Competition Newsletter – July 2022 | Dentons

French Competition Authority applies failing firm defense in its approval of Conforama’s takeover by its competitor

By a press release dated April 28, 2022, French Competition Authority indicated that, after an in-depth inquiry, it had authorized unconditionally the acquisition of Conforama by Mobilux (parent company of the But group) that raised competition issues.

This decision is noteworthy on several counts. Because of significant financial difficulties, in July 2020, the Authority granted Mobilux a derogation from the suspensive effect of a merger notification, allowing it to complete the acquisition before the investigation of the transaction was completed.

Once it had completed its investigation, the Authority noted that the transaction could involve a number of risks to competition: (i) economic dependency of bedding suppliers due to the creation or reinforcement of buying power post-transaction, (ii) deterioration in the contractual terms of the franchisees present in overseas departments and regions (DROM) due to the disappearance of one of the two main groups offering franchises in the furniture products sector in DROM and (iii) activity overlaps in various downstream furniture products retail distribution markets.

Despite the identified risks to competition, the Authority authorized the transaction without commitments. To do so, it applied the “failing firm” defense for the first time since 2009, when it became competent for the control of mergers.

The failing firm defense exception is based on a strict test of three cumulative criteria:

  1. unless the target is merged, its financial difficulties would result in its disappearance in the very short term;
  2. no other takeover offer exists that would be less detrimental to competition;
  3. the disappearance of the failing firm would not be less detrimental for consumers than the intended takeover.

Given the difficulties faced by the target, and the absence of an alternative offer less detrimental than Mobilux’s offer, the Authority considered that the first two criteria had been met. Concerning the third criterion, the Authority indicated in its press release that it had verified that the target would have inevitably disappeared in the absence of the takeover by the notifying party. Moreover, it specified that it had carried out a wide consultation of market players. This consultation confirmed the absence of expressions of interest from competitors operating in the household, upholstered furniture, and bedding markets.

Finally, the Authority noted that it had analyzed the identified risks to competition, by comparing for each, the effects of Mobilux’s takeover with the effects stemming from Conforama’s disappearance. After this analysis, the Authority concluded that Conforama’s disappearance would not be less detrimental for consumers than the contemplated acquisition by Mobilux and thus authorized the merger. 

Paris Commercial Court fines Google €2 million for imposing seven abusive clauses on application developers offering products on Google Play Store

By a decision dated March 28, 2022, the Paris Commercial Court sanctioned Google for including in the distribution agreement imposed on all application developers wishing to offer their products on the French Google Play Store (Google Play) a number of clauses that it found caused a significant imbalance.

The Ministry of Economy decided to bring proceedings against Google following an investigation conducted by the DGCCRF between 2015 and 2016 on the commercial relations between Google and application developers, alleging a significant imbalance, on the grounds of former Article L442-6 I 2° of the French Commercial Code.

In its decision, the Paris Commercial Court scrutinized seven clauses and, in short, found them to be illegal. It traditionally focused on characterizing the subjugation (or attempted subjugation) of the commercial partner, then on the imbalances, in accordance with the provisions of former Article L442-6 I 2° of the French Commercial Code. 

There is no doubt as to the condition of subjugation here, notably given Google’s economic power. Moreover, the developers could not, due to Google’s strong market position, deprive themselves from offering their applications on Google Play without risking the loss of a large customer base.

In essence, the clauses reviewed and found imbalanced, being very often asymmetrical, are the following:

  • A clause relating to the pricing conditions, allowing Google to receive, on each sale, a 30 percent commission corresponding to “transaction fees.” The Court found this clause to be unjustified in practice as well as the fact that the commission amount could not be duly negotiated by developers;
  • A clause giving Google the right to modify the agreement unilaterally. This compelled developers to accept modifications made to the agreement, even if unfavorable, as they only had a short 30-day period to comment. In these circumstances, if they refused, they were forced to stop using Google Play;
  • A clause giving Google the right to suspend the agreement unilaterally, at its sole discretion and without cause;
  • An asymmetrical termination clause – Google being entitled to terminate the agreement at any time without notice whereas developers were subject to a 30-day notice period;
  • A clause allowing Google to disclose for free and freely to third parties information relating to developers collected to market the applications, with developers having only a limited ability to object;
  • A unilateral clause requiring developers to grant Google free of charge a license to display at its own discretion the developers’ distinctive signs during the agreement’s effectiveness; and
  • Disclaimers, excluding Google’s entire liability, including in case of non-compliance by the latter of its essential obligations. Moreover, these clauses refer Google Play Store users to the developers in case of a defect in the quality or a performance defect of the applications. 

The Paris Commercial Court specified that as there had been no readjustment between the various contractual clauses, Google was ordered to cease the practices immediately, modify the clauses at issue within three months, and pay a civil fine of €2 million. 

French Competition Authority publishes revised framework document on competition compliance programs

On May 24, 2022, the French Competition Authority published a revised version of its framework document on competition compliance programs published in 2012.

First, this document reminds of the importance for companies to implement compliance programs and stresses that every company is required to adopt one. As it is a requirement, the Authority also specified that it is in the interest of companies to do so since it allows them to give guarantees of liability and safety to their shareholders and to the public. In other words, the compliance programs would offer several advantages, enabling notably (i) free and undistorted competition, (ii) the prevention of financial and reputation risks and (iii) a better detection of offenses for quicker subsequent compliance.

This framework document, as stated by the Authority, also sets out general guidelines for the development of compliance programs drawn up “by and for companies”. In addition, the Authority has made available to companies a series of resources useful for the development and implementation of such programs.

This framework document is freely accessible on the Authority’s website via this link.