EC, December 15, 1982, No 82-896

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the treaty establishing the European Economic Community, and in particular Article 85 thereof, Having regard to Council Regulation No 17 of 6 February 1962 : first Regulation implementing Articles 85 and 86 of the treaty (1), as last amended by the Act of Accession of Greece, and in particular Article 3 thereof, Having regard to the application made to the Commission on 11 June 1979 by the Association of Retailer-Owned Wholesalers in Foodstuffs, Brussels, pursuant to Article 3 of Regulation No 17, Having regard to the Commission's decision to initiate proceedings, taken on 21 January 1982, Having given the undertakings concerned the opportunity to make known their views on the objections raised by the Commission pursuant to Article 19 (1) of Council Regulation No 17 and Commission Regulation No 99-63-EEC of 25 July 1963 on the hearings provided for in Article 19 (1) and (2) of Council Regulation No 17 (2), After consultation with the Advisory Committee on restrictive practices and dominant positions, Whereas :

I. THE FACTS

A. The product

(1) Cognac is a brandy distilled in the region of Cognac in France, defined in a decree enacted on 1 May 1909. Brandies from this region are entitled to the registered designation of origin "cognac" provided they comply with legal requirements for the vine varieties to be used and for wine-making, distillation, ageing and marketing. The brandy must be matured in "Jaune d'Or" wine-sheds, entitling it to "Jaune d'Or" movement papers, showing that duty has or has not been paid, which were introduced by the Law of 4 August 1929.

In 1981 sales of cognac amounted to about 470 000 hectolitres of pure alcohol, of which about 88 % was in bottle and 12 % in cask. Of total sales some 20 % were in France and 80 % abroad.

A breakdown showing sales in 1981 in the individual Member States of the Community is given in Annex I. This table shows that the common market as a whole accounted for about 52 % of total sales of cognac, and that exports to the nine other Member States in 1981 represented 40 % of total exports (by volume).

B. The Bureau National Interprofessional du Cognac

(2) The Bureau National Interprofessional du Cognac, or National Cognac Industry Board (BNIC), began as a board for the apportionment of Cognac wines and spirits set up by an order (arrêté) made on 5 January 1941 (3). That text has been amended and supplemented in a number of later ministerial orders defining the BNIC's powers and composition. The BNIC's working methods are laid down in its internal rules, which were approved by an order made on 2 August 1978.

(3) The object of the BNIC, laid down in an order of 9 July 1946 (1), is to consider and draft regulations of any kind concerning the acquisition, distillation, distribution, stocking and sale of wines and spirits produced in the region defined in the Decree of 1 May 1909.

In addition, the BNIC may :

1. require declarations of quantities produced or stocked, and in general any information of a commercial nature which it judges useful;

2. monitor the manufacture and distribution of cognac to ensure that local and established usages are strictly applied;

3. monitor the quantity of spirits produced or offered for sale by wine-growers in the defined region and by shippers;

4. carry out technical study and promotion of any measures which might improve conditions for the production and sale of cognac.

The BNIC is in particular responsible for keeping accounts and carrying out checks in connection with the ageing process, and for issuing certificates of origin.

(4) The composition of the BNIC, laid down by the Order of 15 October 1981 (2), is as follows :

1. Four persons, two representing wine-growers and two representing shippers (3) from the region defined in the Decree of 1 May 1909, nominated by the Minister for Agriculture;

2. 12 delegates representing the growers, two delegates representing cooperative distilleries, 11 delegates representing the cognac shippers, and 10 other delegates representing respectively Pineau des Charentes producers, the shippers of the same aperitif, the professional distillers' association, the association for fortified wines for distillation, the cognac wholesalers' association, brokers, management and supervisory staff, wineshed workers, skilled wine-growing staff and vineyard workers; the last five groups have a consultative vote only. All delegates are nominated by the Minister for Agriculture from lists submitted by the appropriate professional and trade associations.

The Chairman is an Ingénieur Général de l'agriculture and is nominated by the Minister for Agriculture. A standing Committee consisting of the Chairman and eight members, four growers and four shippers, is empowered to handle routine business.

A Government Commissioner (Commissaire du Gouvernement) nominated by the Minister is present at all meetings of the board and of the standing Committee ; he may agree to the decisions taken or may require that they be submitted to the Minister for approval.

Ministry of Agriculture and excise department staff also attend meetings in a consultative capacity.

(5) Those within the scope of the BNIC comprise 48 300 wine-growers - including 30 400 who produce distillable white wines - 205 distillers, 215 shippers and 16 cooperatives. Of this number the professional and trade associations which are members of the BNIC account for 27 900 wine-growers, 168 distillers, 68 shippers and 16 cooperatives (1979 figures).

C. The Association of Retailer-Owned Wholesalers in Foodstuffs

(6) The Association of Retailer-Owned Wholesalers in Foodstuffs (AROW) is a non-profitmaking association with its headquarters in Brussels ; it aims to provide a central organization for purchasing associations, as legally constituted in accordance with the laws and usages of their countries of origin, which act at wholesale level on behalf of self-employed food retailers or their associations. Among other objects it seeks to represent the interests of its members in dealings with international organizations and associations, and especially the European Communities.

D. The commercial context

(7) The BNIC states that the 10 main cognac producers between them account for four-fifths (3) "Wine-growers" (viticulteurs, viticulture or famille de la viticulture) are those who produce the distillable white wines which carry entitlement to the registered designation of origin "cognac"; "shippers" (négociants, négoce, commerce or famille du commerce) denotes merchants who produce or market cognac brandies of total turnover in the product. However, it considers that "the competition which exists between them leaves the conditions of commercial competition intact, as can be seen from the narrow margins and the low level of after-tax profit when one considers the considerable investment required by the stocking and rising of a prestigious product such as cognac".

(8) According to the information supplied by the BNIC, "after the beginning of the world crisis in 1973 to 1976 (...) the Cognac region found itself facing (and still does face) imbalance between potential output (which had been increased to take account of export requirements) and the movement of sales, which was beginning again from a level 25 % below the previous one, because of the economic and financial difficulties affecting international trade". Stocks rose drastically as a result (see Annex II), and the importance of this increase "still weighs on the regional economy". From 1975 onward, therefore, rules were established to reduce the scope for production and marketing, and to dispose of certain surplus quantities through other channels : fortified wines, state distilling, private consumption, etc. It may be noted that the increase in stocks held by growers distilling their own brandy was a great deal sharper in the case of the least expensive growths, "Bons Bois", "Fins Bois" and "Bois Ordinaires" (see Annex III).

(9) The BNIC states that "with stocks currently out of proportion to immediate needs, and financial burdens growing steadily heavier, it appeared indispensable if the traditional quality and reputation of cognac were to be preserved to establish a price limit below which it would be beyond doubt that the quality (which forms the basis of the registered designation of origin) could not be respected".

(10) The BNIC also refers to the intense international competition facing cognac in a report on the present position and prospects for the cognac market in 1978/79 ; in the case of the United Kingdom it speaks of "competition from ordinary brandies, whose prices are frequently more than £ 2 a bottle below those of standard quality cognac" ; in the case of Germany it states that "the prices applied (...) constitute (...) a brake on the development of sales (...).

While specialized vinters sell weinbrand (German brandy) at less than DM 20 a bottle and the large supermarkets invariably at less then DM 15 a bottle, with foreign brandies a little above, the price of cognac varies from DM 20 to DM 25 according to the kind of outlet, for standard qualities, and for VSOP and similar qualities approaches DM 30 a bottle (...). It is thus more than ever necessary to give careful consideration to the prices applied if we want cognac to be able to face up to the extremely stiff competition on the German market, whose importance among the primary outlets of the Cognac region is beyond doubt."

E. Price-fixing measures

(11) Price-fixing measures have been taken in respect of wines for distillation and of new and maturing spirit carrying entitlement to the registered designation of origin "cognac", purchased by shippers from wine-growers, on the one hand, and in respect of retail sales of mature brandy ("the distribution price"), on the other.

1. Fixing of shippers' buying prices

(12) For transactions between shippers and growers, since the harvest of 1957 prices have been fixed each year through an industry agreement negotiated between growers and shippers. Until 1978 these agreements had contractual force only and did not receive any approval of a public nature ; the BNIC states that they were generally respected in the industry.

(13) From 1978 onwards, purchase prices have been fixed by the industry agreements referred to in points 18 to 20 below.

(14) The provisions referred to above which fix prices for transactions between shippers and growers were not the subject of the AROW's complaint and are not the subject of this proceeding.

2. Fixing of retail prices

(15) As regards prices for sales of the finished product, the BNIC states that minimum selling prices for exports of cognac were formerly fixed by the public authorities in notices issued to exporters, notably after 1945. These measures became unnecessary after 1967, as from then until 1973 and 1974 demand far outstripped supply. Minimum prices were reintroduced in 1976 by decision of the Government Commissioner, and, from 1978/79 onwards, by industry agreements.

(16) On 9 April 1976, a decision by the Government Commissioner to the BNIC fixed minimum prices for sales of cognac in cask and in bottle. The terms of the decision state that its object is "to maintain the traditional quality of cognac, to guarantee to the consumer a quality corresponding to the price of the purchased product, and to avoid any manipulation with the aim of artificially reducing prices". Minimum prices are laid down by age count, the lowest prices being for consignments with an age count of two (the minimum age at which cognac may be sold for consumption : two and a half years), as follows :

- cognac in bottle : FF 3 750 per hectolitre of pure alcohol, for cognac fully put up for retail sale,

- cognac in cask : FF 3 095 per hectolitre of pure alcohol, including the price of any appropriate labels supplied.

These prices are net of duty and taxes and of any commission or discounts whatsoever, the terms being fob, free-at-frontier or point of dispatch. The decision does not state any fixed period in which the prices are to apply. The BNIC is to check that they are respected, acting in liaison with Government departments.

(17) The decision provides that "any consignor who does not comply with these provisions shall be required (independently of the measures provided for by the internal rules, which may extend to the withdrawal of sales vouchers and consequently of movement papers) to request that a sample be taken by the inspection department of the BNIC before dispatching any consignment. The goods may be dispatched only after the sample has been tasted and a favourable report delivered by the Quality Committee set up by Article 13 of the Order of 25 February 1954."

(18) In the wine-growing year 1978/79 the industry agreement on the price of cognac brandies and white wines for distillation, which was concluded in the BNIC framework and ratified on 12 December 1978 by its member organizations, set a minimum retail price for cognac. It is the rules on this minimum price which form the direct subject-matter of the AROW's complaint. This agreement was the subject of an inter-ministerial order made on 1 February 1979 ; under this order the provisions of the agreement were "extended to the growers, cooperative cellars, distillers and wholesale shippers who produce in the area defined by the Decree of 1 May 1909 or sell in or from that area, or from "Jaune d'Or" wine-sheds outside that area, white wines intended for the production of spirits or of the spirits qualifying for that registered designation of origin".

(19) That order was made pursuant to the Law No 75.600 of 10 July 1975 on the organization of agriculture (1), supplemented and amended by Law No 80.502 of 4 July 1980. Article 2 of the latter Law provides as follows :

"Agreements concluded within the framework of a recognized trade organization may be extended in whole or in part for a stated period by the competent administrative authority, where through standard contracts, annual agreements and joint action in the general interest and compatible with the rules of the European Economic Community, they would improve in particular :

- the information available in respect of supply and demand,

- the adjustment and regularization of supply,

- the application, subject to state control, of rules on marketing, prices and terms of payment,

- product quality,

- relations between the various sections of the industry concerned (...)."

The same Article states that "where an extension of this kind is ordered, the (...) measures taken by the trade organizations (by unanimous decision or following arbitration) shall be binding in the stated geographical area on all members of the trades forming that organization".

Article 4 of the Law lays down the penalties which may be imposed in the event of failure to respect an extended agreement :

- contracts for the supply of goods concluded between persons bound by an extended agreement which do not comply with the terms of that agreement are automatically void,

- in the event of infringement of rules laid down by an extended agreement the ordinary court (the juge d'instance) may at the request of the trade organization award it a certain sum of money by way of compensation,

- where a supply contract which is void in this way relates to a product which must be accompanied by movement papers, the competent administrative department may, on a proposal by the relevant trade organization, suspend the issue of such papers.

(20) The industry agreement on the price of cognac brandies and distillable white wines for distillation covering the year 1979/80, which was ratified on 18 October 1979 by the trade members of the BNIC, was also extended in an order made on 2 January 1980, which reproduced the terms of the order of 1 February 1979 referred to above. A similar agreement for the year 1980/81 was ratified on 7 November 1980 and extended by an order made on 27 November 1980 (1). For the year 1981/82 the industry-wide agreement ratified on 10 November 1981 was extended by an order made on 30 November 1981 (2).

(21) Article 1 of the agreement, entitled "Scope", states that Articles 7 and 8 deal with sales of cognac. Article 7, entitled "Minimum selling price to guarantee a minimum quality of cognac" provides :

"In order to maintain the traditional quality of cognac, and to assure the consumer that there will be no artificial reduction in prices to the detriment of the characteristics of the product, a minimum distribution price is hereby laid down, fixed as follows for the period 1 February to 31 December 1979 :

1. Cognac in case : FF 12 per 70 cl bottle, 40 % alcohol by volume, fully put up for retail sale ; (...)

2. Cognac in cask : FF 3 500 per hectolitre of pure alcohol, not including containers but including any appropriate labels supplied.

For cognac in cask or in bottle a total discount covering all forms of commission, or rebate is authorized up to a maximum of 10 %. The net minimum price is net of duty and tax, the terms to be fob or free-at-frontier. In case of sales free at point of dispatch, a further reduction is authorized, up to FF 0 740 per bottle for sales in case and FF 55 per hectolitre of pure alcohol for sales in bulk."

The minimum prices ex Cognac, after all commissions or discounts whatsoever have been deducted, are thus FF 10 740 a bottle (equal to FF 3 714 per hectolitre of pure alcohol), or FF 3 095 per hectolitre of pure alcohol for sales in cask. Article 8 provides that "selling prices shall be checked by the BNIC :

- for exports: on the basis of the customs declarations (...),

- for sales on the home market : on the basis of the invoice price which must be entered on duty-unpaid sales vouchers and on the monthly lists of duty-paid consignments sent to the BNIC by those within the scope of the agreement."

The same Article lays down that infringements shall be subject to the penalties provided for in Article 4 of the Law of 10 July 1975, to be applied in accordance with the BNIC's internal rules; these penalties make provision in particular for the suspension of the issue of movement documents.

(22) For the year 1979/80 the industry agreement of 18 October 1979, referred to above, contains provisions identical to those of the agreement of 12 December 1978 ; Article 7 fixes the following minimum selling prices applicable between 1 January and 31 December 1980 :

- cognac in case : FF 13 750 per bottle,

- cognac in cask : FF 4 000 per hectolitre of pure alcohol.

Deducting the maximum discount of 10 % to cover various rebates, and the reduction of FF 0 740 per bottle or FF 55 per hectolitre of pure alcohol for sales ex Cognac, we obtain a minimum price of FF 11 775 per bottle (equal to FF 4 196 per hectolitre of pure alcohol) and FF 3 545 per hectolitre of pure alcohol for sales in cask.

(23) By letter of 4 September 1979 the Commission asked the BNIC to supply to it the new prices which were to enter into force on 1 September 1979 for wine for distillation, on 1 October 1979 for brandy, and on 1 January 1980 for finished cognac (distribution prices). The BNIC replied on 20 November 1979 : "the BNIC has considered the mechanisms and the price levels for the next agreement. The price brackets have not yet been decided". The BNIC indicated ranges of variation for white wines and for brandy, describing them as "a proposal by the general meeting held on 18 October 1979". On 26 January 1980, in reply to a Commission letter asking it to substantiate this reply, in view of the fact that the prices referred to had in fact been fixed by the BNIC general meeting on 18 October 1979, the BNIC said :

"The general meeting held on 18 October 1979 did indeed draw up a price agreement which at that time had contractual force only and had not received any approval of a public nature. The agreement has since been approved by a ministerial order made on 2 January 1980. For the same reasons the distribution price for mature cognac, on which an agreement had been concluded at the same meeting, was not published by us before it was extended by the same order."

(24) For the year 1980/81 Article 8 of the agreement of 7 November 1980 fixes the following minimum prices for consignments dispatched between 1 January and 31 December 1981 :

- cognac in case : prices per hectolitre of pure alcohol fully put up for retail sale in 70 cl bottles, 40 % alcohol by volume :

- age counts 2 and 3 : FF 5 304,

- age counts 4 and 5 : FF 5 893,

- age count 6 : FF 6 429 ;

- cognac in cask : prices per hectolitre of pure alcohol, not including containers, but including any appropriate labels supplied :

- age counts 2 and 3 : FF 4 400,

- age counts 4 and 5 : FF 4 840,

- age count 6 : FF 5 320.

Subtracting the maximum discount of 10 % which the agreement provides for to cover the various rebates, and the deduction of FF 143 per hectolitre of pure alcohol for sales in case or FF 55 per hectolitre of pure alcohol for sales in cask, the minimum ex Cognac prices are as follows, per hectolitre of pure alcohol :

- cognac in case:

- age counts 2 and 3 : FF 4 630,

- age counts 4 and 5 : FF 5 160,

- age counts 6 : FF 5 643;

- cognac in cask :

- age counts 2 and 3 : FF 3 905,

- age counts 4 and 5: FF 4 301,

- age count 6: FF 4 733.

(25) For the year 1981/82, the agreement of 10 November 1981 referred to above, which was sent to the Commission by the BNIC on 8 December 1981, did not provide for any minimum distribution price for mature cognac. Subsequently, however, the BNIC's information bulletin No 929, dated 4 January 1982, came to the Commission's notice. This document included a section entitled "Control of quality of cognac - threshold selling price", which fixes the following threshold prices for sales for distribution and consumption :

- cognac in case : per bottle, free at point of dispatch, duty unpaid, net FF 14 760,

- cognac in case : per bottle, free-at-frontier, duty unpaid, net FF 15 750,

- cognac in cask : per hectolitre of pure alcohol, not including containers, net FF 4 200.

The bulletin states that "it has been decided to draw the attention of all those in the industry to the level of the threshold prices ; any sales below these thresholds will automatically entail quality control inspections on the premises of both the buyer and the seller (...). These pricing practices will also be considered as presumptive evidence of failure to respect the industry quotation made obligatory by the interministerial order of 30 November 1981" (see above, point 20).

(26) In a letter to the Commission, dated 23 March 1982, the Director of the BNIC said on this subject, "as soon as I received your Statement of Objections on 8 February 1982, I immediately gave my staff the necessary instructions to ensure that inspections would not systematically be carried out solely on considerations of the threshold price in question". On 8 April 1982 the BNIC supplied the Commission with its information bulletin No 936, dated 31 March 1982, which stated: "The notice published in information bulletin No 929, of 4 January 1982, prescribing automatic inspection of quality on the basis of the threshold prices indicated, is cancelled."

(27) In discussions in the BNIC's standing committee and its committee on production, the problem of compatibility of the minimum price with Community rules was repeatedly raised. On 12 September 1978, for example, the Director of the BNIC told a meeting of the production committee, "we can try (to fix a minimum distribution price), but we may run into conflict on exports. We can fix prices applying in France." On 10 March 1980, at a meeting of the same committee, there was raised the question of "whether from the point of view of Brussels and Paris the legal structure we have built up" (i.e. the industry quotation and the minimum distribution price, based on the 1975 Law) "can be maintained in the years to come".

(28) Lastly, in 20 November 1979, replying to the Commission's request for information of 4 September 1979, which informed him that on preliminary study the industry agreement in question appeared to be caught by the prohibition in Article 85 (1) of the treaty, and that it was at their own risk that the parties maintained it in force without notifying it, the Director of the BNIC stated :

"... as regards Article 85 (3) of the Rome treaty, to which you refer, I can confirm that the BNIC envisages notifying the agreement in question to the Commission.

The agreement appears to us to be in complete conformity with the objectives set out in that paragraph : it produces a qualitative improvement in production, distribution without abnormal distortion, and the promotion of technical and economic progress, from which consumers benefit directly, notably because of longer ageing in all grades of quality.

For all these reasons our board is preparing (as you suggest) to supply the official notification provided for by the Community rules in order to qualify for a declaration of inapplicability."

The BNIC's declaration of intent here was not carried out.

F. Application of the agreements

(29) In support of its complaint, the AROW states that in 1979 its members noted major increases (up to about 10 %) in the price of cognac sold for distribution and consumption in various common market countries, notably the Federal Republic of Germany and Italy.

(30) By letter of 20 November 1979 the BNIC informed the Commission that no penalties had been imposed for failure to respect the agreements which are the subject of these proceedings, but that inquiries were regularly conducted, and several were then in progress. In the same letter, the BNIC supplied the Commission with export prices for cognac calculated from customs statistics and the price lists of certain cognac producers.

(31) The customs statistics assembled by the BNIC show the following variations in the average price of exported cognac.

(32) According to the BNIC, "these papers show that selling prices are infinitely higher than the minima laid down by the brackets set in the extended industry agreement". It argued that "the price guaranteeing the minimum quality may go lower for consignments in case at FF 10 740 per 70 cl bottle, 40 % by volume (equal to FF 3 714 (1) per hectolitre of pure alcohol), while the average price declared at customs in 1978 was FF 8 789 per hectolitre of pure alcohol, or more than double".

As regards cognac in cask, the BNIC states, "likewise, the customs statistics (...) give a very accurate reflection of a substantial gap between the floor price for bulk consignments (in cask), FF 3 095, and the price applied on export, which amounts to FF 3 835 per hectolitre of pure alcohol" (2).

(33) From these data the BNIC concludes : "thus we can clearly see the way in which the prices which are the subject of the agreement act as a guarantee of quality. The agreement aims only to provide a protective barrier, a sort of floor below which it is not possible to offer customers a cognac up to cognac's traditional quality and corresponding to its reputation as a product bearing a registered designation of origin."

(34) The price lists supplied by the BNIC, which were those of very well-known houses (Rémy Martin, Martell, Hennessy, Courvoisier, etc.) showed that the price (net of duty and tax) of a 70 cl bottle of three-star brandy was always higher than FF 20, tending to confirm the BNIC's conclusion.

(35) On 26 January 1980, at the Commission's request, the BNIC supplied further price lists relating this time to less well-known firms, which showed that the price net of tax and duty for a 70 cl bottle of three-star cognac could be as low as FF 11 748.

(36) The Commission also studied the prices of other cognac houses ; it emerged that prices are regularly charged which are equal to or only slightly above the minimum prices fixed by the BNIC. In 1979, for example, André Dorbert three-star cognac was sold at FF 10 775 for a 70 cl bottle, and Henry de Brière and Chandelac cognac were sold at FF 10 740, when the minimum price was FF 10 740 ; and again in 1980, Comte Joseph cognac was sold by Grands Chais de France at FF 11 795 for a 70 cl bottle, and Beausoleil three-star cognac was sold at FF 11 775 for a 70 cl bottle, when the minimum price was FF 11 775. The BNIC must necessarily have been informed of the prices, as the movement papers which state the selling price have to be supplied to it.

(37) In the case of cognac in cask it emerges from the replies to the requests for information addressed by the Commission to the shippers in the Cognac region that for a three-star cognac the purchase price of the spirits represents about 90 % of the cost price of the product sold by the shipper. Given the quotation fixing the purchase prices for new and maturing (1) FF 3 750 according to the BNIC. (2) The BNIC compared the floor price in force from 1 February 1979 with the average price in 1978. spirit, therefore, the minimum cost price of a three-star cognac in cask, would seem to be substantially below the floor price fixed by the BNIC, using "Fins Bois", "Bons Bois" and "Bois Ordinaires" grading (see Annex IV) ; these cognacs could thus have been sold below the floor prices.

(38) Several German cognac importers have told the Commission that in 1979 and 1980 they bought cognac in cask from shippers in the Cognac region at prices close to the floor prices set by the BNIC, and even in some cases below them. This was made possible in particular by giving discounts separately. A German wholesale merchant, the firm ... (1) stated in particular that the floor price set by the BNIC "is acceptable only to firms which have a very large advertising budget and their own sales network. In order to conclude the contracts necessary for the sale of their crop (...) our suppliers have been forced to sell for export below that floor price."

(39) At an inspection carried out on his premises on 5 October 1981 by Commission officials, pursuant to Article 14 of Regulation No 17, a shipper stated : "It is true that I have been subjected to checks and inspections on the part of the BNIC in recent years, aimed particularly at checking that the minimum export prices imposed by the industry agreements were respected. As regards my selling offer of 7 April 1981 to ... Germany (of which you have taken a photocopy), I proposed prices which I was unable to maintain because of pressure brought to bear by the BNIC. I regret not being able to develop my sales, which would have been necessary for the proper operation of my business. I could have developed my sales in Germany and Belgium." The prices quoted to ... for consignments in cask, were FF 2 900 per hectolitre of pure alcohol for three-star cognac, where the minimum price was FF 3 905, and FF 3 900 per hectolitre of pure alcohol for VSOP cognac, where the minimum price was FF 4 301.

(40) The papers supplied by the BNIC in the course of an inspection carried out by Commission officials, pursuant to Article 14 of Regulation No 17, showed that BNIC repeatedly took steps to enforce the minimum distribution prices for cognac.

(41) On 27 March 1979 the Director of the BNIC wrote to the Chairman of ... on the subject of an offer made by that undertaking at a price below the minimum. The letter ended:

"I must (...) inform you that if the (industry) agreements are not respected I will be forced, to my great regret, to refer the matter to the authorities, and to request the application of the penalties provided for by Article 4 of the Law of 10 July 1975, notably suspension of the issue of any movement papers by the tax departments."

(42) On 13 May 1980 the same undertaking was the subject of an inquiry by the BNIC, which concluded that its prices were FF 0 716 below the minimum price for bottled cognac sold in France, and FF 0 790 per bottle for export ; for bulk sales the difference was FF 89 715 and FF 449 per hectolitre of pure alcohol for sales in France, and FF 450 per hectolitre of pure alcohol for export sales. On 23 June 1980 this matter was discussed at the meeting of the enlarged standing committee, which envisaged taking penalties. In a letter of 24 September 1980 the Director of the BNIC informed the undertaking of the standing Committee's decision in these terms :

"The consignments in question were dispatched during the currency of the industry agreement and after publication of the extending order, and (...) consequently constitute infringements of the industry agreement.

Your company previously received a warning of the same kind for similar infringements, and the standing committee is giving you a final warning ; obviously if the infringement is repeated legal steps will have to be taken against you, which would certainly damage the good reputation of your house."

(43) On 23 June 1980 the enlarged standing committee also considered the case of a shipper outside the defined Cognac region who was not observing the minimum price. He complained that he was losing his customers because he was forced to set his prices too high. The case of a shipper who had dispatched bottled cognac at a price below the minimum mainly to the Netherlands was studied, and steps against him discussed.

(44) On 21 January 1981 a meeting of the enlarged standing Committee considered two cases of failure to observe minimum prices. A (1) In the published version of the decision, certain information has hereinafter been omitted, pursuant to the provisions of Article 21 of Regulation No 17 concerning non-disclosure of business secrets. Wholesaler who had sold cognac at a lower price stated that if he respected the minimum price he would lose his small market. It was decided to apply the rules to him and to threaten legal action if he repeated the infringement. In the case of a distiller who was selling cognac in bottle at FF 0 769 below the minimum price it was remarked :

"It would be a bad thing psychologically to take action against this grower when very many firms are continually selling below the quotation, but we have no proof."

The Director of the BNIC was instructed to see the person concerned and to tell him that the matter would not be pursued, but that his case would be reconsidered if he continued.

(45) When the BNIC observes from the tax unpaid documents supplied to it that spirits are being dispatched at below-minimum prices, it sends the firm concerned a standard letter indicating the consignments in question and informing it that the matter will be referred to the industry Committee. The firm is asked to submit its comments as rapidly as possible. Letters of this kind were sent for example to ... on 15 September 1980, to ... on 30 October 1980, to ... on 4 November 1980, and to ... on 1 September 1981. These cases were dropped without any penalties being imposed after the firms agreed to change their prices, or, in the ... case, showed that the sales contract preceded the conclusion of the industry agreement.

(46) Where a firm refuses to raise its prices to bring them into line with the minimum price, the BNIC withdraws the books of vouchers for the removal and sale of cognac which it had issued to it. It also asks the tax departments to refuse the firm any movement papers for cognac. Such measures were taken for example against ... ; the request was made to the director of the tax departments at La Rochelle in a letter from the Director of the BNIC dated 24 February 1981. The consequence of these measures is to prevent the undertaking from engaging in any transaction involving cognac.

(47) The BNIC did not contest the facts referred to in points 36 to 46 above in its reply of 8 April 1982 to the Statement of Objections ; nor did it do so at the hearing on 19 April 1982. Rather, it submitted that the BNIC was not an association of undertakings within the meaning of Article 85 of the EEC treaty and that the rules which were the subject of the Statement of Objections did not fall within the scope of Article 85, since they were acts of the French State.

II. LEGAL ASSESSMENT

A. Article 85 (1) of the EEC treaty

(48) The decision taken on 9 April 1976 by the Government Commissioner to the BNIC, laying down minimum prices for sales of cognac, both in cask and in bottle is a decision taken by a public authority ; it does not constitute an agreement between undertakings or a decision by an association of undertakings, within the meaning of Article 85 of the EEC treaty.

(49) As regards the fixing of minimum prices for 1979, 1980 and 1981, a distinction must be drawn between the industry agreements deciding these measures and the orders extending them. The industry agreements concluded in the BNIC framework do constitute decisions of an association of undertakings within the meaning of Article 85, as will be shown below.

(50) The fact that the members of the BNIC are nominated by the Minister for Agriculture cannot disguise the fact that they are nominated on the proposal of the relevant trade associations and in the capacity of delegates of the professional or trade organization association to which they belong ; they thus represent these organizations which are themselves composed of undertakings.

(51) The BNIC is thus an association of associations of undertakings, and constitutes an association of undertakings for the purpose of the application of Article 85.

(52) The way in which the BNIC is financed, the fact that it has legal personality, and the fact that quality control functions are conferred on it by law, do not prevent its being considered an association of undertakings. At all events the industry agreements at issue do not fall within the duties conferred on the BNIC by the legal provisions determining its competence.

Although the agreements state that it is "in order to maintain the traditional quality of cognac, and to assure the consumer that there will be no artificial reduction in prices to the detriment of the characteristics of the product" that a minimum distribution price has been instituted, the decisions fixing minimum prices were in reality taken on grounds of the sales policy of the producers, cooperatives, distillers and shippers of cognac represented through their professional and trade organizations by the BNIC. The objective of quality control cannot justify such measures, as will be seen below (points 69 to 71).

(53) The measures in question were not required by the public authorities. They were not taken under the regulatory powers conferred on the Government Commissioner, and the Government Commissioner played no part in the proceedings leading to their adoption. The industry agreements were adopted by the general meeting of the BNIC after they had been discussed and approved by both sections of the trade, the wine-growers and the shippers. The general meeting at the same time asked that the agreement be extended to the Act of 10 July 1975 (see above, point 19). The decision was thus a decision of the BNIC, represented by its general meeting.

(54) That decision constitutes an act separate from the subsequent extending order made by the public authorities, which is intended to make the provisions of the industry agreements binding member undertakings of the trade organizations represented in the BNIC obligatory for all those in the industry. Each year since 1978 the industry agreements have been concluded before the extending orders. Each year there has been a period of between three weeks and two-and-a-half months during which the agreements concluded within the BNIC were binding only on the firms which are members of the professional and trade organizations of the BNIC. The BNIC has explicitly confirmed this, stating that before its extension the agreement fixing prices "had contractual force only and had not received any approval of a public nature" (see above, Point 23).

(55) Furthermore, from 1957 to 1978 an industry price-fixing agreement, which thus had contractual force only, was concluded each year, and was applied and respected without any subsequent extending order (see above, Point 12).

(56) Lastly, the notion of an extending order implies that there are rules to extend which are binding on their signatories. The effect of the extending order is only to make these rules binding on parties other than the signatories. Article 2 of the Law of 10 July 1975 (see above, Point 19) explicitly states that an agreement must first of all be concluded, that there is no obligation to extend it, and that the extension may relate to part of its provisions only.

(57) As regards the establishment of a threshold selling price between 4 January and 31 March 1982, this too is a decision of the BNIC which was not required by the public authorities and was not extended by them, and which may thus be caught by Article 85 of the treaty.

(58) The fixing of a minimum selling price for cognac exerts a direct influence on the prices for cognac sold by the various producers. This measure applies to sales both in France and for export. It may appreciably affect trade between Member States in either case, as products sold in France by those subject to the agreement may subsequently be exported. These measures may divert the flow of trade from the natural course it would have followed if price formation had been free. The maintenance of high prices also tends artificially to divert demand towards other spirits, and particularly other brandies.

(59) Trade between Member States is thus appreciably affected, given the scale of sales of cognac in the various common market countries (see above, Point 1).

(60) Although presented as having the sole object of guaranteeing the quality of cognac, the measures at issue fixing minimum prices for cognac have as their object and effect the restriction of competition within the common market. The measures prevent free individual price formation by cognac producers, and thus tend to restrict competition between them, by preventing them from offering their products at prices below the minimum rates fixed.

(61) The Statements by the BNIC according to which the introduction of the minimum price was justified by the increase in stocks (see above, Point 9) show that the object pursued was to prevent or at least to restrict free competition : it was to avoid or to limit the fall in prices which would otherwise have resulted from an expansion in supply ; due to an increase in stocks in the face of stable or falling demand, that a binding minimum was introduced. This meant that selling prices for cognac could no longer be freely determined by producers on the basis of market conditions.

(62) These price-fixing measures had the effect of restricting competition appreciably. Despite the Statements made by the BNIC in its letter of 20 November 1981 (see above, Points 32 and 33), prices equal to or only slightly above the minimum prices are regularly applied (see above, Points 35 to 38) ; furthermore, the BNIC many times had to take steps to force shippers who wanted to charge less to raise their prices. In one case, indeed, the BNIC withdrew from a shipper the vouchers for the removal and sale of cognac which had been issued to him, thus preventing him from continuing his business (see above, Points 39 to 46). Thus the agreements were indeed enforced by the BNIC.

(63) By artificially maintaining high prices the BNIC limited the growth in demand which might have taken place. This helped to bring about a large increase in cognac stocks ; stocks became more stable only after public measures had been taken to limit production and sale (see above, Point 8).

(64) The restrictions were particularly noticeable in the case of cognac from the Fin Bois, Bons Bois and Bois Ordinaires. Study of statistics for cognac stocks shows that it was in these growths that stocks increased most (see above, Point 8).

(65) The fixing of a threshold selling price in the information bulletin of 4 January 1982 had as its object the restriction of competition by making it very difficult to sell cognac at prices below the threshold, by requiring a quality control inspection to be carried out on the premises both of the seller and of his purchaser. The systematic and automatic character of these inspections, and thus the inconvenience they implied for sellers and buyers, were liable to discourage customers wishing to buy cognac from shippers applying prices below these threshold prices. Although presented as having the object of guaranteeing quality, these measures in reality had the object of dissuading cognac producers from offering their products at prices below the threshold price. This restriction was an appreciable one, as it forced shippers to sell their cognac at a price substantially above their cost price (see Point 37 and Annex IV). The measure was liable appreciably to affect trade between Member States, for the reasons set out in Points 58 and 59 above.

B. Article 85 (3) of the EEC treaty

(66) A decision granting an exemption under Article 85 (3) of the EEC treaty may be taken only where the agreement has been notified to the Commission in accordance with Article 4 (1) of Regulation No 17, unless that obligation is lifted by Article 4 (2) of the Regulation. The industry agreements which are the subject of this decision are not among the restrictive practices referred to in Article 4 (2), because they relate to exports between Member States and more than two undertakings are party to them ; they were not notified to the Commission, despite the BNIC's statement in its letter of 20 November 1979 that notification was envisaged. In any event, even had they been notified, the agreements could not have been declared exempt pursuant to Article 85 (3), for the reasons set out below.

(67) In its letter of 20 November 1979 the BNIC stated that the agreement had as its object "a qualitative improvement in production, distribution without abnormal distortion, and the promotion of technical and economic progress, from which consumers benefit directly, notably because of longer ageing in all grades of quality".

(68) It should be noted, first of all, that this argument rests essentially on the statement that the prices charged are infinitely or substantially higher than the minimum prices set, although the facts show that prices close to or equal to the minimum prices are in fact charged.

(69) The imposition of minimum prices can in no way be justified by reference to an alleged object of guaranteeing quality. Such a measure is both Pointless and ineffective for that purpose. It is Pointless because the legal requirements for the production, stocking, ageing and distributions of cognac allow sufficient policing of fraud. It is ineffective because it introduces no extra check on products sold at prices above the minimum imposed ; if it were accepted that the legal requirements protecting the use of the registered designation of origin "cognac" were ineffective, the imposition of a minimum price would not prevent products which failed to meet the quality criteria laid down by those legal requirements from being sold with impunity at prices above the minimum imposed.

(70) Furthermore, the measures at issue are in any event out of proportion to the object referred to, as they completely prevent the sale of spirits qualifying for the registered designation of origin "cognac" at prices below the minimum set by the industry agreement. There is no provision for proving that a product sold at a price below the minimum imposed nevertheless meets the quality criteria laid down by the legal requirements (1).

(71) The consumer does not receive the benefit of an improvement in quality, as has been shown above. Neither does he benefit from the other hypothetical advantages alleged by the BNIC (see above, Point 67), as the measures at issue have the consequence that prices are at a higher level than that which would result from the free interplay of supply and demand.

C. Article 15 (2) of Regulation No 17

(72) It follows from what has been said that the BNIC has infringed Article 85 of the EEC treaty. The BNIC infringed that provision deliberately or at least negligently. It could not have been unaware of the decisions of the Commission and the judgments of the Court of Justice in this field. In particular, it is well known that agreements or decisions by which undertakings or associations of undertakings agree prices or terms to be applied in the contracts they conclude with third parties are regularly investigated and condemned by the Community authorities where they are liable to affect trade between Member States. The BNIC must have known that it was an association of undertakings within the meaning of Article 85 (1) since the Commission had already reached the same conclusion in decision 76/684/EEC (2) concerning the Bureau National Interprofessionnel de l'Armagnac (BNIA).

(73) It is noteworthy that the problem of the compatibility of the price-fixing measures with Community law was raised at meetings of the standing Committee (see above, Point 27). On 4 September 1979, the BNIC's attention was drawn by the Commission to the fact that the industry agreement seemed to be caught by Article 85 (1). In reply, the Director of the BNIC informed the Commission that the members of the BNIC intended to notify the agreement with a view to seeking exemption under Article 85 (3).

(74) A fine should therefore be imposed on the BNIC in accordance with Article 15 (2) of Regulation No 17. In determining the amount of the fine, the Commission has had regard to the following factors.

(75) The fixing of minimum prices by agreement or decision of an association of undertakings is a serious infringement of the Community's competition rules. The fixing of selling prices is mentioned expressly in Article 85 (1) (a) of the treaty as a measure which prevents, restricts or (1) The decision of the Government Commissioner of 9 April 1976 (see above, Points 16 and 17) provided that in that case sale would be possible after a sample had been tasted and a favourable report delivered by the Quality Committee, distorts competition. The Commission has already held price agreements to be contrary to Article 85 (1) by decision and the Court of Justice has confirmed this view.

(76) Minimum selling prices for white wines for distillation and cognac brandies laid down in the industry agreements concluded on 12 December 1978, 18 October 1979 and 7 November 1980 were applied from 1 February 1979 to 31 December 1981. The BNIC Committed a further infringement from 4 January to 31 March 1982 by introducing a threshold selling price. The BNIC did not communicate this measure to the Commission and it was withdrawn only after the Commission had again intervened. The infringement therefore lasted more than three years.

(77) The anti-competitive measures referred to above were adopted in a specific legal context in which, in particular, the industry agreements were annually extended by a later Ministerial order. Therefore some of the restrictive effects flow from the compulsory application of the industry agreements by undertakings which are not members of professional organizations represented in the BNIC,

HAS ADOPTED THIS DECISION :

Article 1

From 1 February 1979 to 31 December 1981 the provisions fixing minimum selling prices for cognac set out in the industry agreement on the prices of Cognac brandies and white wines for distillation concluded in the framework of the BNIC for the years 1978/79, 1979/80 and 1980/81, constituted infringements of Article 85 (1) of the treaty establishing the European Economic Community.

This applies in particular to Article 7 of the industry agreement concluded on 12 December 1978, Article 7 of the industry agreement concluded on 18 October 1979 and Article 8 of the industry agreement concluded on 7 November 1980.

Article 2

The fixing of a threshold price for the sale of cognac under the decision of the BNIC published under the title "Control of quality of cognac - threshold selling price" in BNIC information bulletin No 929, dated 4 January 1982, and cancelled on 31 March 1982, constituted an infringement of Article 85 of the treaty establishing the European Economic Community.

Article 3

1. A fine of 160 000 (one hundred and sixty thousand) ECU, that is FF 1 049 144, is imposed on the Bureau National Interprofessionnel du Cognac.

2. This fine shall be paid, within three months of the date of notification of this decision, to the Commission of the European Communities, Account No 5.770.006.5, at the Société Générale, Agence Internationale, 23, rue de la Paix, F-75002 Paris.

Article 4

This decision is enforceable in accordance with Article 192 of the treaty establishing the European Economic Community.

Article 5

This decision is addressed to the Bureau National Interprofessionnel du Cognac, 3, rue Georges Briand, F-16100 Cognac.

(1) OJ No 13, 21.2.1962, p. 204/62

(2) OJ No 127, 20.8.1963, p. 2268/63

(3) Journal Officiel de la République Française (6.1.1941, p. 105)

(4) Journal Officiel de la République Française (17.7.1946, p. 6426)

(5) Journal Officiel de la République Française (18.10.1981, p. 9263)

(6) Journal Officiel de la République Française (11.7.1975)

(7) Journal Officiel de la République Française (3.12.1980)

(8) Journal Officiel de la République Française (2.12.1981)

(9) OJ No L 231, 21.8.1976, p. 24