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French flooring cartel: no further reward for compliance programs

  • France
  • Diversified industrials

01-02-2018

On 18 October 2017, the French Competition Authority (the “FCA”) imposed a €302 million fine on the three leading manufacturers of PVC and linoleum floor covering, as well as the industry’s trade association, the SFEC (Syndicat Français des Enducteurs Calandreurs et Fabricants de Revêtements de Sols et Murs) for operating a cartel in France that lasted over 20 years (the “Decision”)[1]

Case summary

In January 2012, the FCA opened an investigation into the floor covering industry on the basis of information submitted by the Directorate General for Competition Policy, Consumer Affairs and Fraud Control (DGCCRF).  After dawn raids were conducted in their premises in March 2013, Forbo and Tarkett applied for leniency to the FCA.  Both companies provided the FCA with information regarding exchanges of confidential data and price fixing agreements. Gerflor and the SFEC were also involved in the practices concerned. 

On this basis, the FCA found that from late 2001 until 2011 Gerflor, Forbo and Tarkett met secretly at hotels to discuss notably, minimum prices, price increases and sales strategy.  The manufacturers also agreed on several issues such as strategies to adopt with regard to particular customers or competitors, organisation of sales activities or sampling of new products.  Moreover, the CEO and Sales Directors used nine dedicated telephone lines to discuss future meetings and follow on price increases.

The companies then exchanged detailed information regarding their trade volumes, revenues per category and sales forecasts in the context of official meetings of the SFEC from 1990 to 2013.  The SFEC played an active role in collecting information from its members and passing it on to other companies involved.

Gerflor, Forbo, Tarkett and the SFEC had agreed not to advertise the individual environmental performance of their respective products, and each company committed to use only the joint data sheets established by the SFEC.

Gerflor, Forbo, Tarkett and the SFEC reached a settlement with the FCA which imposed a €165 million fine on Tarkett, €75 million on Forbo, €62 million on Gerflor and €300,000 on the SFEC.  The total fines imposed (€302 million) is currently the highest penalty imposed by the FCA for 2017.

The FCA took into account the leniency applications brought by Forbo and Tarkett to get a partial fine immunity in consideration of the cartel evidence brought by these companies to the FCA’s attention.  Forbo, Gerflor and Tarkett could also get a further fine reduction for having proposed not to challenge the remaining FCA’s objections (settlement procedure). 

No fine reduction for implementing compliance programs 

Under the settlement procedure[2], the infringing company waives its rights to challenge (i) the regularity of the procedure and (ii) the reality of the objections notified by the FCA.

Until the Decision, the FCA used to grant additional and significant fine reductions to companies which committed to put in place or improve their compliance programs as part of the settlement procedure (formerly known as “non-contestation des griefs”).  On this basis, companies or organisations could expect a fine reduction by up to 10%, within a total fine reduction of up to 25% as part of the settlement procedure.[3]

However, both the General Case Manager (Rapporteur général) and the FCA College refused to grant a specific additional fine reduction to the companies concerned by the cartel in connection with their compliance programs.  The Decision thereby introduces a significant shift in the FCA’s approach in rewarding compliance programs. 

Impact on antitrust enforcement and compliance

As per the Decision, the FCA now considers that compliance programs are part of the daily business life, especially for large companies or for serious breaches of competition law such as cartels and exchanges of information on future prices and commercial policy. 

No later than 19 October 2017, the FCA confirmed its position in the publication of a new general Notice relating to the settlement procedure and compliance programs[4].  Accordingly, the FCA amended the Notice on the method used for the assessment of antitrust fines[5].  The FCA also withdrew from its website the Framework-Document of 10 February 2012 on compliance programs.

Also, the FCA would no longer consider that a compliance program may be seen as a mitigating circumstance for its general fine assessment in the case such program has allowed to stop certain anticompetitive practices before any investigation by the FCA. 

The Decision and the new Notice bring the analysis of the FCA closer to the policy of the European Commission (the “Commission”) with respect to compliance.  Indeed the Commission does not take into account the existence of compliance programs when setting the fines imposed for infringements to EU competition law.[6]

The Commission considers that there is no reason to reward a company for having a compliance program which failed, as it did not prevent the company from adopting an anti-competitive conduct.  On the contrary, in the Commission’s view, the purpose of any compliance program should be to avoid an infringement in the first place.[7]

However, the FCA’s position appears to be less clear-cut than that of the Commission.  The new Notice does not completely close the door to a potential reduction of fines in consideration of the setting up of a compliance program.  Indeed the FCA’s has referred to large companies and to particularly serious breaches of competition law to exclude any fine reduction based on a compliance program to be initiated or amended as part of the settlement procedure.  It may therefore not be ruled out that small and medium size companies (SME), can still obtain a reduction in fines, in exchange for commitments regarding compliance programs, where they have not engaged in particularly serious breaches of competition law. 

Conclusion

The new FCA’s approach on compliance provides companies with an opportunity to review how robust their compliance program are, while the recent anti-bribery “Sapin II” Law encourages them to monitor and update their compliance program relating to anti-bribery law[8].  This is essential given that practices such as bid rigging may constitute a competition law breach and bribery in certain circumstances.

As the Commission has outlined, one important reason why a company should comply with competition rules, other than the importance of doing business ethically, is the potential high cost of non-compliance.



[1] French Competition Authority, Decision 17-D-20 of 18 October 2017 relating to practices implemented in the floor covering sector.

[2] All parties cooperated with the FCA under the new settlement procedure introduced under the Macron Act No. 2015-990 of 6 August 2015 and codified under Article L. 464-2, III of the French Commercial Code (the “FCC”) aiming at replacing the former “non-contestation des griefs” procedure.

[3] Framework-Document of 10 February 2012 on compliance programs, paragraph 31; Notice of 10 February 2012 on the non-challenge procedure, paragraphs 34 and 35.

[4] Notice of 19 October 2017 relating to the transaction procedure and compliance programs.

[5] Notice of 16 May 2011 on the Method Relating to the Setting of Financial Penalties (as amended on 20 October 2017).

[6] See, as an example, European Commission, Compliance with competition rules: what's in it for business? http://ec.europa.eu/competition/antitrust/compliance/index_en.html (as of 06 November 2017).

[7] Joaquín Almunia, Compliance and Competition policy, SPEECH/10/586, Brussels, 25 October 2010.

[8] Please click here to access our client e-briefing on those aspects. You may also find additional information about the impact of Sapin II Law on commercial relationships by clicking here.

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