The French Competition Authority fines floor coverings cartel €302 million and changes its competition compliance policy

In the latest in a series of cartel enforcement decisions in France, leading PVC and linoleum floor covering manufacturers and their trade association have been sanctioned for having implemented anti-competitive practices. The FCA also took the opportunity to make changes to its competition compliance policy in relation to fine mitigation, incorporating the reasoning it gave in this decision. In contrast to other EU jurisdictions, such as Italy, this results in compliance programs that can no longer be used to reduce an antitrust fine in France.

Background

The French Competition Authority (FCA) has sanctioned a cartel of floor coverings. Industry leaders in the PVC and linoleum floor coverings industry in France, as well as the industry’s trade association (SFEC) , were fined €302 million for implementing practices infringing antitrust law.

What were the FCA’s findings?

According to the FCA, the manufacturers implemented three practices.

First, from 2001 to 2011, the manufacturers discussed anti-competitive agreements in secret meetings which covered numerous aspects of sales policy, with the aim of drastically reducing or eliminating competition in the production and marketing of PVC and linoleum floor coverings. They also discussed numerous issues regarding their sales strategy. These meetings were initially held on the sidelines of official meetings of the SFEC, hosted by each participant or in cafés, hotels or restaurants.  A sophisticated phoning system was also implemented: the firms’ CEOs and Sales Directors allegedly used nine phone lines to hold confidential discussions.

Second, from the 1990’s to 2013, the manufacturers had frequent discussions (at quarterly and annual meetings) to exchange, under the aegis of the SFEC, specific confidential information relating to trading volumes, revenues per product categories and sales forecasts, which enabled sales policies to be adjusted accordingly. In order that the infringing nature of these discussions would not become obvious, the format of the exchanges gradually changed, moving from discussions over email and hard copies, to exchanging ideas through simple presentations at meetings.

Third, from 2002 to 2011, the companies concluded a non-compete agreement, entered into with the consent of the SFEC, concerning communications relating to the environmental performance of their products. This agreement prohibited the companies from advertising the individual environmental performance of their products, so that competition based on this performance (and potential controversy between the companies around environmental credentials) was avoided.

What lessons can we draw from this decision?

When applying the fine, the FCA took into account the severity and the institutionalisation of the practices, and their duration (up to 23 years for one practice and 9 and 10 respectively for the two others); the leniency applications presented by two companies; and finally the use of the settlement procedure for all participants in the cartel.

Indeed, it is important to mention that the facts were not disputed by any of the parties. Moreover, after dawn raids were conducted, two of the parties requested leniency that was granted under conditions which saw them contribute to the investigations, and allow them to reduce, to some extent, the amounts of their fines.

Furthermore, a settlement procedure was requested by all parties, which means that they agreed they would not challenge the FCA’s statement of objection in exchange for the investigating body of the FCA setting a maximum and minimum amount of the penalty incurred. Those amounts are confidential and the decision therefore does not allow the assessment of whether the FCA’s penalty was in the upper or lower range of the settlement proposal.

More importantly, during a settlement procedure, companies may also commit to change their behaviour, promising to comply with competition law in the future. This can be taken into account in order to reduce the amounts of sanction.

However, in the present case, the FCA considered that the commitments (i.e. the compliance program engagements) are “as a matter of principle” not designed to justify a reduction in the penalties for competition law infringements, particularly in cases involving very serious offences such as agreements and exchanges of information on future prices and commercial policies.

What’s next?

The day after this decision, the FCA officially announced a change in its competition compliance policy by modifying its communication on settlements and compliance programs. For the FCA, competition compliance programs should be regarded as a mandatory requirement rather than a tool to be used to justify a reduction in the penalty, by undertakings when negotiating a settlement with the FCA.

This contrasts with the approach in Italy, where creating or enhancing a compliance policy can be used to reduce the level of a potential fine (read more here).

In the context of a newly adopted legal framework favouring private enforcement cartel damage claims (read more here), the message to the market seems quite clear: make sure your undertaking complies.