French Class Action Law Has Less Impact Than Expected

Since the entry into force on 1 October 2014 of the provisions of the “Hamon” law of 17 March 2014, which introduced class actions into French law in relation to consumer and competition law matters, only six class actions have been brought.

The first action was filed on the date the new law came into effect by the consumer association UFC – Que Choisir against Foncia, a real estate group, to obtain compensation for the service charges levied by Foncia. The most recent class actions seem to have been brought in May 2015 by the consumer association Familles Rurales: one against SFR, a network operator that allegedly misled consumers as to the geographic coverage of its 4G network, and one very limited action against a campground operator who forced campervan owners to buy new ones after 10 years if they wanted to keep their plots.

Class actions are clearly not as popular as had been hoped, at least not yet. Indeed, of the (only) six procedures brought before the French Courts, four were brought around one month after the law came into effect, and all relate to consumer matters. One action led to a €2 million settlement intended to compensate the damages suffered by 100,000 consumers who had been required to pay excessive charges for elevator tele-surveillance.

The limited attractiveness of class actions is probably due to the strict conditions for bringing an action under the Hamon law.

Conditions for Bringing a Class Action

The law allows class actions only in relation to consumer and competition law matters but, as none of the six procedures brought so far relate to competition law matters, it seems that the specific mechanism put in place for class actions relating to competition law has drastically limited their appeal.

Several conditions must be satisfied in order to bring any class action:

  • At least two consumers must be placed in a similar or identical situation.
  • The consumers must suffer individual financial losses resulting from a tangible damage.
  • The losses must arise from the same breach of legal or contractual obligation(s) by one or several professional(s), in connection with the sale of goods or provision of services, or as a result of the same anti-competitive practices.

In addition, only approved national associations can bring class actions. To be approved, an association must comply with the conditions set out by Article R. 411-1 of the French Consumer Code. Only 15 associations are currently authorised to bring class actions.

The Three Phases of a Class Action

  1. A judgment determines the validity of the claim and the liability of the defendants. If liability is determined, the judgement will also confirm the manner in which compensation should be determined, and the next steps in the procedure, including the deadline for submitting claims.
  2. Once the judgement determining liability has been published, the defendants compensate the losses suffered individually by each consumer who has opted to participate in the class action.
  3. A second judgment closes the proceedings at a date specified in the judgment determining liability. The second judgment determines whether or not all compensation claims have been paid by the defendant. If they have not, the court decides those claims based on the criteria for determining compensation outlined in the first judgment. Once all compensation claims have been paid, or if no compensation claim is filed within the deadline set forth in the first judgment, the court takes note of the termination of the action.

Simplified Class Actions

The Hamon law also provides for the possibility of bringing a simplified class action. The identity and number of the consumers harmed must be known and the damage must be the same for each of them, or is the same when taking into account the service provided or by reference to a time period.

The procedure for a simplified class action is substantially similar to that of an ordinary class action, except the victims are informed individually by the defendant of the existence of the action. The consumer must then inform the claimant association if he/she accepts the compensation fixed in the judgment ruling on the liability of the defendant. This is because the association must compensate the consumer if the defendant does not fulfil its payment obligation.

The Hamon law also allows for mediation between authorised consumers’ associations and defendants, before and after an action has been brought, until the end of the proceedings.

What’s Next?

Because of the dearth of class actions launched since the law came into effect, it is not yet possible to assess any potential failings and practical flaws, and, ultimately, its impact on companies conducting business in France. None of the settlements reached so far even allow a further understanding of the criteria that will be used by the courts to evaluate the existence and amount of damages suffered by consumers.

The expansion of class actions may prompt a larger volume of claims. For example, the Health Law, adopted on 17 December 2015, provides for class actions through authorised associations, brought by patients who suffered medical damages because of their treatment. This reform may not, however, simplify the procedure for patients, particularly in complex cases, relating to the production of evidence of the damage and the determination of compensation.

A draft law extending the scope of class actions to cover the enforcement of anti-discrimination laws is still expected and under discussion. A potential, highly disputed, extension of the Hamon law to cover environmental damages, for example, has the potential to increase the volume of class actions.

In any event, companies should make sure they pay attention to their customers, regardless of   their significance in terms of goods or services purchased, in order to avoid facing a class action.

Drug Testing Company Settles FTC Case Alleging Invitation to Collude

The FTC has entered into a final settlement with Drug Testing Compliance Group LLC (DTC Group) by order issued January 21, 2016, resolving an administrative case that alleged DTC Group had invited a competitor to collude with respect to customer allocation in violation of §5 of the Federal Trade Commission Act.

Specifically, the FTC complaint alleged that the president of DTC Group, an Idaho-based compliance company servicing the trucking industry, approached an unnamed direct competitor to complain about the competitor’s acquisition of a DTC Group customer.  This allegedly led to a meeting, wherein the DTC Group president proposed to the principals of the competitor that the two companies agree not to solicit or compete for each other’s customers, and that they abide by a “first call wins” approach to customers.  Allegedly the DTC Group president explained that this arrangement would allow each company to sell its services without fearing that its rival would later undercut with a lower price offer.  This alleged conduct ran afoul of the §5 prohibition on “unfair methods of competition in or affecting commerce” even without any proof or allegation that the competitor accepted the invitation.  Indeed, there exists legal precedent under which the FTC can pursue an action for such conduct even without a demonstration of market power on the part of the respondent.

The settlement agreement prohibits DTC Group from communicating with competitors about pricing or rates, though public posting of rates is permitted.  DTC Group is further prohibited from soliciting, entering into, or maintaining an agreement with any competitor to divide markets, allocate customers or fix prices.  DTC Group is additionally prohibited from urging any competitor to raise, fix or maintain prices, or to limit or reduce service.  The settlement requires DTC Group to report to FTC as to its compliance for the next 20 years.  Based on publicly available information, there has been no apparent action taken against the unnamed competitor with respect to these allegations.

Of note for corporate counsel, there was no allegation in the case that DTC Group and its competitor had actually entered an agreement – rather, the underlying allegation was simply that DTC Group had invited a competitor to enter a customer allocation agreement.  While it is unclear from the publicly-released materials how the FTC was alerted to this alleged invitation, this is an important reminder to companies that invitations to competitors to collude can result in legal action even if no further communications occur on the subject.  Such overtures further provide an approached competitor with the opportunity to gain a competitive advantage by reporting the approaching company to the FTC.

The EU Court of Justice Brings to an End Odile Jacob’s Fight Against Lagardère’s Purchase of Vivendi Universal Publishing

By its judgment of 28 January 2016 (C-514/14 P, Editions Odile Jacob SAS v Commission), the European Court of Justice (Court) upheld the General Court of the European Union’s (GCEU) ruling with respect to each of the grounds raised by Editions Odile Jacob (Odile Jacob) thereby dismissing Odile Jacob’s appeal.

The case concerned the sale, in 2002, of Vivendi Universal’s subsidiary Vivendi Universal Publishing (VUP) to the Lagardère Group (Lagardère).

The European Commission (Commission) authorized the concentration in 2004, subject to undertakings by Lagardère. Specifically, Lagardère undertook to divest a significant amount of VUP assets. Lagardère thus approached several undertakings potentially interested in purchasing those assets. Odile Jacob was one of the undertakings that expressed an interest in the acquisition of the divested assets. However, Lagardère accepted the purchase offer made by Wendel Investissement (Wendel) whom the Commission approved as a suitable purchaser. Odile Jacob challenged the Commission’s decision authorizing the concentration and the decision approving Wendel as a suitable purchaser. In 2010, the GCEU confirmed the decision authorizing the concentration but annulled the decision approving Wendel as a suitable purchaser on the ground that it had been adopted on the basis of a report drawn up by a trustee that was not deemed independent. This judgment was upheld by the Court in 2012.

Following the GCEU’s judgment, Lagardère made a further request to the Commission for the approval of Wendel by proposing a new trustee who was subsequently approved by the Commission, in 2011, with effect from 2004. Odile Jacob brought another action for annulment of this approval decision which was dismissed by the GCEU by judgment of 5 September 2014 (T-471/11).

In its judgment of 28 January 2016, the Court upheld the September 2014 judgment of the GCEU.

First, the Court considered that the GCEU correctly ruled that, in order to give full effect to the judgments of 2010, the Commission was only required to approve a new trustee responsible for drawing up a new report evaluating Wendel’s candidature and to assess this candidature on the basis of this new report. In this respect, the Court found that the Commission neither had to revoke the decision authorizing the concentration nor to repeat the whole procedure from the date on which Lagardère appointed the first trustee.

Second, the Court ruled that the GCEU had not erred in law by declaring that the 2011 Commission decision, which approved again Wendel as an acquirer of VUP’s assets, could be retroactive. Indeed, the Court found that the Commission could adopt retroactive decisions where this is required by the intended aim and where the principle of protection of the legitimate expectations of the parties is properly observed. Here, the Court confirmed that these conditions had been met in the case: the new retroactive approval decision was intended inter alia to fill the legal vacuum created by the annulment of the first approval decision. In that regard, the Court found that Odile Jacob failed to demonstrate that there were no grounds that could justify such retroactive effect.

Finally, the Court rejected Odile Jacob’s argument that the Commission failed to observe the condition that Wendel had to be independent of Lagardère. Indeed, the Court agreed with the GCEU that the presence of the same person in either the managerial or supervisory boards of both companies was not such as to establish a relationship of dependency between Wendel and Lagardère. In addition, the Court found that the Commission had been able to supervise the asset sale procedure on the basis of the regular progress reports that the trustee was required to submit.

General Court of the EU Upholds Cartel Fines of €131 Million Imposed on Toshiba and Mitsubishi Electric, Dismisses Arguments Based on Principle of Equal Treatment

By two judgments of January 19, 2015 (Case T-404/12 Toshiba v. Commission and Case T-409/12 Mitsubishi Electric v. Commission), the General Court of the European Union (GCEU) upheld the fines of €131 million imposed by the European Commission (EC) on Toshiba and Mitsubishi for their participation in a cartel on the market for gas insulated switchgear (GIS), dismissing a line of reasoning essentially based on the principle of equal treatment.

The cartel, involving 20 European and Japanese undertakings, consisted in an agreement between competitors with the objective of coordinating the commercial activity worldwide of the members. The cartel members developed a quota system aimed at determining the market shares to allocate between them. In parallel, the cartelists reached an unwritten understanding, according to which GIS projects in the European market and Japanese market were reserved to European members and Japanese members of the cartel, respectively.

In its 2007 decision, the EC found a single and continuous infringement of competition law on the GIS product market between 1988 and 2004 and imposed fines on Toshiba and Mitsubishi, inter alios, of €86.25 million and €113.92 million, respectively. It also found the two Japanese undertakings jointly and severally liable for up to €4.65 million. Both companies challenged the EC decision, which led to two judgments of the GCEU (Case T-113/07 Toshiba v. Commission and Case T-133/07 Mitsubishi Electric v. Commission), subsequently upheld by the Court of Justice of the European Union (CJEU) (Case C-498/11 P Toshiba v. Commission and Case C-489/11 P Mitsubishi Electric v. Commission). The GCEU annulled the fines imposed on the two Japanese undertakings, finding that the Commission had infringed the principle of equal treatment in calculating their fines. The reference year used to calculate the fines for the applicants was indeed different from that chosen for the European participants in the infringement.

Having been asked to reexamine its decision, the EC recalculated the fines imposed on Toshiba and Mitsubishi and fixed them at €56.79 million and €74.82 million, respectively, without changing the amount of the fine for which they were held jointly and severally liable. The two Japanese undertakings then lodged a new appeal before the GCEU seeking the annulment of the revised fines. In support of their action, the applicants alleged, inter alia, an infringement of the principle of equal treatment as regards the determination of their level of culpability as compared to the European participants in the infringement and the starting amount of the fine.

First, Toshiba and Mitsubishi argued that they were less culpable than their European counterparts because their participation had been limited to agreeing not to enter the European Economic Area (EEA) market, whereas the European undertakings had distributed the GIS projects on that same market through active collusion. In other words, they contended that their participation only consisted in a failure to act and that, consequently, they could not be held as liable as the European undertakings for the implementation of the cartel.

The GCEU reiterated its settled case-law, according to which the fact that an undertaking did not take part in all aspects of an anticompetitive scheme or that it played a minor role in the aspects in which it did participate must be taken into consideration when the gravity of the infringement is assessed and when the fine is determined. Nevertheless, the GCEU relied on the fact that the decision of the Japanese undertakings not to enter the European market, without which the allocation of market shares in the EEA would not have been possible, was a prerequisite for the implementation of the infringement as a whole. In that context, the applicants could not have ignored the unlawful nature of their conduct within the bigger picture of the framework in which such conduct took place. The GCEU concluded that the two different types of infringement – concrete action vs. agreement not to enter a market – are comparable, so it is therefore consistent for the applicants to receive the same treatment as the European undertakings.

Second, the applicants claimed an infringement of the principle of equal treatment as regards the starting amount of the fines. The fines of their European counterparts had been calculated on the basis of their respective GIS sales in 2003. Following the annulment of the first fines imposed on Toshiba and Mitsubishi, the Commission was under the obligation to determine the applicants’ new fines on the basis of sales achieved in 2003 (as held by the GCEU and confirmed by the CJEU). However, the applicants had not themselves achieved any GIS sales that year since in 2002 they had transferred their operations in that sector to a joint venture (JV) jointly owned by them. In consequence, the GCEU ruled that they were not placed in a comparable situation as the European GIS producers and the Commission was entitled to treat them differently.

In this context, the Commission chose (i) to determine a starting amount of the fine for the JV (using its GIS sales in 2003) and then (ii) to divide it between its shareholders – Toshiba and Mitsubishi – on the basis of their respective GIS sales in 2001; i.e., the last year where they had each achieved sales on that market. The applicants argued against this method by contending that the starting amount of their fines should have been determined individually after having divided the JV’s worldwide GIS sales between them in consideration of their respective shares in the JV’s turnover in 2013.

The GCEU ruled that the Commission had a certain margin of discretion when calculating the applicants’ fines and approved of the method applied in the case at hand. Therefore, the Commission did not breach the principle of equal treatment. In this case, the GCEU adopted a pragmatic and functional approach to cope with the technical pitfall.

Virginia’s Certificate of Need Laws May Stay, Fourth Circuit Says

On January 21, the U.S. Court of Appeals for the Fourth Circuit upheld Virginia’s Certificate of Need (CON) laws, ruling that the scheme does not illegally discriminate against out-of-state health care providers. See Colon Health Ctrs. v. Hazel, No. 14-2283 (4th Cir. Jan. 21, 2015).

In Virginia, and the 35 other states with CON laws, health care facilities are required to obtain government approval before establishing or expanding certain medical facilities and undertaking major medical expenditures. CON laws require applicants to show sufficient public need for the expenditure in question and thereby attempt to reduce healthcare costs by preventing excess capacity and unnecessary duplication of services and equipment.

The plaintiff-appellants in the case were two out-of-state outpatient providers that sought to open facilities to provide medical imaging services in Virginia. Their request for a CON for new CT scanners and MRI machines was denied. The plaintiff-appellants subsequently challenged the laws as putting an undue burden on interstate commerce in violation of the dormant commerce clause. The Fourth Circuit affirmed the district court’s ruling that the CON requirement neither discriminated against nor placed an undue burden on interstate commerce because both in-state and out-of-state providers were required to abide by the CON requirement.

Previously, in October 2015, the Federal Trade Commission (FTC) and U.S. Department of Justice’s Antitrust Division (DOJ) issued a joint statement urging Virginia to consider changes to its CON laws. Both agencies argued that CON requirements create significant competitive concerns by suppressing supply and misallocating resources. Moreover, FTC and DOJ said the requirements have not been shown to lower costs or improve the quality of care for consumers. The agencies said that CON requirements can hinder “the efficient functioning of health care markets” by allowing an existing provider to file challenges to prevent or delay competition from a rival. Additionally, they may enable anticompetitive agreements among providers to pursue CON approval for separate services. The Fourth Circuit’s recent opinion may lessen the likelihood that the FTC or DOJ would separately challenge Virginia’s CON laws, but the agencies are likely to remain active in speaking out against CON requirements in Virginia and elsewhere.

McDermott EU Competition Annual Review 2015

McDermott has published an EU Competition Annual Review for 2015. This 87 page booklet will help General Counsel and their teams focus on the most essential EU competition updates for 2015. Beyond being used to understand recent developments, this booklet is a great reference when dealing with complex issues of EU competition law.

Read the full Annual Review here.

Notification Threshold Under the Hart-Scott-Rodino Act Increased to $78.2 Million

The Federal Trade Commission (FTC) recently announced increased thresholds for the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR) and 2016 thresholds for determining whether parties trigger the prohibition against interlocking directors under Section 8 of the Clayton Act.

Read the full article.

Intellectual Property and Antitrust: Italian Chapter

McDermott has authored the Italian chapter of the 2016 edition of “Intellectual Property & Antitrust” published by Getting the Deal Through, a valuable work tool for legal practitioners dealing with intellectual property and competition law.

This chapter addresses the statutes for granting IP rights, enforcement options and remedies, as well as the interplay between Italian IP and competition legislation, jurisdiction of competition and IP agencies, cartels, price maintenance, abuse of dominance and remedies.

Read the full article here.

DOJ Nabs Two More in Real Estate Bid Rigging Conspiracy

Two real estate investors pleaded guilty to participating in a conspiracy to rig bids and commit mail fraud at public real estate foreclosure auctions in Georgia. The guilty pleas, entered on Monday, January 4, are the 11th and 12th defendants charged in the investigation by the U.S. Department of Justice (DOJ) Antitrust Division in its ongoing investigations into a bid rigging and mail fraud conspiracy that took place from 2009 to 2011.

The conspirators agreed not to bid against each other for specific public real estate foreclosure auctions in several Georgia counties. By declining to bid against each other, the bidders could acquire the properties at sub-competitive prices. If the public auctions were competitive and free from bid rigging, however, the same money taken by the conspiracy would have been used to pay off the mortgage, pay the debt holders of, and/or pay the owners of the properties being foreclosed upon. This case serves as a reminder that a wide variety of behaviors, including agreeing to refrain from bidding against other bidders, may be considered bid rigging. In fact, courts have held that this and other types of bid rigging—such as rotating bids, or comparing bids before submission—can be per se illegal under the antitrust laws.

This investigation also highlights the government’s ongoing commitment to root out financial crimes. In particular, the interagency Financial Fraud Enforcement Task Force, established by President Barack Obama in 2009, has used the “broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud” and financial crimes. As part of this effort, the DOJ has frequently targeted conspiracies to rig bids. In fact, the agency has uncovered bid rigging in industries of all sizes, from regional conspiracies to large, nationwide conspiracies resulting in billions of dollars in fines.

The UK Consumer Rights Act 2015: A New Advance in Private Antitrust Enforcement

On 1 October 2015 the UK Consumer Rights Act 2015 (CRA 2015) entered into force, bringing with it a raft of changes pertaining to consumer protection law and competition law litigation. These changes were discussed in an article featured in our most recent issue of our flagship publication, International News: Focus on Tax (Issue 3 2015).

The CRA 2015 sets the scene for the future proliferation of competition damages actions in the United Kingdom and consolidates the country’s reputation as one of the most advanced competition regimes in Europe.

The new rules introduce a series of significant changes to facilitate claims, including the establishment of a fast-track procedure for simple claims, the introduction of a collective settlement regime, and an extension of the limitation period for actions before the Competition Appeal Tribunal (CAT), the United Kingdom’s specialist competition law tribunal.

Arguably the most controversial and high-profile measure is the introduction of collective proceedings before the CAT which, subject to the CAT’s discretion, can be brought on an opt-in or opt-out basis for both follow-on and stand-alone claims.

The CAT will certify claims that are eligible for inclusion in collective proceedings. In this regard the following three conditions must be met. There must be an identifiable class; the claim must raise common issues; and it must be suitable for collective proceedings, taking into account, inter alia, whether or not collective proceedings are an appropriate means for the fair and efficient resolution of the common issues, the costs and benefits of the collective proceedings, and the size and nature of the class.

If the CAT decides that collective proceedings are appropriate, it then determines whether the proceedings should be “opt-in” or “opt-out”.  The CAT will take into account all the circumstances, including the estimated amount of damages that individual class members may recover, the strength of the claims, and whether it is practical for the proceedings to be brought on an opt-in or opt-out basis.

If appropriate, the CAT will also authorise an applicant to act as class representative.  The representative must not have, in relation to the common issues for the class members, a material interest that is in conflict with the interests of the class members, and must be someone who would act fairly and adequately in the interests of all class members.

In order to prevent the rise of a “litigation culture”, certain safeguards are included. For instance, the CAT may not award exemplary damages in collective actions, and contingency fees, i.e., damages-based agreements whereby the lawyers are paid a proportion of the damages obtained, are not permitted in opt-out collective actions.

There will no doubt be considerable up-front litigation surrounding the issue of class certification before the first cases get off the ground. It is likely, however, that the mere threat of class actions before the CAT will represent a powerful weapon in the hands of the claimant when negotiating a settlement.