Agency Name: French Competition Council (Conseil de la concurrence) Date: 20 November 2008

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1 Agency Name: French Competition Council (Conseil de la concurrence) Date: 20 November 2008 Tying & Bundled Discounting This part of the questionnaire seeks information on ICN members analysis and treatment of tying and bundled discounting. The information provided will serve as the basis for a report that is intended to give an overview of law and practice regarding tying and bundled discounting in the respective jurisdictions. Unless otherwise stated, the questions concern unilateral conduct by a dominant firm or firm with significant market power. For the purposes of this questionnaire, tying is defined as a dominant firm (or firm with substantial market power) selling one product (the tying product) only on the condition that the buyer also purchases a different (or tied) product, or agrees that it will not purchase the tied product from another supplier. It also includes the sale of products or services that could be viewed as separate but are sold only together as a bundle. For the purposes of this questionnaire, bundled discounting is defined as discounts or rebates based on a buyer s purchase of two or more different products or services. Unlike tying, bundled discounting arrangements do not prevent buyers from purchasing individual products separately, although the aggregate price of the individual components is typically higher than the price of the bundle. This part of the questionnaire covers only tying and bundled discounting, and not other practices such as exclusive dealing, single branding, and single-product loyalty discounts and rebates. Your responses should therefore not address these practices unless they have a clear and relevant connection to the analysis and treatment of tying and bundling. You should feel free not to answer questions concerning aspects of your law or policy that are not well developed. Answers should be based on agency practice, legal guidelines, relevant case law, etc., rather than speculation. Experience 1. Please state the statutory provisions or legal basis for your agency to address tying and bundled discounts. Are tying and bundled discounts a civil and/or a criminal violation of your jurisdiction s antitrust laws? Do these provisions apply only to dominant firms or to other firms as well? The legal basis for the Competition Council to address tying and bundled discounts is article L of the French Commercial Code. This article prohibits any abuse of a dominant position. It specifically mentions that tying may constitute an abuse of a dominant position. By definition, it applies only to dominant firms. PAR / v1] PER

2 The violation of article L is a civil violation of French antitrust law. However, Article L of the French Commercial Code provides that any individual who plays an active and significant role in such an abuse will be sentenced to a maximum of 4 years in prison and will be subject to the payment of a fine of up to a maximum of 75,000. However, there are very few cases where article L has been implemented: since 1991, no prison sentence on the grounds of Article L has been rendered and, except in the context of public procurement, only one individual has been sentenced to pay a fine on this ground. Noteworthy, article L is in practice being used only in cartel cases, and not in abuse of dominance cases. 2. If your jurisdiction has specific criteria for analyzing tying or bundled discounting, please describe them and state their source. (e.g., legislation, court decisions, or agency policy statements). The Competition Council uses the term tying to cover both the definitions of tying and bundled discounting described in this questionnaire. The practice of tying refers to a situation where a dominant firm ties the supply of two separate products or services. The dominant firm might require the purchase of the two separate products ( tying within the meaning of this questionnaire) or might provide the incentive for a joint purchase by granting a rebate ( bundled discounting within the meaning of this questionnaire). for the purposes of this questionnaire, we have followed the definitions provided in the introductory paragraphs. The criteria for analyzing tying or bundled discounting in France is similar to that of the European Court of Justice case law. The following criteria must be satisfied in order for a tying or a bundled discounting arrangement to be deemed unlawful: There are two distinct markets involved and the relevant company ties the supply of two separate products or services (the tying product/service and the tied product/service); The relevant company has a dominant position on the tying market; An abuse must be proven ; it is presumed when the tying product belongs to a monopolistic market or when it is an indispensable product in the market; The author of the practice is not able to demonstrate that the practice is objectively justified (for example by economies of costs that should be passed on to consumers). PAR / v1] PER

3 3. How many in-depth investigations (i.e., beyond a preliminary review) of tying arrangements and (separately) of bundled discounting arrangements has your agency conducted during the past ten years? Please describe what prompted the investigations (e.g., competitor complaints). During the past ten years, the Competition Council has conducted 8 investigations concerning tying arrangements (Decision n 03-D-15, Decision n 03-D-61, Decision n 04-D-56, Decision n 05-D-44, Decision n 06-D-16, Decision n 06-D-18, Decision n 08-D-10, Decision n 08-D-14) and 15 investigations concerning bundled discounting arrangements (Decision n 99-D-14, Decision n 00-D-47, Opinion n 00-A-26, Decision n 01-D-46, Decision n 01-MC-06, Decision n 03-D-35, Decision n 04-D-22, Decision n 04-D-65, Decision n 05-D-13, Decision n 05-D-58, Decision n 06-D-16 (which deals with tying as well as bundling practices), Decision n 07-D-09, Decision n 07-D- 28). Most of the investigations were prompted by competitor complaints (Decision n 99-D- 14, Decision n 00-D-47, Decision n 01-MC-06, Decision n 04-D-22, Decision n 04- D-56, Decision n 05-D-13, Decision n 06-D-16, Decision n 06-D-18, Decision n 07- D-09, Decision n 07-D-28, Decision n 08-D-10, Decision n 08-D-14). Some of the investigations were prompted by the Minister for Economy (Opinion n 00-A-26, Decision n 03-D-35, Decision n 03-D-61, Decision n 05-D-44, Decision n 06-D-16). In one case, the Competition Council acted on the basis of 3 separate referrals, one by a town, one by a consumer association and one by the Minister for Economy (Decision n 05-D-58). One of the investigations was prompted by the Telecommunications Regulatory Authority (Decision n 01-D-46). And in two cases, the Competition Council acted on its own initiative (Decision n 03-D-15, Decision n 04-D-65). 4. State the number of tying arrangements and the number of bundled discounting arrangements your agency found to be unlawful over the past ten years (1999 to date); include cases resolved informally as well as those that led to a formal decision. If your agency has found any tying and bundled discounting arrangements to be unlawful, please describe the anticompetitive effect and the circumstances that led to the finding. For administrative systems (i.e., the agency issues its own decisions on the legality of the conduct, which may be appealable in court), please state the number of agency decisions finding a violation or settlements that were challenged in court and, of those, the number upheld and overturned. For judicial systems (i.e., the agency challenges the legality of the conduct in court and the court issues a decision), please state the number of cases your agency has brought that resulted in a final court decision that the program violates the competition law or a settlement that includes relief. Also state the number of cases that resulted in a final court decision that the conduct did not violate the competition law. PAR / v1] PER

4 Please state whether any of these cases were brought under a criminal antitrust law. Please provide a short English summary of the leading tying and bundleddiscounting cases in your jurisdiction, and, if available, a link to the English translation, an executive summary, or press release. Among the 8 tying arrangements that were investigated during the past ten years, 4 were found to be unlawful (Decision n 03-D-15, Decision n 03-D-61, Decision n 04-D-56, Decision n 05-D-44). The circumstances that led to these findings are described below. One decision was challenged in court (Decision n 08-D-14). The appeal is still pending. Among the 13 bundled discounting arrangements that were investigated during the past ten years, 8 were found to be unlawful (Decision n 99-D-14, Decision n 00-D-47, Decision n 01-D-46, Decision n 03-D-35, Decision n 04-D-65, Decision n 05-D-58, Decision n 07-D-09, Decision n 07-D-28). In one case, the Minister for Economy asked the Competition Council for an opinion concerning a tying arrangement; the Competition Council considered that the relevant tying arrangement was likely to hinder the development of competition (Opinion n 00- A-26). One interim decision led the Competition Council to pronounce injunctions against bundling practices implemented in this case (Decision n 01-MC-06). Among these 13 decisions and opinions concerning bundled discounting arrangements, 6 were challenged in court (Decision 01-MC-06, Decision n 03-D-35, Decision n 05-D- 13, Decision n 05-D-58, Decision n 07-D-09, Decision n 07-D-28). Two of them were upheld (Decision n 03-D-35, Decision n 05-D-13). One of them was upheld with respect to the most salient elements (Decision n 05-D-58). One of them was overturned but not on the question of tying (Decision n 07-D-09). One appeal is still pending (Decision n 07-D-28). In one case, the Court of Appeal did not rule because of the withdrawal of the parties. In one case (the one which led to decision n 06-D-16), criminal proceedings were brought before the Tribunal Correctionnel in Paris against certain individuals; these individuals were acquitted. Please find below the summaries of the leading cases. 1. Cases concerning tying arrangements Cases where the Competition Council rejected the tying claim In Decision n 08-D-10 relating to practices implemented by France Télécom and France Télévisions in the catch up TV sector, the Competition Council rejected the tying claim. It considered that the selling of France Televisions catch up TV programmes as part of its ADSL television services did not constitute an abuse of PAR / v1] PER

5 a dominant position, since (i) multiple play packages are standard within the market for ADSL services, and (ii) ADSL operators are technically unable to separate the services proposed in these packages. Link to the press release In Decision n 06-D-18 relating to practices implemented in the film advertising sector, the Competition Council also rejected the tying claim since (i) the tying of national and local advertising services was not imposed on cinema owners, and (ii) no incentive was offered for the acceptance of the bundled offer. The landmark case is Decision n 03-D-61 relating to practices implemented in the market for the supply of trucks for waste transport in the university hospital of Nantes The company Valorena, which held a dominant position on the market for hospital waste disposal in four departments, refused to allow trucks of other companies to transport waste in its waste incineration plant. It conditioned its provision of incineration services on the renting of its trucks for transport of waste. This practice prevented the company Zargal from selling its trucks to the university hospital of Nantes. The Competition Council found that this practice hindered competition on the market for the supply of trucks and that Valorena had abused its dominant position on this market. In this case, the Competition Council carried out a detailed assessment of the strategy carried out by the dominant firm (in-depth analysis of the potential technical or legal justifications for this practice). Other cases concerning tying arrangements The Competition Council ruled on several tying arrangements in the advertising sector relating to newspapers in Decisions n 04-D-56 and n 05-D-44. In both cases, the relevant newspaper groups conditioned the selling of advertising space in a newspaper on the buyer s purchase of advertising space in another newspaper. The Competition Council carried out an assessment of the market configuration, of the tying scheme, and of its likely impact. It considered that the newspapers could manage to impose such tying because one of the newspapers was an indispensable supplier on the market for advertising in regional daily newspapers in the area at stake. It emphasized the fact that the practice prevented advertisers from diversifying their advertising purchases and therefore hindered competition within the market for advertising in regional daily newspapers in the areas concerned. PAR / v1] PER

6 The Competition Council also assessed the joint offer by some French banks and a national trade association of mortician s of contracts combining a financial funeral insurance and a funeral service (Decision n 08-D-14 concerning practices implemented in the funeral sector). The Competition Council considered that, since there was a potential competing offer, the joint offer did not pre-empt the market of provident funeral insurance nor foreclosed the market for funeral services, but provided an innovative product. The Competition Council also considered that the offer had no anticompetitive effect, notably because a very small number of such contracts had been sold. 2. Cases about bundled discounting arrangements Decision n 08-D-14, 13 June 2008, concerning practices implemented in the provident funeral sector Between 2002 and 2004, three French banks (Crédit Lyonnais, Caisse d Epargne and La Poste) linked with a national trade association of mortician s (GNEPF, Groupement National d Entrepreneurs de Pompes Funèbres) have proposed to their clients bundled contracts combining a financial funeral insurance and a funeral service. Following a referral by two other mortician s undertakings, the French Competition Council first defined the relevant market and its sub-markets. t made a difference between the sub-market of funeral service, which is characterized by a family demand in emergency on a local territorial area, and the sub-market of provident funeral insurance which clients are future deceased people under a national supply. The Competition Council has established that GNEPF, although it has a de facto exclusivity on the concerned market, did not abuse a dominant position notably because a very small number of such contracts has been commercialized. Besides, the Competition Council points out that GNEPF provides the launching of an innovative product for the consumers and their families. The case is pending in front of the Court of appeal of Paris. Decision n 05-D-13 dated 18 March 2005 regarding Canal Plus' practices in Pay-TV Sector (the Canal Plus case) On 5 June 1998, the pay-tv operator TPS filed a complaint before the French Competition Council against rival pay-tv operator Canal Plus. TPS alleged that Canal Plus breached Article L of the French Commercial Code by resorting to bundling and predatory pricing. According to TPS' allegations, Canal Plus abused its dominant position on the pay-tv market in France by: (i) offering a single subscription for its Canal+ and CanalSatellite channels; (ii) at a price that was allegedly predatory; and by (iii) offering a series of discounts and promotions designed to drive TPS out of the PAR / v1] PER

7 market. The alleged practices took place for the period from September 1997 to January For that period, Canal Plus gave viewers the option to jointly subscribe to Canal + and Canal Satellite for a price inferior than the sum of the two separate subscriptions. The Competition Council accepted that Canal Plus held a dominant position on the market for pay-tv in France at the time of the alleged practices. The Competition Council then rejected all of TPS's claims regarding Canal Plus's alleged abusive behaviour. TPS brought an appeal against this decision before the Paris Court of Appeal. In a decision dated 15 November 2005, the Paris Court of Appeal confirmed the Competition Council s decision and rejected the appeal. Decision n 05-D-58, 3 November 2005, concerning practices in the drinkable water sector in Ile-de-France region The Competition Council first analysed the specificities of the water sector in the relevant area. The water production market was dominated by three operators: the Syndicat des eaux d'ile-de-france (Sedif) with 37% of the market, the Société anonyme de gestion des eaux de Paris (Sagep) with 33%, and the Lyonnaise des Eaux group with 19%. These three companies cover 90% of the Ile-de-France region's water needs. There was excess supply in the Ile-de-France market for water as the local water supply amounts to approximately twice the local demand. The Lyonnaise des Eaux group offered the Syndicat du Nord-Est de l'essonne (NEE) a wholesale water price - for supply alone - that was some 17% higher than the price offered in its global bundled "supply + distribution" bid. This bundled offer clearly led to preventing any other competing bids for distribution only, since it enabled Lyonnaise des Eaux to act in a discriminatory manner, offering a combined price lower than that offered as part of its separate wholesale bid. The Competition Council penalized the behaviour of Lyonnaise des Eaux and of Syndicat des eaux d Ile-de-France. Besides, it drew the attention of the region's local administrations to the importance of unbundling water supply and distribution to foster competition on both markets. In a decision of 06 September 2006, the Court of Appeal of Paris mainly confirmed the position of the Council. The Court of cassation rejects any referral in a decision of 20 November Link to the press release PAR / v1] PER

8 Decision n 04-D-22 dated 21 June 2004 relating to the trading by France Télécom of a promotional fare so-called Primaliste longue distance On 15 January 1999, France Télécom launched a promotional tariff offer, valid until 30 April 1999, under which each new subscriber to a subscription of a mobile service of France Télécom could benefit from a six-month free subscription to a new tariff option of the fixed telephony service of France Télécom. According to the applicants, France Télécom, through this practice, offered a bundled discounting that could prevent or restrain the entry of new competitors in the market of long-distance telephony and evict its competitors in the market of mobile telephony. The Competition Council did not deem this practice as abusive. It considered that although France Télécom held a dominant position, the promotional offer did not have an anticompetitive object or effect. Decision n 03-D-35, 24 July 2003, concerning the competition situation in the sector of medicinal drugs The Competition Council imposed sanctions on Laboratoires Sandoz (which has now become Novartis Pharma SA) for abuse of a dominant position, and fined them for an amount of 7.8 million. Laboratoires Sandoz manufactured and marketed amongst others two proprietary medicinal products. These products, Sandimmun and Néoral, were both patented and were based on the same active ingredient (cyclosporine). At the time of the events (between 1994 and 1997), all hospitals obtained these proprietary medicinal products, which were considered to be essential for the treatment of transplant patients. In 1996, sales of cyclosporin to French hospitals generated a turnover of 400 million Francs for Laboratoires Sandoz, which accounted for over half of their total sales (710 million Francs) to hospitals. Laboratoires Sandoz introduced a commercial policy designed to increase hospital loyalty via a system of bundled discountings. The abusive bundled practice involved granting reductions on the purchase price of Sandimmun and Néoral, on condition that the hospitals also purchased seven other Sandoz products 1. Each bidding market was analysed by the Competition Council in this case. It appeared that the rebate on the regular price of cyclosporine drugs (when it was sold in a bundle with another more common drug) created a foreclosure effect on competitors on the bundled markets. The seriousness of the damage caused to the economy lied in the fact that at the time, cyclosporin was the product that accounted for the highest expenditure in hospital budgets. Laboratoires Sandoz used their monopolistic position on the 1 The seven products concerned were: Vépeside, Sandocal, Miacalcic, Loxen, Icaz, Leponex and Parlodel. PAR / v1] PER

9 cyclosporine market to force competitors (in particular generic-drug firms) out of competitive markets. The Court of Appeal (decision of 30 March 2004) and the Cour de Cassation (decision of 08 June 2005) reject referrals. Link to the press release Decision n 99-D-14 dated 23 February 1999 relating to Télédiffusion de France (TDF) s practices In this decision, the Competition Council fined TDF, which held a dominant position on the markets for the transmission of terrestrial television channels and on the market for the installation of broadcasting equipment practices, for bundling discounts granted to its customers, i.e. the local communities. Indeed, TDF proposed two different prices for its engineering services, depending on whether the local community undertook or not to call on TDF also for maintenance services. In the event that TDF concluded, on the one hand, an installation contract and, on the other hand, a comprehensive maintenance contract, the price applied to the installation of the equipment amounted to 5% of the amount of the equipment. If the local community decided to call on another service provider for the maintenance, the price applied amounted to 10% of the amount of the equipment. The Competition Council considered that, due to this pricing bundling, a local community that would envisage entrusting a competitor of TDF for the maintenance of the equipment installed by TDF, would necessarily and regardless of the cost of maintenance charged by the competitor, suffer a cost overrun amounting to 5% of the value of the equipment installed. As a consequence, a competitor of TDF for the maintenance of the equipment could not win the maintenance contract even if it was as efficient as TDF. Finally, seeking to assess the effects of this practice, the Competition Council considered, on the basis of statements of TDF itself that communities had been discouraged to appeal to competitors for maintenance services. 5. Does your jurisdiction allow private parties to challenge tying or bundled discounting in court? Yes/No. If yes, please provide a short description of representative examples of these cases. If known, indicate the number of cases (or an estimate thereof) brought by private parties. Private parties can challenge tying or bundled discounting in court on general grounds for damages. However, as of this date, there have been no cases of claimants bringing action for damages in cases of tying or bundled discounting. PAR / v1] PER

10 Evaluation of Tying Arrangements 6. In your jurisdiction, is the term tying used in a manner different from the definition in the introductory paragraphs above? If so, how? As mentioned above, the Competition Council uses the term tying to encompass the definitions of vente liée and sometimes of bundled discounting described in this questionnaire (cf. Decision n 06-D-18). The practice of tying refers to a situation where a dominant firm ties the supply of two separate products or services. The dominant firm might require the purchase of the two separate products ( tying within the meaning of this questionnaire) or might provide the incentive for a joint purchase by granting a rebate ( bundled discounting within the meaning of this questionnaire). However, for the purposes of this questionnaire, we have followed the definitions provided in the introductory paragraphs. 7. Please explain the competitive concern(s), if any, generally associated with tying in your jurisdiction, e.g. maintaining dominance/substantial market power in the tying market, distortion of or harm to competition in the tied product market, exploitation of consumers, exclusion of competitors, price discrimination, other. The theory of harm depends on the specifics of each case. Thus, it is hard to draw generalities. In the Conseil's case-law, a competitive concern often associated with tying, up to now, has been the transfer of dominance from a first market to a second in order to obtain, in the latter, a competitive advantage at a lower cost and without any connection with the competition on the merits (cf. Decision n 03-D-61, Decision n 04-D-56, Decision n 06-D-18, Decision n 08-D-10). Price discrimination can be a side-effect of tying, and is not necessarily detrimental to consumers. Exploitation of consumers does not seem to be a critical issue in tying cases. 8. What specific tests, if any, are applied to determine under the competition law whether two products or services are separate rather than a single integrated product? Among the 6 decisions concerning tying arrangements, the Competition Council had to examine whether two services were separate or a single integrated product only in the Decision n 08-D-10 about multiple play offers by ADSL operators. The French Association for network operators and telecommunication services (AFORST) claimed that France Télécom was abusing its dominant position by selling France Télévisions catch up TV programs as part of its ADSL television services without offering the possibility of separating access to these two services. The Competition Council s examination of this practice was based on two considerations: PAR / v1] PER

11 (i) whether this global offer was standard within the market ; (ii) whether it was technically possible to separate the services. The Competition Council considered multiple play packages offered by ADSL operators to be single products. On the one hand, the Competition Council considered that these offers were standard within the market for ADSL services. On the other hand, it assessed that ADSL operators were technically unable to separate the services proposed in these packages. The Competition Council considered in this case that, even if consumers sometimes have the option to choose some channels, there are no separate markets for the different components of the basic TV bouquet. Since the tied products belong to the same relevant market, there was no tying arrangement in this case. 9. In what market(s) e.g., the tying or the tied market must effects, if any, be shown to demonstrate an illegal tie? The Competition Authority undertakes an analysis on a case by case basis. The effects of the practice can take place either on the tied or the tying market. a. What specific types of effects must be shown, e.g. market distortion, market foreclosure, harm to consumer welfare? The Competition Council must determine that the practice has the effect, or could have the effect, of distorting competition in the tied market or the tying market or the effect of foreclosing the tied market or the tying market. The university hospital of Nantes case 2 is an example of market foreclosure. In 1999, the CHU de Nantes (university hospital) issued a call for tenders relating to hospital waste disposal. The procedure was divided into 3 parts: the first relating to hospital waste disposal, the second to the rent of trucks for transport of waste and the third being an alternative to the second- relating to the sale of trucks for transport of waste. The company Valorena, which held a dominant position on the market for hospital waste disposal in four departments, was the only bidder on the first two parts. The company Zargal was the only bidder on the third one. The university hospital of Nantes initially decided to accept Valorena s offer concerning the first part and Zargal s offer concerning the third. It was cheaper for the university hospital to buy Zargal s trucks than to rent Valorena s. However, Valorena refused to allow trucks of other companies to transport waste in its waste incineration plant. Therefore, the university hospital of Nantes finally accepted to rent Valorena s trucks instead of purchasing those of Zargal. The same situation arose in 1999 when the university hospital of Nantes issued another call for tender relating to hospital waste disposal including some parts 2 Decision n 03-D-61 relating to practices implemented in the market for the supply of trucks for waste transport in the university hospital of Nantes. PAR / v1] PER

12 concerning the rent of trucks. Valorena again refused to allow trucks of other companies to transport waste in its waste incineration plant. Zargal s offer was once again rejected even though it was cheaper. This practice prevented Zargal from selling its trucks to the university hospital of Nantes from 1996 to The Competition Council found that this practice hindered competition on the market for the supply of trucks and that Valorena abused its dominant position on this market. b. What degree of proof is required? Must the effect be actual, likely, or potential? The Competition Council carries out a thorough analysis of the effect of the practice which may be actual or potential, but must in any case appear likely on the basis of the evidence grounding the decision. The Decision n 08-D-14 concerning practices implemented in the provident funeral sector is an example of this thorough economic analysis. The Competition Council analysed the potential effects of the contracts combining a financial funeral insurance and a funeral service by anticipating the likely date of termination of the contracts. The conclusion of this analysis was that, for each year of termination of the contracts, there was a very small number of such contracts in comparison with the number of expected deaths. Moreover, the analysis showed that there was an homogeneous distribution of the contracts on the national territory. Therefore, there was no relevant concentration of the date of execution of these contracts (neither in terms of time or geography). The Competition Council concluded that the offer had no anticompetitive effect. When there is no product in competition with the tied product, as in Decision n 06- D-16, there is no potential anticompetitive effect a competing unless a distributor is likely to enter the relevant market. This decision concerned the practice of a newspaper distribution network that was tying the sale of a specific software for the management of newspaper stores (Presse 2000) to the sale of a software allowing a communication interface between the central services of the distribution network and the newspaper stores (Soliman). The Competition Council considered that this practice could not result in the limitation of access to the market. There was no product in competition with neither of the two softwares at the time of the practice. The practice could, however, be considered to be abusive if a competing distributor could enter the market and establish its own communication interface between its central services and the newspapers stores using Presse Does intent play a role, and if so what role and how is it demonstrated? Intent does not play any role. That said, the strategy of the company can be taken into account to understand the underlying rationale of its behavior, without being a necessary element to establish the anticompetitive effect of the practice. PAR / v1] PER

13 This is especially the case if documents of the companies found during the investigations provide evidence of a strategy to exclude competitors from the market through the implementation of the tying arrangement. Evaluation of Bundled Discounting 11. In your jurisdiction, is the term bundled discounting used in a manner different from the definition in the introductory paragraphs above? If so, how? The questionnaire defines «bundled discounting» as discounts or rebates based on a buyer s purchase of two or more different products or services and specifies that bundled discounting arrangements do not prevent buyers from purchasing individual products separately, although the aggregate price of the individual components is typically higher than the price of the bundle. Such concept of bundled discounting is translated in French law under the notion of remise de couplage, which reflects the Questionnaire s definition. However, it should be noted that the French competition authorities distinguish between two types of bundling, i.e. pure bundling (couplage pur) and mixed bundling (couplage mixte). Pure bundling refers to the sale of one product or service which is sold only together with another product or service as a bundle; the products or services concerned are not available separately. In practice, the distinction between pure bundling and tying is very fine and difficult to ascertain. For instance, some scholars consider that tying is the mere legal translation of the economic notion of pure bundling. Mixed bundling refers to any practices which consist in bundling products or services which are also sold separately. The Competition Council defines a bundling practice as the practice consisting in bundling the supply of two distinct products or two distinct services 3. The bundle may be contractual, technical or result from incentives, such as bundled discounting. The abusive bundling may be of various types, with a gradation of the compulsory nature of the bundled purchase for the consumer, ranges from the mere obligation to incentive. The incentive may result from a price reduction (or bundled discounting), but also under specific circumstances, from the simultaneous presentation of products. 12. Please explain the competitive concern(s), if any, generally associated with bundled discounting in your jurisdiction, e.g. maintaining dominance/ substantial market power, distortion of or harm to competition, exploitation of consumers, exclusion of competitors, price discrimination, other. A bundled discounting and more generally a bundling practice is not anticompetitive per se and does not constitute an abuse of a dominant position in itself. The Competition Council has adopted a case by case analysis. 3 Conseil de la Concurrence, Rapport annuel pour 2006, p PAR / v1] PER

14 Indeed, the Competition Council considers that a company, holding a dominant position and facing the entrance of a competitor, is entitled to defend or develop its market share. However this company must adopt a reasonable competitive behaviour and remain within a legitimate competition. The Competition Council adds that the fact for a company holding such a position of trying to limit the access of the market where it is dominant, or another market, using methods that are not compliant with merit based competition is abusive 4. Therefore, the Competition Council has adopted an effect-based approach resting on a thorough economic analysis regarding these practices. According to the Competition Council, holding a dominant position does not prevent a priori and as a principle a company to practice bundled discounting without the specific demonstration of an anticompetitive object or effect 5. In conducting its analysis, the Competition Council will have first to establish the dominant position on the market and then to assess whether there is a restriction of competition. In particular, it will analyze whether the bundled discount creates exclusionary effects on the market which may include an assessment of possible foreclosure effects, of the link between the dominance and the conduct, of the objective of the conduct and of the competitors which are threatened to be excluded from the market 6. The Competition Council also investigates whether a bundled discount will allow a company which holds a dominant position on one of the markets concerned by the bundled products or services, to maintain or develop its dominant position in this market or develop its market power in the market of the bundled product or service. Notably, the Competition Council has been asked several times to examine the bundling practices emanating from companies holding a monopoly. Indeed, these companies may be tempted to extend via bundling practices their market power to other markets - for example in the context of a diversification strategy or the emergence of new markets. However, all these practices are prohibited only if they have a restrictive object or effect. In the latter case, the Competition Council will verify the potential or actual effect of the bundling practice in the relevant markets. The Competition Council will also take into account the potential efficiencies which may be produced by the bundling practice. Under French law, a bundling practice which would restrict competition may not fall under the prohibition of Article L of the French Commercial Code if the infringing firm can demonstrate that the bundling practice produces efficiencies which outweigh the adverse effect on competition (see question 17) Decision n 04-D-22, 21 June 2004 together with decision n 99-MC-04, 10 March 1999, Association française des opérateurs privés en télécommunications et de l Association des opérateurs de services en télécommunications; decision n 05-D-13, 18 March 2005, Canal Plus. Decision n 05-D-13, 13 March 2005, Canal Plus. Decision n 05-D-58, 3 November 2005, Lyonnaise des Eaux and the Syndicat des eaux d Ile de France; Decision n 05-D-13, 13 March 2005, Canal Plus. PAR / v1] PER

15 In order to qualify a bundling practice as anticompetitive, the Competition council relies in its decision-making practice on several cumulative criteria regarding an abuse of dominance. Although there is no standard checklist, these criteria include (i) the exact typology of the practice (i.e. pure or mixed bundling ); (ii) the duration of the practice; (iii) the incentive nature of the practice for the buyers (mixed bundling can be profitable for consumers when it offers a new product on the market); (iv) the advertisement measures used to promote the practice; (v) the discriminating nature of the practice; (vi) the substitutability in the market; (vii) the complementary or independent nature of the goods or services linked in the bundle; (viii) the competitive context in which the practice is implemented and (ix) the potential or actual effects of the practice. Described below are few cases which illustrate the Competition Council s analysis regarding bundling practices. TPS challenged the bundling by Canal Plus of two products, Canal Plus and CanalSat, on the French Pay TV market. This was a case of mixed bundling with a bundled discount. Canal Plus gave viewers the option to subscribe to Canal Plus and Canal Satellite for a price inferior than the sum of the two separate subscriptions. The Competition Council first analyzed whether the practice concerned had an anticompetitive object. The Council examined whether the joint offer had the object of preventing a competitor s market entry. It also analyzed whether the joint offer generated significant cost savings for Canal Plus and for subscribers. In such a case, such practice would indeed generate pro competitive effects. In the present case, the Council concluded that it was not demonstrated that the bundling practice exceeded the limits of competition on the merits and that it had an anticompetitive object aiming at excluding a competitor or making the launching of the competitor s offer more difficult. The Competition Council tried to identify whether the discount could be justified by possible cost reductions induced by the provision of both products. The Competition Council stated that: «We could conceive that a firm achieving this amount of cost savings, linked to the fact that it supplies one subscriber instead of two, would wish to pass on this saving to its customers. This would then constitute pro-competitive behaviour.» The Competition Council also considers that «The practice is therefore characteristic of a «mixed», rather than «pure», bundled offer, whose effects are clearly less significant, given that a separate purchase is still possible.» The Competition Council then conducted an effects based analysis and concluded that there has been no harm to the potential victim. Regarding the effects of bundling practices, the Council distinguished this case from prior cases where it concluded to the existence of anticompetitive effects on the affected markets in three hypothesis: these specific decisions concerned practices where (i) the bundling product ( produit liant ) belonged to a monopolistic market, the bundled product ( produit lié ) was offered on a neighbouring market opened to competition; (ii) the offer bundled a necessary product to other products on neighbouring markets; (iii) the PAR / v1] PER

16 bundling product and the bundled product were inseparable and none of the products could be sold separately. The Competition Council qualified the practices of Canal Plus as mixed bundling, distinct from the pure bundling, more harmful for competition. It then took into account several factual elements such as the duration of the offer, the marketing actions developed in support of the offer and the number of subscribers that had benefited from the offer. It also noted that the subscribers had the possibility to buy the two services separately. Therefore anadvantage of mixed bundling for consumers was to enjoy one more combination of services and price. Moreover, it underlined that the market shares of the main competitor of Canal Plus have positively evolved. Most of all, the Competition Council underlined that a competitor was able to enter the market (TPS), irrespective of the offer, and that the number of its subscribers had significantly and constantly increased. The Competition Council concluded that although the bundled discount was important (50%) and Canal Plus in a dominant position in the market of pay TV, the practices of Canal Plus did not have anticompetitive effects. 13. Does price-cost comparison play a role in the evaluation of bundled discounting? Yes/No. If yes, please describe the comparison used and the role that it plays. Please also indicate if recoupment plays a role and, if so, what role it plays. As far as today, the price/cost comparison does not constitute a preeminent criterion although it was used by the Competition Council when examining tying sales and bundling discounts in the Canal Plus case. The Competition Council often analyses pricing discounts by calculating the percentage of discounting 7. Also, for bundled discounts analysis, the comparison is set between purchase prices of the items separately and of the bundled item 8. Thus, the efficiency gains of the bundled package in comparison with the separate sales of the concerned products constitutes the relevant test. 14. What sort of effects, if any, must be shown to demonstrate an illegal bundled discount? For example, must market distortion, market foreclosure, harm to consumer welfare or any other effect be shown? The Competition Council must determine that the practice has the effect or could have the effect of distorting competition in the bundled market or the effect of foreclosing the bundled market. The main point is to determine whether the bundled sale strategy prevents the competitors from entering the concerned markets. Market foreclosure effects would be a clear competitive harm. 7 8 Decision n 03-D-35, 24 July 2003, Laboratoires Sandoz, point 49 ( ) the discount was of 0.25% to 2% of the total turn-over (the hospital concerned had with Laboratoires Sandoz) ; decision n 99-D-14, 23 February 1999, TDF. Decision n 00-D-47, 22 November 2000, EDF-Citelum ; Decision n 03-D-35, 24 July 2003, Laboratoires Sandoz. PAR / v1] PER

17 The Sandoz case 9 draws an example of market foreclosure. Laboratoires Sandoz were penalized for illegal bundled discounts on packages of drugs. Sandoz bundled the sales of two expensive drugs (two different forms of the same molecular basic principle) on the market of which Sandoz was on a monopolistic position and seven others drugs for a low price. To get the expensive drugs for better prices, hospitals got to buy the bundled packages. The result was that Sandoz reached then a monopolistic position on the seven other markets. This strategy foreclosed these seven markets by eliminating all other competitors. The interesting point in this case is the demonstration of anticompetitive effects on related medicinal markets, even though there was no therapeutical relation between all the drugs sold in a bundle. Whether the consumers will benefit from a bundling practice is also taken into account by the Competition Council 10. An a contrario example stands in the recent case concerning provident funeral insurances 11. Banks and morticians offered to their clients bundled contracts combining a financial funeral insurance and a funeral service. Stating that there was no anticompetitive practices in this sector, the Competition Council noted that this bid was innovative for consumers. The consumer welfare is a strong indication showing that a dominant position is not abused. What degree of proof is required? Must the effects be actual, likely, or potential? The Competition Council carries a thorough analysis of the effect of the practice. There is no need to show actual adverse competition effects. It is sufficient to demonstrate a potential foreclosure effect. Any fact and data may be used. The Competition Council will examine the potential or the actual effect of the bundling on the markets concerned notably on the basis of the duration of the commercial offers, of their incentive nature for the buyers, and of the advertising measures used to promote them 12. In order to be forbidden, the bundling practice supposes that it exists an alternative to the bundled products, failing which the anticompetitive effect of the product will be hardly demonstrable. 15. Does intent play a role, and if so what role and how is it demonstrated? Intent does not play a role. When imposing a fine to an undertaking for bundled discounts, the Competition Council penalizes an objective infringement to competition law, protecting the economy from any distortion Decision n 03-D-35, 24 July 2003, Laboratoires Sandoz. Decision n 05-D-13, 18 March 2005, Canal Plus. Decision n 08-D-14, 13 June 2008, La Quiétude et Union des Professionnels du Funéraire. Decision n 04-D-22, 21 June 2004, France Télécom. PAR / v1] PER

18 That said, the strategy of the company can be taken into account to understand the underlying rationale of its behavior, without being a necessary element to establish the anticompetitive effect of the practice. This is especially the case if documents of the companies found during the investigations provide evidence of a strategy to exclude competitors from the market through the implementation of the tying arrangement Presumptions and Safe Harbors 16. Are there circumstances under which tying or bundled discounting is presumed illegal? Yes/No If yes, please explain, including whether the presumption is rebuttable and, if so, what must be shown to rebut the presumption. No. As mentioned above, tying and bundling practices are not anticompetitive per se, even when a firm holds a dominant position. Consequently, tying and bundling practices are not presumed illegal. The Competition Council carries out a case by case analysis to determine whether the tying or bundling practice distorts competition on the relevant markets. 17. Are there any circumstances under which there is a safe harbor? Are there any circumstances under which there is a presumption of legality? Please explain the terms of any presumptions or safe harbors. No. Under French law, there is no formal safe harbor provision from a finding of liability under tying or bundling practices. Justifications and Defenses 18. What justifications or defenses, if any, are permitted (e.g., reduced manufacturing or distribution costs, meeting competition, product reputation, technological linkages) for tying or bundled discounting? In both cases of tying and bundling, the Competition Council examines the possibility of foreclosure of a competitor due to the practices. In its decision n 08-D-14, the Competition Council examined if the number of contracts covered by the practice can cause a real harm to competitors. a. Please specify the types of justifications and defenses that your agency considers in the evaluation of tying arrangements, the role they play in the competitive analysis, and who bears the burden of proof. b. Please specify the types of justifications and defenses that your agency PAR / v1] PER

19 considers in the evaluation of bundled discounts, the role they play in the competitive analysis, and who bears the burden of proof. The Competition Council accepts some efficiency defense justifications. In its decision n 05-D-13, The Competition Council mentioned the fact that the firm can incur a lower cost from offering the bundle rather than the two goods separately and accepted this as a justification for a bundled discount. In this case, the lower price offered by the firm via the bundled discount was considered pro-competitive. In its decision n 05-D-58, the Competition Council argues that : «Bundled rebates can have pro-competitive effects when they enable the purchaser of the bundled goods or services to benefit from a reduction in price reflecting the efficiency gains that the producer achieves from bundling.» The main justifications that are accepted are related to an effects based analysis. The duration of the practice is considered. A low duration can be retained as a defense argument if the duration of the practice is too short to harm the competitor. The Competition Council also examines if the competitor can replicate a bundled discount. In its decision n 05-D-13, the Competition Council considered that : «the short duration of the practices in question and the financial power of TPS, which showed itself capable of supplying bundled offers, rendered improbable the success, or even the existence, of a foreclosure strategy.» The level of the bundled discount and its attractiveness for consumers can be taken into account to evaluate the plausibility of an effect. As an illustration, in its decision n 04-D- 22, the Competition Council mentions that : «Nevertheless, the relatively low attractiveness of the discount, consisting of six months free subscription to the Primaliste Longue Distance option, its granting modalities and the absence of advertising accompanying this option, were not susceptible to conferring to France Télécom s offer any anticompetitive effect on the market.» Policy 19. What policy considerations does your jurisdiction consider with respect to tying and bundled discounts? You may wish to address the following sorts of issues: Are tying and bundled discounting common? Does your jurisdiction generally consider them to be procompetitive? Does your answer depend on whether the firm is dominant? Does your jurisdiction view tying and bundled discounting by a dominant firm as generally anticompetitive? What competitive concern(s), if any, are generally associated with tying and bundled discounts in your jurisdiction? The Conseil de la concurrence enforces a unified and consistent policy vis-à-vis all unilateral conduct cases. It assesses whether or not the behavior of the dominant firm, considered in its context, is likely to hurt consumer welfare, by having the object or effect, actually or potentially, of excluding as efficient competitors from the marketplace. The evaluation carried in each case rests on a high standard of proof, on a well-balanced PAR / v1] PER