On 5 December 2018, the FCA sanctioned six household appliance manufacturers a total of €189 million for having engaged in cartel activities by jointly setting (i) increases in recommended retail prices enforced by their distributors when selling products to end-consumers, and (ii) the commercial terms applied to kitchen installers for the displayed models.
The typical features of a cartel illustrated in this case
Although the cartel was qualified as “sophisticated” by the head of the FCA, the main features emphasised in the decision were, in fact, those of a textbook cartel:
- A cartel comprising the largest market players in the sector, together representing up to 70 per cent of the market and the best-known brands
- Price fixing practices relating to mass consumption goods (household appliances such as refrigerators, washing machines, dishwashers and freezers)
- Secret meetings at the highest company level and in luxurious restaurants
- Unofficial meetings and phone calls before and after official meetings within the trade association.
Illegal agreements on price increases and commercial terms
Price increases: In the context of increases in raw material prices, the cartelists decided to agree on a common increase in their recommended retail prices.
Recommending retail prices is a common and legally authorised practice, allowing manufacturers to recommend prices that their distributors may charge to end-consumers, as long as those recommendations do not amount to a fixed or minimum retail price as a result of pressure from, or incentives offered by, the manufacturer.
In this case, the price increases agreed upon by the manufacturers directly affected the prices they charged to their own customers (i.e., distributors), as the distributor purchase price was calculated through a predetermined ratio of the recommended retail price.
In addition, the final price was also directly impacted as recommended retail prices are often retained by distributors.
Commercial terms: Besides those price increases, the leniency application of one of the cartelists allowed to shed light on anticompetitive agreements covering the commercial terms upon which kitchen installers could obtain credit notes for the household appliances they distributed within their displayed model.
An unprecedented enforcement of the ‘single and repeated infringement’ concept
The FCA frequently uses the concept of a continuous infringement, i.e., where there is an overall plan in view of which the FCA may assume that an infringement has not been interrupted even if, in relation to a specific period, it has no evidence of the participation of the undertaking concerned in that infringement.
By contrast, this is the first time the FCA has enforced the European ‘single and repeated infringement’ concept to sanction the cartelists.1 Unlike continuous infringements, the advantage of this legal concept is that the company may be sanctioned only for the period during which it is proved that it participated in the cartel, and so excludes the period during which the infringement was interrupted.
Regrettably, in the case at hand, resorting to the settlement procedure prevents confirmation of the final reduction in fines granted to companies, due to the FCA’s lack of transparency on the range in fines negotiated between the investigation services and the cartelists.
Rewarding cooperation during the investigation phase: the ‘leniency +’ concept
One of the cartelists applied for leniency shortly after the FCA undertook inspections at its premises. It also requested a settlement of the case, by which the fine would be reduced in return for not challenging the allegations brought by the FCA.
Owing to the cartelist’s significant contribution to the investigation in providing decisive evidence proving the existence of anticompetitive agreements, as well as its particularly active cooperation, the FCA ultimately decided to reward the cartelist with a higher reduction in the fine and took the unprecedented step of enforcing the ‘leniency +’ concept.2
Modelled on European law3, this concept allows a leniency applicant to be offered immunity from sanction for any additional fact that the applicant is the first to enable to prove on the basis of compelling evidence. The statements on the case made by the head of the FCA indicate that, in aggregate, the various leniency mechanisms resulted in an overall reduction of 70 per cent to 80 per cent of the fine imposed on the cartelist.
Clearly, the FCA wishes to ensure the attractiveness of the leniency mechanism, and challenge the solidarity of the cartelists with an appealing carrot for the applicant and a firm stick for the other cartelists.
Heavy fines imposed on cartelist
Despite the resort to the settlement procedure, the short duration of the infringements, and the limited harm to the economy due to the strong buying power of the distributors, the FCA imposed heavy fines on the companies participating in the cartel, as follows:
- BSH: €23 million
- Candy Hoover: €15 million
- Eberhardt Frères (Liebherr): €1 million
- Electrolux: €48 million
- Indesit (acquired by Whirlpool): €46 million
- Whirlpool: €56 million
Total: €189 million: the highest fine imposed in 2018 and the tenth highest fine imposed by the FCA for cartel activities since 2000.
Another ongoing investigation in the same sector: to be continued…
Finally, as revealed by the FCA, another decision can be expected in the same (or a directly related) sector, where another investigation is ongoing. However, the FCA omitted to specify which practices it is looking into as well as the level of the market it is investigating (upstream or downstream).
How Reed Smith can help
With extensive experience of competition investigations and litigation before competition authorities and courts, Reed Smith’s EU, Competition & Regulatory team can assist you by reviewing your practices, and advise you from the start of an investigation, by devising the best litigation strategy, including whether to enter into negotiated procedures with the EU and French Competition authorities. We also assist clients in the context of private follow-on claims for damages with respect to anticompetitive practices.
1. Judgment of the General Court in Trelleborg/Commission, T-147/09, para. 88 (17 May 2013). As per this concept:
(i) if the participation of an undertaking in the infringement may be regarded as having been interrupted, and
(ii) the undertaking may be regarded as having participated in the infringement prior to and after that interruption, that infringement may be categorised as repeated if – as in the case of a continuing infringement – there is a single objective which it pursued both before and after the interruption, a circumstance which may be deduced from the identical nature of the objectives of the practices at issue, of the goods concerned, of the undertakings which participated in the collusion, of the main rules for its implementation, of the natural persons involved on behalf of the undertakings and, lastly, of the geographical scope of those practices.
2. Paragraph 22 of its leniency procedural notice.
3. Paragraph 26 of the European Commission’s 2006 notice on immunity from fines and reduction of fines in cartel cases.
Client Alert 2018-250
