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Competition Law - The right moves -
Competition Law
- The right moves -
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The context?
LVMH Executive Committee edited a Competition Law Charter (find it attached and please read it)
sent it to all companies of the Group
asking each company to train all the operational teams on competition rules
The objectives of Competition Law?
Competition Law is a set of rules:
which may be viewed as constraints for the companies which have to comply with them…
… but which ensures a free, full and undistorted competition in the market to the benefit of consumers +
companies
Competition Law consists of rules which:
competition authorities and consumers may use against Sephora if you do not comply with them
Sephora may use against its competitors if they do not comply with them, and which competitors may use
against Sephora if you do not comply with them
A procedure called « leniency program » grants, subject to various conditions, a full or partial immunity from
fines to companies which take or have taken part in an anticompetitive practice, if such companies disclose such
practice to the Competition Authority, it being specified that the extend of immunity (partial or total), will
depend on whether the company was first or among the firsts, to disclose the anticompetitive practice and on
the added value of the information provided.
Be careful with the content of your writing documents :
an infringement to the competition law can be proven by email, contracts, SMS, internal meeting review…)
Consequences of an infringement?
An infringement of Competition Law may have extremely severe consequences on SEPHORA:
heavy financial penalties (up to 10% of worldwide consolidated turnover)
presumption of liability of the parent company: Sephora SA might be held responsible for Sephora subsidiary
behavior in your country. Strong will from the competition authorities to sanction and increase the amount
of penalties.
obligation to cease or modify certain behaviors
cancellation/nullity of the unlawful deals or agreements
damages
high indirect costs
damage to the Group image and reputation (Sephora / LVMH)
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An infringement of Competition Law may have extremely severe consequences on the employees:
criminal penalties
disciplinary sanctions
The Anticompetitive Practices
What is a dominant position?
An abuse of a dominant position occurs when:
a company or a group of companies
takes abusively advantage of its dominant position in a market
by engaging in practices vis-à-vis its Suppliers / distributors, involving, in particular:
− loyalty rebates
− refusals to sell
− discriminatory practices
What is an anticompetitive agreement?
An anticompetitive agreement is:
an agreement (written or oral) between two independent companies
whose object or effect is to distort competition in a market
There are two different notions:
vertical agreements
horizontal agreements
Supplier
“A”
Supplier
“B”
Distributor “X” Distributor “Y”
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Supplier / Distributor Relationships
Did you hear about the Perfumes case in France?
Decision of the French Competition Council n°06-D-04 bis dated March 13th, 2006 relating to practices
observed in the luxury perfume sector
sentence against 13 Suppliers + 3 distributors (including Sephora)
practices condemned: vertical agreements on the retail prices offered to the consumers (“vertical price
fixing” or “retail price maintenance”)
time of the facts concerned: 1997 to 2000
procedure:
- Referral to the French Competition Council: October 21st, 1998
- Notification of the statement of objections: April 7th, 2005
- a very long procedure and a total fine of 41 611 000 € including
8 300 000 € for SEPHORA !!!
A case covered by the press on March 2006:
NEW SCENT of scandal in the hushed world of luxury. The most famous names of the French
perfume industry have just been sentenced by the Competition Council to pay a global fine of 46.2 M € for
having made arrangements at consumers’ expense. Three month ago, the competition cop had already
tackled six of the most prominent luxury hotels of the French capital on the ground of an anticompetitive
agreement.
L'Oréal, Chanel, Guerlain... Overall, thirteen companies and three distributors (Marionnaud, Nocibé and
Sephora) are accused of having fixed the ‘suggested public price’ of the precious fragrances, as well as the
maximum rebates which customers could have hoped for. The result of this policy was to boost prices and
keep them at a high level, and, most importantly, to standardize the price tags among retail stores.”
“(…) luxury perfume and cosmetics brand holders and three French retail chains on the ground
of price fixing during the years 1997-2000. […] Overall, the fine amounts to 46.2 million euros. […] According
to the Council, such practices have resulted in a ‘confiscation’ of the consumer’s faculty to buy his/her
perfume at a lower price.”
Extremely severe consequences on the companies:
high financial penalties (up to 10% of worldwide consolidated turnover)
obligation to cease or modify certain behaviors
high indirect costs (attorneys’ fees…)
damage to the Group image and reputation (Sephora / LVMH)
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Supplier / Distributor Relationships
Principle = Sephora is free to determine its commercial policy
The Supplier (“a brand”) must refrain from attempting to control / hinder the commercial policy of Sephora
NEVER exchange with the Suppliers on the following matters:
- margin rate
- retail price
- rebate or Sephora’s promotional policy to consumers
NEVER write to a Supplier asking him to intervene with a competitor who applies retail prices lower than
the prices applied by Sephora
NEVER transmit information internally on the aforementioned matters asking your supervisor or Sephora
headquarters services to intervene with concerned Suppliers
A Supplier may set suggested prices (information about product positioning), but Sephora must remain free
to comply or not with them
There are two ways of proving a vertical agreement on prices (“vertical price fixing” or “retail price
maintenance”):
There is a contract including a direct or indirect agreement on prices:
− a contract expressly providing that the distributor must comply with the commercial policy defined
by the Supplier
− an acceptance by the distributor of rebates depending on its compliance with the Supplier’s prices
There is a body of serious, precise and corroborating evidence revealing a deliberate agreement
between the Supplier and the Distributor
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Profitability
Principle: it is allowed to discuss profitability and the practical means to improve profitability
Limits: it is forbidden to determine or guarantee a profitability level / margin
Sephora may discuss profitability on the basis of the Supplier’s General Terms of Sale and:
retail prices observed in Sephora stores during the preceding year
retail prices simulated for the next year subject to presenting several realistic scenarios (including a price increase as well as a price decrease)
various profitability levers
emphasize that Sephora is free to determine its retail prices
use the following terms: “Average profitability level”, “Possible profitability”
never use the following terms: “Margin / fixed profitability”, “Margin / future profitability”, “Margin / guaranteed profitability”
Sephora may not discuss profitability on the basis of:
prices suggested by the Supplier
future retail prices of Sephora and/or its competitors
Sephora and the Supplier must not:
fix / guarantee a profitability level
fix the purchase price in light of a retail price agreed upon by the parties or even accepted by other distributors
define a price adjustment method allowing to modify the selling price in light of the retail prices observed in the market
agree upon the grant of a financial compensation allowing Sephora to align with the retail price of a competing distributor
The Supplier may:
lower its prices
offer a modification of the product assortment
grant better commercial terms
modify its suggested prices
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Suggested prices
Principle: the Supplier may set suggested prices for its distributors (information about product positioning)
Limits: such suggested prices must not hide imposed prices or minimum prices
Sephora must remain free to comply or not with the suggested prices
Suggested prices: what the Supplier must not do
criticize Sephora’s pricing policy and request Sephora to apply the suggested prices
make the grant of commercial benefits subject to the application of the suggested prices
inform Sephora that the suggested prices are applied by competing distributors
threaten Sephora with retaliatory measures if it applies retail prices which are lower than the suggested prices
punish Sephora (ex: stopping the deliveries, stopping the rebates) if it does not comply with the suggested prices
Suggested prices: what Sephora must not do
accept to apply suggested prices in exchange for a price advantage
match the suggested prices of the Supplier with the level of profitability negotiated with him
Inform the Supplier that other distributors apply a retail price which is lower than the suggested prices
ask the Supplier to request its distributors who apply a retail price lower than the suggested prices to increase such retail price
threaten to lower the retail price if the Supplier does not obtain a price increase from the other distributors
ask the Supplier for a compensation for the loss of profit caused by the failure of other distributors to comply with the suggested prices
Question: « I received an email from a Supplier relating to fixed margin /or I received a request from Supplier
to withdraw his products from sales, I did not know what to do so I deleted the emails ».
It is important to reply and not leave such email without any reaction whatsoever from Sephora.
What are the right moves?
Do not transfer the email or communicate the written document unless it is necessary (ex: to send it to your legal counsel)/ To limit its spread.
Answer in writing to the Supplier in order to disassociate yourself from Supplier’s words.
Validate the wording with your legal counsel.
Keep the email/written document and the answer.
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Promotional sales
Reminder: Sephora is free to determine its commercial policy
Principle:
Sephora is fully entitled to offer price reductions (promotional sales or sales period) but there is a limit = Do not cause damage to the brand image: Keep in mind the specific clauses of Selective Distribution Agreement on this matter. So be vigilant of the % of reduction applied to the products.
the Supplier may organize and finance a promotional sale and encourage its distributors to pass it on
the Supplier may set up NPT (New Promotional Tools): amounts paid by the Supplier to the distributor with a view to granting price reductions to consumers. These NPT must be formalized through a mandate agreement (it is mandatory in France, see the template provided by us) or email exchanges.
Limits: it is prohibited to set up agreements on prices or margins in connection with a promotional sale, i.e.:
to prohibit any promotional sale or sales period
to fix a promotional retail price
to ask the Supplier for a “compensation” for the price reductions granted to consumers (guaranteed margin)
Case study: a Supplier asks you not to discount (through sales) its selective products
Email from the Supplier: « Hello, I just learnt that you are going to put on sale 13 of our refs during the
winter sales. I am surprised since, as discussed together, we do not wish to be part of the sales and we had
mutually agreed to take back the overstock so as to reduce its coverage. Could you please make sure that the
refs below are not included in the sales? »
Answer from Sephora: « Pursuant to applicable French and European law, Sephora, as a distributor, is
completely free to determine the retail prices of the products distributed by it. A Supplier may not interfere
with this process. Doing otherwise could be considered as a vertical agreement between Sephora and the
Supplier with a view to fixing retail prices. Accordingly, Sephora is fully entitled to offer price reductions
(promotional sales or sales period) for products bearing your brand. »
Question: « Is it possible to send to Sephora’s head office team a picture of a competitor’s window
showing -25% on Invictus Perfume? »
Yes, it is possible to make competitive intelligence BUT you cannot send the picture with a message asking
Sephora team to react by contacting the Supplier to have an explanation and ask him to take corrective
measures or ask the competitor to stop the -25% !
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Competitive intelligence
Principle: it is allowed to monitor the prices of your competitors
Limit: but such monitoring should not result in the setting up of a price policy
Sephora may monitor prices through:
− official sources (ex: NPD)
− occasional price surveys
− exceptional transmissions of cashier’s receipts (ex: suspicion of resale below cost)
Sephora must not monitor prices through:
− a regular and automatic price monitoring system with a view to controlling competitors’ prices / setting up of a price policy
− repeated transmissions of cashier’s receipts
− the Supplier / Distributor concerned or another Supplier / Distributor.
If a Supplier or competitor asks / sends you information on retail prices, please contact the head office
which will reach the legal department.
Price surveys: access to the stores
Principle: it is permissible to access the stores of competing chains in order to manually or electronically
monitor their prices
Limit: it is however important not to disturb the smooth operation of the store the number of agents
surveying the prices must be reasonable
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Relationships among Competitors
It is prohibited to:
exchange, directly or indirectly, sensitive information (example: information on prices, business secrets, production costs) with your competitors
exchange, agree upon, discuss your retail prices, your promotional sales, with your competitors
allocate customers among competitors
discuss the commercial policy applicable to your Suppliers with your competitors
The indirect exchange of information (the “hub and spoke”) is also prohibited = when two competitors
organize an exchange of information through a third party.
Participation in Trade Associations
Principle: Sephora may become a member of trade associations and participate in business meetings
organized by it
Limit: Sephora must avoid any discussion falling outside the scope of the legitimate interests of the trade
association, including any exchange pursuing an anticompetitive objective or suggesting a collusion with its
competitors
Subject matters which may be discussed:
legislative or regulatory initiatives survey of the public opinion on the sector, certain types of products institutional advertising support for research (if the whole sector has access to the results) participation in collective legal actions (after consulting your legal counsel) statistics, only if they are retrospective, collected by a third party and transmitted to all the
members
Subject matters which must not be discussed:
prices, rebates and, as a general rule, terms of sale applicable to the products promotional activities and marketing investments costs resulting from the activity, whether past, present or future production levels and methods, inventory levels, volumes of raw materials purchased any confidential information, trade secrets or sensitive commercial information relating to the
activity
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The right moves?
Before the meeting, obtain an agenda. If the subject matters to be discussed are inappropriate: warn the
association;
if such subject matters are not discarded, do not attend the meeting and notify your absence in writing
During the meeting, if inappropriate subject matters are discussed: warn the participants
put an end to any discussion with your competitors if you consider that the subject matter being discussed
raises competition problems
be careful with what you say with your competitors: the interpretation of your words might surprise you
do not transmit information relating to one of your Suppliers to another Supplier of yours
do not transmit information relating to one of your competitors to one of your Suppliers
if such subject matters are not discarded, leave the meeting and request that your departure be expressly
recorded in the minutes of the meeting
At the end of the meeting, exhaustive and precise minutes of the meeting, which shall be proofread, if
possible, by the association’s legal counsel, must be circulated.
Question: « Regarding participation to Trade Association/external meetings, for example can I speak with
a department Store about our payment terms with Suppliers? »
No, payment terms are sensitive commercial data which are confidential.
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COMPETITION LAW CHARTER
Intended for employees of the LVMH Moët Hennessy – Louis Vuitton Group
December 2012
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OUTLINE
FOREWORD
I. THE ROLE OF COMPETITION LAW
1. What purpose does competition law serve? 2. Why is it important to comply with competition law?
II. THE FUNDAMENTAL RULES OF CONDUCT 1. Prohibited anti-competitive agreements
2. Prohibited abuse of a dominant position
3. Prior regulatory approval for merger control purposes
4. Fair competition
5. Consumer protection
III. CONCLUSION
CONTACTS
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FOREWORD
To all employees of the LVMH Moët Hennessy – Louis Vuitton Group, LVMH development on a global basis is based on a set of values and principles supporting business ethics, social responsibility and environmental performance. These values and principles, which form the basis of the Group’s corporate culture, are enshrined in the Code of Conduct adopted by LVMH and applicable to all of its operations. In particular, the Code of Conduct outlines the Group’s unyielding commitment to the principle of free and undistorted competition in the markets where it operates. Only fair business practices can effectively guarantee that markets function optimally, thus fostering innovation and prosperity on a long-term basis. The purpose of this Competition Law Charter is to implement in a single and consistent document this commitment across the entire Group. It aims at developing a genuine culture of compliance with competition rules throughout the Group. To this end, this Charter explains the purpose served by competition law and the reasons why compliance matters. It also sets out the main rules that must be followed in the everyday conduct of business. This Charter sets the standards of business behavior that the Group expects each and every employee to meet with respect to competition law. These standards will be adapted to each business unit or Group company (Maison) to take account of their specific features. Failure to comply with competition rules can deprive the Group of the benefits of fair competition. It may also expose the Group – and its employees as individuals – to significant financial and criminal penalties. I thus expect each and every one of you, regardless of your professional duties or position, to strictly comply with these rules. At stake is nothing less than the responsibility, reputation and prosperity of the Group and its brands.
Antonio Belloni
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Please note that this Competition Law Charter is not exhaustive and is not intended to turn each employee into a specialist in competition law, which is complex and constantly evolving. However, in a very pragmatic sense, it should help you both to pinpoint the kinds of behaviors to be avoided within the Group and to identify high-risk situations. If in doubt, all employees are encouraged to contact a compliance officer to obtain an informed opinion.
I. ROLE OF COMPETITION LAW
1. What purpose does competition law serve?
In a market economy, free competition is the best type of organization to maximize wealth
creation and consumer well-being.
Free competition between companies active in the same market is considered as the best system to achieve economic growth and full employment. In Europe, free competition also contributes to a political goal of integration by creating a single market without borders between Member States. Competitive pressure is an important driver of innovation and technical progress. Competitors are continuously encouraged to be creative, bring bold ideas to the fore, and maintain momentum in order to optimize resource allocation and set themselves apart by offering end customers the best goods and services in terms of choice, quality or cost. Free competition is thus the best way to ensure economic efficiency. Free and undistorted competition implies that companies act in the market as autonomous and responsible economic entities. Each market player must determine its own strategy and behavior in order to differentiate itself from other players in the market on the basis of a competition on merits. Any action or practice that would limit the uncertainty of a competitive marketplace would be likely to hinder free competition. For instance, this is the case of any allocation or restriction of sales territories or products between competitors. It also applies to abusive practices by a dominant company that unfairly restrict its competitors’ access to markets. In this context, competition law aims to establish a fair and safe business environment that encourages competition on merits. Each market player may then pursue its own development by offering the best products and services for the benefit of consumers, businesses, and society at large. Competition law also provides for repressive measures whereby sanctions are imposed on practices that have as their object or effect of limiting free competition in the market. It further encourages the establishment of compliance programs aiming at fighting against anti-competitive practices.
2. Why is it important to comply with competition law?
Compliance with competition law allows companies to enjoy the benefits of a free and fair competition on merits. It also protects the company against significant sanctions in the event of breach of competition law.
Competition law allows companies to make the most of the conditions created by a market economy. By prohibiting practices that have as their object or effect the restriction of free market operations, competition law prevents the adverse consequences that these practices may have for consumers, businesses and society at large. Further, one shall bear in mind that competition authorities, in Europe and in the United States, but also in the emerging markets, strictly monitor compliance with competition law and impose hefty fines or penalties for any established infringement. In performing their duties, competition authorities have developed very effective tools for identifying violations of competition law:
Broad investigatory powers granted to competition authorities enable them to conduct unannounced dawn raids to inspect companies’ premises or the private homes of executives and
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other employees, interview any employee or seize any documents in whatever form (including, for example, electronic messages and documents or personal organizers).
Many competition authorities have given themselves a particularly effective tool for identifying competition law violations by adopting leniency programs. These programs enable a cartel participant to benefit from full immunity from fine if it is the first to denounce it to the authority. It also allows the other denounced participants to benefit from a substantial reduction in fines, whose amount is determined on the basis of the start date of their cooperation with the authority and the quality of their contribution to the proceedings. Leniency programs thus give companies and their employees a genuine incentive to rapidly denounce any infringements committed and to cooperate with the authorities. Consequently, most cases handled today by competition authorities were revealed to them by one of the parties to the infringement.
The sanctions incurred constitute a major risk for the Group as a whole and for its employees as individuals.
In some countries, the company responsible for anti-competitive practices may face fines as high as 10% of its previous year’s revenues, taking into account the gravity and duration of the infringement, together with any aggravating circumstances (such as repeated infringement or company size) or attenuating circumstances (such as cooperation with the investigation). In principle, fines only apply to companies having directly taken part in anti-competitive practices. Nevertheless, in some circumstances, a parent company may be deemed responsible for the anti-competitive practices of any of its subsidiaries; in such case, it is the consolidated revenues of the group to which the parent company and this subsidiary belong that may be taken into account in calculating the amount of the applicable fine. The amount of fines imposed may therefore end up being quite substantial. For example, in 2008 Saint-Gobain was fined by the European Commission in the amount of 896 million euros as one of the four members of the “car glass” cartel. This amount represented about 95% of annual sales for the business segment and several decades’ worth of net profit for this business unit. Furthermore, in cases where the infringement had effect in several countries, sanctions may be imposed concomitantly for the same offense in different jurisdictions. For instance, in 2007 the US Department of Justice fined British Airways 200 million US dollars for price fixing as a member of the “air cargo” cartel. In 2010 the airline was then fined 104 million euros by the European Commission for its participation in this same cartel. Apart from fines, the company responsible for anti-competitive practices may be subject to the following additional sanctions:
structural or behavioral obligations (disposal of assets or production capacity, reductions in the term of supply agreements);
payment of damages to third parties, and in particular to consumers adversely affected by the anti-competitive practices or agreement;
cancellation of unlawful deals or agreements;
publication in the press of the decision to impose sanctions on the company.
Anyone within the Group (operational staff as well as executives) who personally and decisively takes part in anti-competitive practices may incur criminal sanctions (prison sentences and fines). This is notably the case in some countries like the United States and the United Kingdom where managers, irrespective of where they are based, are often sentenced to jail for taking part in anti-competitive practices which, even if committed in another country, have an impact on their territories. Lastly, it is important to underline that any sanction for anti-competitive practices may have serious consequences for the Group’s reputation. Any sanction of this kind is likely to lead to a loss of confidence among investors, suppliers, customers, and other market stakeholders.
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For all of these reasons, it is essential that each and every LVMH employee be aware of the risks involved and act accordingly at all times. This document includes a table (Appendix) listing the main sanctions incurred by the Group and its employees in case of breach of competition law in the main countries where LVMH is active.
European Union: hefty fines and full immunity
In 2011, the European Commission ordered Proctor & Gamble and Unilever to pay fines of 211 million euros and 104 million euros, respectively, for their participation in an anti-competitive arrangement in the market of laundry detergent in several European countries between 2002 and 2005.
Once this cartel was discovered by the Commission, the companies in question admitted having taken advantage of meetings of their trade association that had been convened for ostensibly lawful purposes in order to join efforts to promote market stabilization and coordinate price increases by exchanging confidential commercial information.
It should be noted that Henkel, one of the three cartel participants, was granted full immunity from fines, since it was the first member of the cartel to supply evidence to the European Commission in support of its request for leniency. It was only as a result of Henkel’s action that the Commission was able to carry out unannounced dawn raids at the premises of Procter & Gamble and Unilever, thus bringing together sufficient information to prove the existence of a cartel.
United States: jail sentences for employees in addition to fines for companies
In 2011 and 2012, the US Department of Justice revealed the existence of a cartel between the world’s leading manufacturers of liquid crystal display (LCD) panels, which are used in particular for televisions and computer monitors.
As a result of the DoJ investigations, seven foreign LCD manufacturers and their US subsidiaries pleaded guilty to exchanging confidential information at trade association meetings and fixing prices for LCD panels sold in the United States and elsewhere in the world over a 5-year period.
The Antitrust Division of the Department of Justice (the US competition authority) ordered these companies to pay total fines of 890 million US dollars. In addition, 18 executives were ordered to serve a total of 2,681 days in jail.
United Kingdom: claim brought by a consumers’ association
In February 2007, the British courts upheld the decision against JJB Sports by the Office of Fair Trading (the UK competition authority) that the company had participated in a price-fixing arrangement with its competitors relating to shirts sold at the Euro 2000 competition, and England and Manchester United football shirts.
Following this decision confirming that competition law had been infringed, the Consumers’ Association, Which? brought a claim against JJB Sports to recover damages on behalf of consumers who had bought their football shirts at prices inflated in breach of competition rules during the period in question. At the conclusion of their negotiations, JJB Sports and the Consumers’ Association Which? announced that they had reached a settlement agreement under which JJB Sports agreed to compensate consumers who had bought football shirts affected by the price-fixing arrangement. In addition, JJB Sports was ordered to reimburse the legal costs incurred by Which? in bringing this consumer damages action.
France: retail group ordered to amend a distribution agreement
In 2010, the Autorité de la concurrence (ADLC, the French competition authority) informed a major retail group that the provisions of a its new franchise agreement, which imposed more restrictive conditions (increase in the term of the agreement from 3 to 7 years, introduction of non-reaffiliation and non-compete obligations, as well as various other clauses to the exclusive benefit of the retail group) could raise competition concerns. The ADLC concluded that this new franchise agreement was likely to constitute an abuse of market power by the retail group in question with regard to its franchisees.
In order to respond to these competition concerns, the retail group submitted in 2011 a set of
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proposed undertakings to the ADLC. Following a public market test, the ADLC made these undertakings legally binding on the retail group, which was thus required to relax the provisions of several clauses contained in the new franchise agreement (e.g., initial term of the agreement reduced to 3 years, withdrawal of the non-reaffiliation and non-compete obligations, adjustments to various rights granted to the retail group).
II. FUNDAMENTAL RULES OF CONDUCT
1. Prohibited anti-competitive agreements
Competition law prohibits anti-competitive agreements between independent undertakings, which have as their object or effect, actually or potentially, of limiting competition in the market.
Anti-competitive agreements include any type of agreements or concerted practices between two or more independent undertakings, whether they are direct competitors or are involved in a supplier-customer vertical relationship. Competition authorities do not need to establish the existence of a formal written agreement in order to sanction the infringement. An exchange of correspondence (letters or e-mail messages) or oral discussions, even informal ones, may constitute an anti-competitive agreement, provided that companies which should be autonomous actors in the market share a common purpose having as its object or effect the restriction of the free competition. Examples Any of the following may be considered to be an anti-competitive agreement:
an agreement between competitors not to compete within specific geographical areas or in relation to specific types of customers;
collusion between a supplier and a retailer on the final selling price for a product to be paid by consumers (resale price maintenance);
an exchange, even an informal one, between competitors involving sensitive commercial information, which reduces uncertainty in the market or which results in a mutually agreed behavior (relating to profit margins, market shares, data on retailers or customers, future prices, etc.).
These practices are among the most serious infringements of competition law and are very severely sanctioned. 2. Prohibited abuse of a dominant position
Competition law prohibits any abusive behavior by one or more undertakings
holding a dominant position on a relevant market.
A company holds a dominant position in a given market if it enjoys market power to such an extent that it may act independently of its customers and suppliers without being troubled by the pressure that would normally be exerted on its business policy by its competitors. It is generally agreed that a company may be considered to hold a dominant position if it has a large market share (usually more than 40%) in a given market. However, in certain markets, a relatively small market share may be sufficient to create a dominant position. In particular, this will be the case in markets where there are many competitors with market shares much smaller than that of the leading player.
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The fact that a company holds a dominant position is not anticompetitive per se. However, such a position gives the dominant player greater responsibility in relation to its trade practices. Specifically, competition law prohibits the abuse of a dominant position to exclude competitors from the relevant market or pose significant barriers to their entry or expansion in this market. Such an abuse may be observed in the market where the dominant company operates or even in a secondary market (adjacent, upstream or downstream). Examples Any of the following may constitute the abuse of a dominant position:
discrimination against some partners, whether customers or suppliers (applying dissimilar conditions to equivalent services without objective and fair justification);
making the conclusion of a contract conditional upon acceptance by the other parties of services unrelated to the subject of the contract (tying and bundling);
imposing unduly lengthy exclusive conditions.
3. Prior regulatory approval for merger control purposes
In some cases, competition law requires companies that are party to concentrations (mergers, acquisitions, joint ventures) to obtain prior regulatory approval from the competent competition authorities for merger control purposes.
Any contemplated concentration must therefore be duly assessed from an economic and legal standpoint in order to determine whether prior regulatory approval by the competent competition authorities is required for merger control purposes. Example: in some countries, the creation of a joint venture with a competitor or business partner may be subject to prior regulatory approval by competition authorities.
4. Fair competition
Competition law prohibits acts of unfair competition.
Competition must always be free and undistorted. It must also be fair. Companies are free to compete to conquer new markets or new clients. This is the very foundation of free competition in the marketplace. The fact that a company may take a customer away from a competitor or any other company is not in itself reprehensible under competition law. But the means used to achieve this end must be fair, honest and consistent with standard trade practices. Examples Some commercial practices are to be avoided absolutely, such as:
an imitation which might give rise to confusion of a competitor’s product or service;
disclosing trade secrets belonging to a third party;
the systematic “poaching “ of a competitor’s employees;
free-riding on the market achievement of a brand or company, thus taking unfair advantage of the reputation or distinctiveness of another’s trade mark to develop one’s own customer base without expending any effort;
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denigrating a competitor by spreading rumors and false reports about its products. In France and in many other countries, these types of practices fall within Courts’ jurisdiction (in France, such cases are heard by the commercial courts). 5. Protection of consumers
Consumers enjoy significant rights to information and protection.
An increasing number of countries have adopted stringent regulations to prevent practices aiming at deceiving or misleading consumers, whether in relation to acquisition and marketing methods or in the context of a business relationship. Specific rules are imposed for some types of promotional events, advertising, sales or rebates so as to ensure that consumers are protected and appropriately informed. Any failure to comply with these rules can lead to sanctions under civil and/or criminal law. Similarly, the marketing of some products – and this is particularly the case as regards wines and spirits – is covered by very strict regulations, especially in relation to advertising. Examples In order to respect the consumers’ right to information and protection, companies are required to:
ensure that the elements to be brought to the attention of the consumer are strictly defined before concluding a contract for a product or service;
set guidelines for comparative advertising, which must objectively compare essential, relevant, verifiable and representative characteristics of products, without denigrating competitors or misleading consumers;
prohibit misleading advertising that includes false claims or claims likely to mislead the consumer with respect to the product or service.
III. CONCLUSION The key principles set out in this Competition Law Charter will be implemented at the level of each business branch or brand (Maisons) under the responsibility of their executive management in order to take into account their specific features and the risks inherent to their respective business activities as well as the applicable local legislations. They can count on the assistance of their legal staff and the support of the Group’s Legal Department. This implementation will be accompanied by awareness, education and training initiatives in relation to this Competition Law Charter, tailored to the specific identified needs on a case-by-case basis. It will be the responsibility of each Group company (Maison) to put in place adequate internal procedures to prevent any infringement of competition rules, identify and put an end to any violations and, whenever necessary, prevent recidivism. The objective is to ensure that all employees remain fully informed and supported at all times, thus assuming their personal responsibility and full accountability for compliance with competition law in their day-to-day business conduct. This is a general and ongoing commitment that must apply to everyone without exception so that the Group as a whole can draw the best possible advantage from free and undistorted competition.
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CONTACTS
For any questions about this Competition Law Charter or if in doubt about any specific practice you may get in touch
with the compliance officer:
LVMH Moët Hennessy – Louis Vuitton
Legal Department
22, avenue Montaigne
F-75008 Paris
Tel.: +33 (0)1 44 13 22 22
Fax: +33 (0)1 45 61 18 74
22
Appendix
Main sanctions incurred by companies and their employees in case of breach of competition
law, as applicable country by country
On the basis of publicly available information as of September 1, 2012
EU countries
Corporate penalties Individual penalties
Administrative
sanctions Prison sentence Fine
European Union 10% of revenues - -
France 10% of revenues 4 years €75,000
Germany €1 million or 10% of
revenues
5 years (offence
specific to public
procurement contracts)
Yes
Austria 10% of revenues
3 years (offence
specific to public
procurement contracts)
Yes
Belgium 10% of revenues
6 months (offence
specific to public
procurement contracts)
Yes
Denmark No maximum amount No No maximum amount
Spain 10% of revenues No €60,000
Estonia From €3,200 to
€16 million 3 years
Between 30 and 300
times the daily wage
Finland 10% of revenues 6 months Yes
Hungary 10% of revenues 5 years No
Ireland €4 million or 10% of
revenues 5 years €4 million
Italy 10% of revenues
2 years (offence
specific to public
procurement contracts)
From €103 to €1,032
Luxembourg 10% of revenues No No
Netherlands €450,000 or 10% of
revenues
Draft Law under
examination Up to €450,000
Poland 10% of revenues
3 years (offence
specific to public
procurement contracts)
Up to 50 times the
monthly salary
23
Portugal 10% of revenues No Yes
Czech Republic 10% of revenues 2 years Yes
Romania 10% of revenues From 6 months to 4
years Yes
United Kingdom 10% of revenues From 6 months to 5
years No maximum amount
Slovakia 10% of revenues 3 years Yes
Sweden 10% of revenues No SEK 5 million (about
€560,000)
Non-EU countries
Corporate penalties Individual penalties
Administrative
sanctions Prison sentence Fine
South Africa 10% of revenues No No
Argentina
From ARS 10 million to
ARS 250 million (about
€2 million to €3 million)
No No
Australia
AUD 10 million (about
€6 million) or 3 times
the gross pecuniary
gain derived from the
offense or 10% of
revenues
10 years AUD 220,000
Brazil Between 1% and 30%
of revenues From 2 to 5 years Yes
Canada CAD 10 million (about
€6.5 million) 5 years
CAD 10 million (about
€6.5 million)
Chile 20,000 annual tax units
(about €9 million) No
20,000 annual tax units
(about €9 million)
China 10% of revenues 3 years RMB 100 million (about
€9.2 million)
South Korea 10% of revenues 3 years KRW 200 million
(about €130,000)
United States
USD 100 million or
twice the total gains
derived by the
companies
participating in the
10 years
USD 1 million or twice
the total gains derived
by the individual or
twice the total losses
suffered
24
cartel or twice the total
losses suffered by the
victims
India 10% of revenues 3 years No
Japan
10% of revenues for
manufacturers, 3% for
retailers, 2% for
wholesalers
3 years JPY 5 million (about
€50,000)
Mexico From 225 to 375 times
the minimum wage No
7,500 times the
minimum wage
Norway 10% of revenues From 3 to 6 years Yes
New Zealand
NZD 10 million (about
€6.3 million) or 3 times
the gross pecuniary
gain derived from the
offense or 10% of
revenues
Draft Law under
examination
NZD 500,000 (about
€250,000)
Russia 4% of revenues No Yes
Singapore 10% of revenues 1 year SGD 10,000 (about
€4,700)
Switzerland
10% of revenues
generated in
Switzerland over the
last 3 years
No No
Taiwan TWD 100 million
(about €2.1 million) 3 years
TWD 100 million
(about €2.1 million)
Turkey
10% of revenues, with
a minimum of
TL 13,591
2 years 10% of the fine levied
against the company
Venezuela Between 10% and 40%
of revenues No No
