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

Economic dependence is assessed by taking into consideration the importance of the partner in terms of turnover made from business with him, or the amount of goods handled, the notoriety of the brand, the size of the market share and the impossibility of finding another partner under the same conditions. Criteria enabling the authorities to determine the existence of an alternative must be based o …

Proof

Although it is not the market that defines a state of economic dependence but rather the relationship between two undertakings, it is still necessary and required by law to define the relevant market in order to ascertain whether the function or the structure of competition are affected. Brand notoriety can be one of the criterion for defining the product market concerned; however it must be such that the product has become non-substitutable. This is not the case for a game which might have a merely passing success, the market in question being a particularly changeable one .

CA Paris, 12 July 1990, LawLex200200002634JBJ.

Market definition

In defining a supplier's dependence on a distributor, competition authorities consider the amount of turnover realized with the distributor, the importance of the distributor's role in marketing the products, the factors leading to the supplier's sales being concentrated with the distributor (strategic choice or technical necessity), the existence and variety of alternative solutions for the supplier . Dependence is thus measured above all by reference to the distributor's relative position of strength over the supplier. This strength is evaluated not based on the distributor's market share, but by taking account of the quantitative (share of turnover) and qualitative (role in marketing) importance of the distributor for the supplier claiming dependence. The situation of the supplier viewed in isolation is theoretically only taken into account when it is not directly clear why sales are concentrated or whether there are alternative solutions . Regulatory authorities determine the supplier's situation by looking at how weak the supplier's financial resources and profit margin are, how established its brand, how long-standing and significant its links to the distributor, whether the product is oversupplied on the market, and whether it must deal with transportation constraints. Decisions of the authorities in this area have shown that these secondary indications are in fact the essential criteria. In most cases, even where the share of turnover the suppliers had realized with the distributor on whom they were claiming dependence amounted to 15%, or varied between 22 and 67.5%, their arguments were rejected on the grounds that their behavior showed they were autonomous, that their brand was well-established, that the profit margins in the sector were substantial or that supply was already highly concentrated .

The set of criteria established for the assessment of dependence for suppliers has been transposed for the assessment of service providers. Applying the criteria to the relationship between an advertising medium and a central purchasing agency for advertising space, the Competition Authority found that the medium's economic dependence was established when the buyer power of the central agency allowed it to impose financial terms and the market division organized by the two main operators meant it had no other alternative . Equally, where a service provider is unable to use any comparable installations and equipment to the essential monopoly-controlled infrastructure, that service provider is automatically economically dependent on the monopoly holder .

Competition Council decision No 93-D-21 of 8 June 1993, LawLex200200003056JBJ, upheld by CA Paris, 25 May 1994, LawLex200200002730JBJ; 94-D-60 of 13 December 1994, LawLex200200003339JBJ, upheld by CA Paris, 13 December 1995, LawLex200200002662JBJ.

See Competition Council decision No 93-D-21 of 8 June 1993, LawLex200200003056JBJ.

Competition Council decision No 94-D-60 of 13 December 1994, LawLex200200003339JBJ.

Competition Council decision No 96-D-44 of 18 June 1996, LawLex200200002563JBJ.

CA Paris, 9 September 1997, LawLex200200002466JBJ.

Economic dependence of a supplier on a distributor

Competition authorities consider that an evaluation of the economic dependence of a distributor on a producer should particularly take into account the proportion of turnover made with a supplier, the brand-recognition of the supplier's trademark, the supplier's market share, and the inability of the distributor to obtain equivalent products from other suppliers . The final factor is whether the dependent undertaking has another alternative, i.e. whether the dominant undertaking is its obligatory trading partner. In reality, it is difficult to identify dependency situations in the distribution sector, since distributors do not bear significant fixed costs with respect to their financial capacity when changing suppliers, and since this change can often be made rather quickly . Furthermore, hefty turnover with a specific supplier may be the result of a market strategy and not economic dependence  and often the distributor is able to go from one network to another . A distributor cannot complain of being in a state of economic dependence on its sole supplier where it was free to find other sources of supply and had no difficulty in reconverting . According to the Competition Authority, reorientation solutions must be found in the same sector of activity with a supplier of equivalent weight . On the other hand, the state of economic dependence of a franchisee with regard to its franchisor may result from the combination of an exclusive purchase obligation and contractual and post-contractual non-compete clauses which deprive it of any possibility of diversification or prevent its exit from the network . Where the distributor obtains supplies in central purchasing agencies, the assessment of dependence must take into consideration the dual characteristic of the distributor; as both a member and customer of the central, dependence can only be established if the distribution relationship is predominant .

Competition Council Report for 1993, 69; Cass. com. 11 July 2006, LawLex200600001726JBJ, no economic dependence for the undertaking whose revenues increased by more than 43% following the termination of the commercial relationship with its supplier; CA Paris, 26 October 2016, LawLex201600001800JBJ.

See CA Versailles, 27 January 2000, LawLex200200002391JBJ, upheld by Cass. com., 9 April 2002, LawLex200200002193JBJ.

CA Paris, 5 July 1991, LawLex200200002445JBJ; 9 April 2002, LawLex200200002233JBJ; Competition Council decision No 06-D-10 of 12 May 2006, LawLex200600001252JBJ.

Competition Council decision No 89-D-16 of 2 May 1989, LawLex200200002653JBJ.

CA Paris, 10 December 2014, LawLex201400001462JBJ; 3 December 2015, LawLex201500001664JBJ; 20 March 2019, LawLex201900000389JBJ: the complainant undertaking, which, in the absence of an exclusivity clause, had to diversify its activity but did not take any steps during its nine-month notice period in order to replace the company in question and where one or more clients enable it to operate under comparable technical and economic conditions, does not establish its economic dependence. 

Competition Authority decision No 20-D-04 of 16 March 2020, LawLex202000000542JBJ, considering that it is impossible for independent resellers to implement a reorientation plan that is technically and economically equivalent to the disputed contractual relationship within a reasonable period of time, taking into account the level of commitment required in terms of training, presentation and marketing of the products of the brand concerned in stores specially equipped to the standards of the said brand, as well as their limited room for maneuver.

CA Paris, 3 October 2018, LawLex201800001482JBJ, holding that the demonstration of a situation of economic dependence of the franchisee on the franchisor may result from the combination of a set of contract clauses imposed by the latter, the purpose of which is to limit the possibility of franchisees to leave the network and to restrict their freedom of contract in proportions exceeding the objectives inherent in the franchise, and the fact that the clauses in question were accepted by them is not a defense. A contrario: an undertaking fails to establish its situation of economic dependence on the incumbent telecommunications operator when, not being bound by any exclusivity clause, it is unable to establish its inability to have a technically and economically equivalent solution, CA Paris, 31 January 2020, LawLex202000000187JBJ.

Cass. com., 4 July 2006, LawLex200600001752JBJ.

Economic dependence of a retailer on a supplier

According to the Paris Court of Appeal, for a situation of economic dependence to exist there has to be a commercial relationship between the parties .  Thus, the refusal to refund by airlines does not constitute an abuse of the agencies' dependence on them, since it directly affects the passengers with whom the companies have concluded an air travel contract, and not the relationship between those operators . In doing so the court has to a significant extent limited the applicable scope of Article L. 420-2(2) of the Commercial Code in that it leads to the exclusion from application of the provision, situations where access to an essential facility has been refused and thus by definition no commercial contract has been entered into. To remedy this, the Court has specified that economic dependence is established where a refusal to contract affects the ability of the applicant to pursue his business activity . If an absence of commercial relations precludes the possibility of economic dependence, an absence of economic activity on a market is even more reason for such preclusion and such was the outcome concerning prior agreements for the handling and approval of equipment by State health insurance funds, which are administrative transactions rather than commercial ones . However, the courts have already had occasion to extend it to other types of relations . Moreover, the Court of Appeal in Versailles has accepted that the relationship between a cooperative and a member thereof constitutes at least partially, a distributor/supplier relationship .

Dependence must be objective; a distributor claiming to be in a dependent situation must prove that this is due to external factors i.e. relating to the technical characteristics of the product, reputation or position on the market . A distributor's turnover for a product must not be the result of a commercial strategy, where he deliberately concentrates purchases on one supplier rather than seeking out other sources of supply .

Dependence cannot be collective . Situations of dependence arise in any event within the context of bilateral relations between two undertakings and must be evaluated on a case by case basis, not for the whole of a profession , or between all distributors and suppliers . According to the Authority, the state of collective economic dependence of a group of undertakings cannot arise from the mere fact that they all use the same supplier. However, such a state can be found in the relations between a supplier and its distribution network, provided that the network constitutes a group of companies with sufficiently homogeneous characteristics, the members of which are in the same economic and legal position with regard to the supplier and that reasoning can be extended to all the companies of the group insofar as they are all affected in the same way by the practice in question .

A state of economic dependence within the meaning of Article L. 420-2(2) of the Commercial Code comes with the following criteria which must be present simultaneously: supplier brand notoriety, importance of its market share and the share of turnover with regard to the distributor, and the lack of alternative solution.

The notoriety of the product is a factor used to characterize a situation of the distributor's dependence vis-à-vis the supplier but is not a decisive factor of the dependence of the supplier. The competition authorities did not accept that there was dependence on a central purchasing agency by regional undertakings where the latter had maintained that their products were not well-known . Dependence on a big retail group is also precluded where the extent of a supplier's market share is due to the brand notoriety of its product and its financial strength has enabled it to suspend deliveries over lengthy periods . The notoriety of the supplier's products is nonetheless insufficient in the absence of other evidence for a finding of a distributor's economic dependence . Dependence is also precluded when there are several equally well-known and therefore interchangeable brands present on a market .

The amount of turnover achieved with the partner can be a determining factor in establishing dependence unless it is due to a deliberate commercial strategy on the part of the dependent undertaking . In addition, the existence of alternatives precludes dependence even where the amount of turnover reaches 50% . Finally, a producer with a large market share is not dependent on a big retailer  nor is a distributor dependent on a supplier which has comparable or lower market shares than its competitors .

Stipulating exclusivity clauses in contractual relations between a supplier and a distributor or between a contractor and sub-contractor is liable to create a situation of dependence, as such clauses tend to prevent the bound party from freely diversifying its supply sources or business activities. However a situation of dependence is not automatically deduced from the existence of an exclusivity clause; where the provision only refers to one type of activity, this does not preclude diversification in other areas .

In fact the essential criterion for a finding of dependence is the lack of any alternative means and this tends to incorporate all the other criteria. For it to be able to operate alone, time and cost considerations for finding alternative supplies must be assessed by the competition authorities. Economic dependence cannot stem from the fact that a distributor makes all his turnover with one supplier where he does not show that it was impossible to switch to another supply channel . The court found that a distributor has an alternative supply channel even if switching would lead to temporary difficulties or slight losses . Thus an alternative supply does not necessarily have to be identical to the previous one . It may be less advantageous . The competition authorities have not as yet clearly defined the starting point for an absence of alternative supply. It is not entirely clear whether the dependent undertaking must show that the source in question is essential to the pursuit of its business  or whether it must prove that it is likely to suffer serious harm.

Dependence is established where the division of the market by the main operators deprives an advertising medium of any other solution , where an operator is unable to find any facilities or equipment that are substitutable to the essential facility controlled by a monopoly-holding competitor , where the termination of a franchise agreement automatically also entails the termination of a lease-management contract , where managers of movie theaters are unable to find film distributors for equivalent products , or where the impossibility for carriers to use other service providers for services to Corsica is inferred from the Commission's decision finding that the State aid granted to the undertaking concerned was justified by the performance of its public service obligation which made up for a genuine gap in the market . On the other hand, the company which, despite the termination of its commercial relationship with the defendant undertaking continued operating, making significant turnover with other partners and has been able to develop and diversify its customer base, including during the contractual notice period, does not establish a state of economic dependence .

The Court of Cassation defines substitution for the distributor as the availability of a supply source under comparable economic and technical conditions . However, the Paris Court of Appeal has found that the comparability test is satisfied where there is a possibility of alternative supplies, even if the conditions are less favorable . For the supplier, an alternative would consist in being able to quickly find new customers of a comparable status . In all cases the alternative solution must be able to be found within a reasonable time frame, operate in comparable economic channels and should not engender excessive costs .

CA Paris, 22 June 1992, LawLex200200002744JBJ; upholding  Competition Council decision No 91-D-35 of 10 July 1991, LawLex200200002933JBJ. See also, CA Versailles, 22 November 2001, LawLex200200000037JBJ, finding that the majority shareholder of a company may not rely on economic dependence where there is no direct relationship between supplier and customer; 27 March 1997, LawLex200200002378JBJ, in principle the "affectio societatis" (spirit of cooperation) notion excludes a situation of dependence. 

Competition Authority decision No 20-D-21 of 8 December 2020, LawLex202000003547JBJ.

Competition Council decision No 03-D-42 of 18 August 2003, LawLex200300003459JBJ. 

Competition Authority decision No 18-D-22 of 17 October 2018, LawLex201800001604JBJ, finding that the state of economic dependence of the complainant companies could not be established because of their different contractual arrangements within the franchise network i.e. one the owner of the business while the others were lease managers; No 19-D-18 of 31 July 2019, LawLex201900000952JBJ.

Competition Council decision No 93-D-21 of 8 June 1993, LawLex200200003056JBJ, finding moreover that one of the undertakings was the subsidiary of a well-know food group 

CA Paris, 13 December 1995, LawLex200200002662JBJ. 

Cass. com., 12 January 1999, LawLex200200002660JBJ. 

CA Paris, 4 May 2004, LawLex200400000953JBJ.

CA Paris, 5 July 1991, LawLex200200002445JBJ.

Cass. com., 16 June 1992, LawLex200200002359JBJ, turnover 2.07%; Competition Council decision No 98-D-32 of 26 May 1998, LawLex200200003173JBJ, 50% turnover. 

Competition Council decision No 01-D-49 of 31 August 2001, LawLex200200003430JBJ; No 03-D-42 of 18 August 2003, LawLex200300003459JBJ. 

CA Paris, 9 September 1997, LawLex200200002466JBJ. 

CA Paris, 18 September 2001, LawLex200200003447JBJ. Cass. com., 9 July 2002, LawLex200300000556JBJ. 

CA Paris, 15 January 2014, LawLex201400000048JBJ, a distributor merely seeking to sell his business; Competition Authority decision No 21-D-04 of 24 February 2021, LawLex202100000628JBJ: the software distributor, which does not show how a redeployment and reallocation of its personnel to alternative distribution networks would have been impossible in view of its contractual relationship with the supplier in question, fails to demonstrate its state of economic dependence on the latter.

Competition Council decision No 89-D-39 of 21 November 1989, LawLex200200002382JBJ, upheld by CA Paris, 12 July 1990, LawLex200200002634JBJ, upheld in Cass. com., 2 June 1992, LawLex200200002632JBJ. 

See especially Competition Council decision No 90-D-10 of 7 February 1990, LawLex200200002373JBJ, upheld by CA Paris, 20 September 1990, LawLex200200003213JBJ, and approved by Cass. com., 16 June 1992, LawLex200200002359JBJ. 

CA Paris, 16 October 1992, LawLex200200002640JBJ. 

As set out, inter alia, in Competition Council decision No 90-D-10 of 7 February 1990, LawLex200200002373JBJ, upheld by CA Paris, 20 September 1990, LawLex200200003213JBJ, and Cass. com., 16 June 1992, LawLex200200002359JBJ.

Competition Council decision No 96-D-44 of 18 June 1996, LawLex200200002563JBJ. 

Cass. com., 16 December 1997, LawLex200200002617JBJ. 

Competition Council decision No 04-D-44 of 15 September 2004, LawLex200400002151JBJ. 

Competition Council decision No 01-D-62 of 4 October 2001, LawLex200200002278JBJ. 

Paris, 22 octobre 2015, LawLex201500001356JBJ.

CA Paris, 4 May 2018, LawLex201800000668JBJ.

Cass. com., 12 January 1999, LawLex200200002660JBJ; 11 January 2000, LawLex200200003163JBJ; 3 March 2004, LawLex200400000604JBJ. 

CA Paris, 20 September 1990, LawLex200200003213JBJ; 16 October 1992, LawLex200200002640JBJ. 

Competition Council decision No 90-D-36 of 16 October 1990, LawLex200200002470JBJ. 

See CA Paris, 30 March 1992, LawLex200200002569JBJ. See also Competition Authority decision No 20-D-04 of 16 March 2020, LawLex202000000542JBJ, holding that regardless of the contractual terms and conditions, that make it difficult to prepare for the possible reorientation of independent resellers during the term of their contract, but also their exit from the network - an inevitable delay of six months limiting this possibility of reconversion throughout the contractual territory, i.e. the whole of Europe -,  no effective alternative solution that can be implemented within a reasonable period of time makes it possible for the resellers to replace the brand concerned with one or more suppliers under comparable technical or economic conditions in the absence of a supplier of similar size holding a brand with an equivalent portfolio, reputation and customer base, and operating a network of specialized retailers of national scope.

For sub-contracting relations, Cass. com. 10 December 1996, LawLex200200002384JBJ; for horizontal relations, CA Paris, 9 September 1997, LawLex200200002466JBJ. See also, CA Paris, 18 December 2014, LawLex201500001529JBJ, rejecting abuse of economic dependence in the case of the termination of a subcontracting contract without notice or compensation, attributable to a serious breach by the principal's employees.

CA Versailles, 27 March 1997, LawLex200200002378JBJ.

CA Paris, 5 July 1991, LawLex200200002445JBJ. 

Competition Council decision No 97-D-42 of 4 June 1997, LawLex200200002655JBJ, dealer having deliberately elected to specialize in distribution of supplier's products; Cass. com., 3 March 2004, LawLex200400000604JBJ, large part of turnover deriving from expressly chosen commercial strategy rules out a finding of dependence. 

See note in Competition Council decision No 87-MC-07 of 2 September 1987, LawLex200200002381JBJ, ruling out the possibility for a distributor to be jointly dependent on several suppliers. See also Competition Council decision No 91-D-29 of 4 June 1991, LawLex200202551JB; upheld in Paris, 26 February 1992, LawLex200200003122JBJ; Competition Authority decision No 19-D-18 of 31 July 2019, LawLex201900000952JBJ: a state of economic dependence cannot be characterized with regard to a specific economic operator when the referral doe not relate to a particular supplier, whose reputation and market share can be determined, but a category of service providers, bringing together undertakings with varied reputations and levels of market share and different characteristics.

Competition Council decision No 91-D-29 of 4 June 1991, LawLex200200002551JBJ; No 03-D-42 of 18 August 2003, LawLex200300003459JBJ. 

Evaluating economic dependence

Economic dependence is assessed by taking into consideration the importance of the partner in terms of turnover made from business with him, or the amount of goods handled, the notoriety of the brand, the size of the market share and the impossibility of finding another partner under the same conditions. Criteria enabling the authorities to determine the existence of an alternative must be based on figures for margin levels or showing excess capacity in the various sectors of activity concerned. Although a lack of figures does not prevent the supplier's position from being established, it is however essential that the elements of proof coincide for a finding of a state of economic dependence . To establish a presumption of dependence, it is not necessary that all the criteria point to the same conclusion; it suffices that an adequate number of factors concur .

The burden of proof of economic dependence lies with the party claiming it .

Competition Council decision No 89-D-16 of 2 May 1989, LawLex200200002653JBJ. Competition Council decision No 93-D-21 of 8 June 1993, LawLex200200003056JBJ, upheld by CA Paris, 25 May 1994, LawLex200200002730JBJ; Competition Council decision No 01-D-49 of 31 August 2001, LawLex200200003430JBJ; No 02-D-77 of 27 December 2002, LawLex200300000715JBJ.

See Competition Council decision No 87-MC-03 of 25 March 1987, LawLex200200002379JBJ.

CA Paris, 29 June 1993, LawLex200200002620JBJ; Cass. com., 12 January 1999, LawLex200200002660JBJ.

French Competition Law

370. Proof

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370. Proof

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