods

Resale below cost may be necessary at times to ensure fair competition. Consequently, where justified on account of the perishable nature of the goods, a drop in trading rates, or by the need to reestablish the balance between competitors of different economic strength, the resale of goods at a loss escapes the prohibition established by the Commercial Code. The exceptions to the prohibition on resale below cost are as follows:

- voluntary or forced sales, but only in cases of liquidation and subject to a prior declaration to the administrative authority responsible for the place where the liquidation takes place in accordance with the requirements of Article L. 310-1 of the Commercial Code.

- seasonal products - the products must be “markedly” seasonal . Resale below cost can only occur at the end of the sales season or in between two seasons, i.e. at a time when the products' value has potentially depreciated; for example, toys may be sold at a loss on 23 December, but not beforehand ;

- outmoded or technologically out-of-date products, but not for economic or climatic reasons, nor because of weak sales ;

- a fall in prices, where products have been re-supplied at a lower price and are identical to the previous stock;

- perishable goods (dairy, fresh fruits and vegetables, meat, etc.) in danger of rapid deterioration, as long as the price reduction is not advertised or publicized outside the point of sale.

- although commentators had often challenged the rule that products could be sold below cost during sales periods, the authorities always considered it acceptable ; this tolerance on the part of the government was placed on a legal footing in  2009 (Art. L. 442-5, II, 7º).

Cass. crim., 13 March 1995, LawLex200200000314JBJ; CA Caen, 19 June 2000, LawLex200200000405JBJ.

Cass. crim., 3 May 2001, LawLex200200000430JBJ.

CA Chambéry, 27 June 1996, LawLex200200000249JBJ.

DGCCRF Opinion No 99-050 of 18 March 1988.

Exceptions to the rule against resale below cost

To justify resale below cost, traders often invoke the right to align their prices with those of other traders operating in the same area. Price alignment may be used as a defense at any point in a legal procedure, but the generalization of price alignment in the mass retailing sector led lawmakers to set strict conditions for the admissibility of this defense. Resale below cost due to price alignment is only allowable for foodstuffs in shops where the sales area is under 300 m2, and for non-food products where the sales area is less than 1000 m2. The burden of proving the reference price, i.e. the price to be matched, weighs on the reseller , but the illegality of that price must be shown by the government . The new price does not have to be identical to that of other traders, nor does the change need to have occurred immediately upon observing the price difference with competitors. Finally, the distance between competing outlets is an essential factor, as only small businesses are generally in a position to claim this exception - in one case, for example, alignment was deemed unjustified if the competitor in question is more than 20 kilometers away from the trader claiming the exception .

On post-inspection proof, see Cass. crim., 3 April 1997, LawLex200200000310JBJ; on the adequacy of such proof, see Cass. crim., 3 May 1995, LawLex200200000282JBJ.

Cass. crim., 11 March 1991, LawLex200200000305JBJ; 28 June 1993, LawLex200200000308JBJ; 17 January 1994, LawLex200200000281JBJ; 3 May 1995, LawLex200200000282JBJ.

Cass. crim., 10 October 1996, LawLex200200000336JBJ.

Alignment exception

Individuals may be fined up to EUR 75,000 or half the advertising expenses, if applicable. Companies can be fined a maximum fine of five times that provided for physical persons under Article 131-38 of the Criminal Code. They may also be required to halt the advertising campaign and/or publicize the ruling finding them guilty (Article L. 442-5, III).

Liability for the breach rests with the head of the undertaking unless the relevant responsibilities have been delegated to an employee. However, for liability to follow, the employee must possess the necessary means and authority to carry out the resale at a loss .

Elsewhere, as we have seen, resale below cost is also considered to be an act of unfair competition and the victim may well seek compensation under this heading. The supplier may also seek to stop the practice by arguing, for example, that the low price charged is causing the image of his product to depreciate . Compensation claims may also be brought before criminal courts by any other interested parties who have suffered as a result of the act of reselling at a loss. Actions may be taken by anyone who has directly suffered harm - individuals, companies, and official consumer groups .

The settlement procedure pursuant to Articles L. 490-5, R. 490-9 and R. 490-10 of the Commercial Code can finally be applicable to matters of resale below cost. In view of the latest case law reports published by the DGCCRF, it would appear that the law relating to resale below cost is no longer applied . 

CA Paris, 21 October 1999, LawLex200200000325JBJ.

CA Bordeaux, 31 March 1999, LawLex200200000139JBJ.

Cass. crim., 10 October 1996, LawLex200200000336JBJ; Cass. crim., 7 December 1992, LawLex200200000346JBJ.

 See DGCCRF report: for 2016, the DGCCRF recorded 4 judgments and only 5 settlements.

French Competition Law

174. Other financial benefits

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Les notions juridiques connexes

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