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Case:
Conseil d’Etat No.201853 Case The Coca-Cola Company
Date:
09 April 1999
Translated by:
J T Brown
Copyright:
Professor B. S. Markesinis

Conseil d’Etat
No.201853
Case The Coca-Cola Company

9 April 1999

(…)

Given that (i) pursuant to the terms of the said Statute (“ordonnance”) of 1 December 1986: “Any proposed amalgamation (“concentration”) or any actual amalgamation having not more than three months’ existence may be referred to the Minister Responsible for the Economy by an affected business (…)”; (ii) further, pursuant to Article 42 of the same Statute, “The Minister Responsible for the Economy and the Minister into whose area of action the economic sector in question falls may, following the issuing of the opinion of the Competition Council, by a reasoned order and with a deadline, instruct the businesses either (a) not to go ahead with the proposed amalgamation or to re-establish the previous situation or (b) to amend or add details to the deal or to take any action capable of guaranteeing of re-establishing sufficient competition./ They may also condition the completion of the deal to the realisation of recommendations of a kind which will make a sufficient contribution to economic and social progress to set off damage to competition (…)”;

Given that, pursuant to these provisions, the Minister of Economy, Finance and Industry and the Minister of Agriculture and Fishing, seized by The Coca-Cola Company of a proposed acquisition of the assets of the Pernod-Ricard group relating to French aspects of the drinks “Orangina”, by an order dated 17 September 1998, enjoined the said company, which had submitted this proposal to them, to desist;

Concerning the competence of the Conseil d’Etat at first instance:

Given that, pursuant to Article 2 of the Decree of 30 September 1953, cited above: “ The Conseil d’Etat shall be competent to hear at first and last instance … (3) petitions made against administrative actions whose field of application goes beyond the jurisdiction of one administrative court”;
Given that (i) it is clear from the documents filed that the injunction made by the order under attack concerned a proposed acquisition of trade marks and other elements of intellectual property, as well as shares held by the Compagnie Financière des Produits Orangina, itself a 100% subsidiary of Pernod-Ricard; (ii) the order under attack, which has direct effects on the companies mentioned above, must be considered, for the purposes of Article 2-3 of the Decree of 30 September 153, as having an effect which extends beyond the jurisdiction of one administrative court; and (iii) thus the Conseil d’Etat is competent at first and last instance to hear the pleadings made against that order;

Concerning the legal basis of the order under attack:

Concerning the powers of the signatories of the order under attack:

Given that it flows from the combined provisions of the amended Decree of 23 January 1947 authorising ministers to delegate signature powers and the orders of 19 June 1997 of the Minister of Agriculture and Fishing and 30 June 1997 of the Minister of Economy Finance and Industry delegating powers and properly published, that as of the date of the order under attack Mme. Guillou, Director General for Food on the one hand, and M. Gallot, Director General for Competition, Consumer Affairs and the Fight against Fraud on the other, had been duly mandated by the Minister of Agriculture and Fishing and by the Minister of Economy Finance and Industry respectively to sign, within the limits of their powers, all documents, orders, or decisions in the name of their minister, with the exception of decrees; and (iii) in the light of this, the petitioning company is not well founded in claiming that the order signed by the said two general directors was tainted with ultra vires;
Concerning the existence of an implicit decision of acceptance which prevents the issuing of an explicit decision:

Given that (i) pursuant to Article 40 of the Statute of 1 December 1986 cited above: “(…) Silence maintained for two months on a proposed amalgamation submitted to the competent minister amounts to tacit acceptance of the proposal or of the amalgamation as well of the undertakings accompanying it. This period is extended to six months if the minister seizes the Competition Council”; (ii) further, pursuant to the terms of Article 28 of the Decree of 29 December 1986 cited above: “A notification made to the Minister Responsible for the Economy of a proposal or an amalgamation pursuant to Article 40 of the Statute shall include a file (…)/ The starting point of the period of two months laid down by Article 40 of the Statute is fixed as the day upon which receipt is acknowledged, provided the file is complete”; (iii) it flows from these provisions on the one hand, that , if the notification of the proposal or the amalgamation does not contain all the documents necessary to enable the Minister Responsible for the Economy to appreciate the what is envisaged, it falls to the ministry to request the business in question to complete its notification, and, on the other hand, in that case, that the receipt delivered by the ministry concerning the file and being the starting point of the period mentioned above is to be sent to the applicant as soon as the file is complete; and (iv) if the receipt is not delivered on that very day it must stipulate the date upon which the complete file was received, which will then be the starting point of the period;

Given that (i) although Coca-Cola notified, on 11 February 1998 to the Minister of Economy Finance and Industry the amalgamation proposal which is before the Court, the Director General of Competition Consumer Affairs and the Fight against Fraud, by letter dated 5 March 1998, asked that company to complete its notification by supplying, in particular, information concerning the links between itself and Coca-Cola Enterprises Inc., the markets of alcohol-free refreshing drinks and alcohol-free fizzy drinks, as well as the bottling market affected by the proposal; (ii) this information was necessary in order to identify the businesses with which Coca-Cola is economically linked and in order to determine the markets to be considered and to calculate the shares held on such markets by the parties to the proposed amalgamation; (iii) the documents sent by the petitioning company in reply to the request of the ministry having been recorded only on 17 March 1998, the receipt delivered on 24 March stating that the file was complete on 17 March 1998 must be considered to have caused the period from which arises an implicit decision to have commenced on the latter date, (iv)the calculation of that period should then have been made as from 18 March at hour zero; (v) in these circumstances no implicit decision of acceptance of the proposed amalgamation fell on 7 May 1998, the date upon which the Minister of Economy Finance and Industry decided to seize the Competition Council; (vi) the period of six months fixed in such a case by the provisions of Article 40 of the Statute of 1 December 1966 expires only on 17 September 1998 at 24.00 hours; and (vii) it is not contested that the notification of the decision under attack was made on 17 September 1998 before 24.00 hours;

Given that this notification was properly served at the Paris office of counsel to Coca-Cola;

Given that, in these circumstances, no implicit decision of acceptance had come into being at the date upon which the signatory ministers notified the order under attack;

Concerning the full participation of both parties in the procedure (“nature contradictoire de la procédure”):

Given that, in the first place, (i) pursuant to Article 44 of the Statute of 1 December 1986 cited above: “The procedure applicable to decisions under Title V is that set out in the second paragraph of Article 21 and in Articles 23 to 25. How ever the persons concerned must produce their observations in reply to the communication of the report within the period of one month (…)”; (ii) further, pursuant to Article 21 of the same Statute:”(…) the Council shall notify its criticisms to the persons concerned, and to the Government Commissioner (“Commissaire du Gouvernement”), all of whom may consult the file and present observations within a period of two months./ The report shall then be notified to the parties, to the Government Commissioner, and to the ministers concerned. It shall include the documents upon which the draftsman relies, and the observations made, as the case may be, by the persons concerned./ The parties shall have a period of two months within which to present a memorandum in reply, which may be consulted by the persons mentioned in the preceding paragraph during the period of fifteen days preceding the hearing”; (iii) pursuant to the second paragraph of Article 18 of the Decree of 29 December 1986 relating to the application of Article 21 of the Statute cited above: “any opinion of the ministers concerned shall be sent to the Competition Council through the Government Commissioner”; (iv) it follows from the above that ministers may make known to the Competition Council, in writing in the form of a report communicated prior to the public hearing in the same way as is provided for the concerned parties, or orally during the hearing through the Government Commissioner, the observations they feel it necessary to make about the report drawn up by the draftsmen of the Council concerning, in particular, the economic amalgamation, and, contrary to the pleadings of the petitioner company, the presentation of such a report does not imply in itself that the decision which the ministers will take after the proceedings has already been made; (v) the petitioner company cannot claim that the principle of the full participation of all parties in the administrative proceedings (“principe du caractère contradictoire de la procédure administrative”) was breached on this occasion since, addressee of these observations, it was possible for it, despite the short time periods applicable before the Competition Council, to reply, either in writing or, as it in fact did, during the hearing, when its representatives were heard; and (vi) in these circumstances, the petitioner company has no grounds for claiming that the procedure at the end of which the Competition Council gave its opinion of 29 July 1998 on the proposed amalgamation before this Court was tainted with illegality (“irrégularité”);
Given that, in the second place, (i) pursuant to the terms of Article 30 of the Decree of 29 December 1986, issued for the application of the Staute of 1 December cited above: “Before taking the decision envisaged in Article 42 of the Statute, the Minister Responsible for the Economy shall send the draft decision, and the opinion of the Competition Council, to the concerned parties, and shall give them a deadline for expressing their observations”; (ii) although this provision does not fix the length of this period, the parties concerned must be put into a position which enables them usefully to present their observations; (iii) although the period granted to The Coca-Cola Company to produce its observations was only of four days after the communication to it of the draft of the decision of the ministers and the opinion of the Competition Council, it is clear from the file before the Court that as of the date of such communication, the petitioner had already been put in the position, during working meetings held with the service , to know the direction taken by the opinion of the Competition Council, the elements of analysis it contained, the position which the ministers proposed to take, and the economic and legal reasoning which led them thereto; and (iv) in such conditions, The Coca-Cola Company must be considered, in the circumstances of the case, to have been in a position to present its observations in a considered way (“utilement”);

Concerning the internal legality of the order under attack:

Concerning the field of application of the control laid down in amalgamation cases:

Given that pursuant to the terms of Article 38 of the Statute of 1 December 1986 cited above: “Any proposed amalgamation or any actual amalgamation which may harm competition, particularly by creating or reinforcing a dominant position, may be referred, by the Minister Responsible for the Economy, to the Competition Council for an opinion./ These provisions apply only when the businesses involved in the deal or which are its object or which are economically linked to them have either carried out 25% of the sales, purchases or other transactions on a national market of goods, products or services capable of substitution (“substituables”) or on a substantial part of such a market or achieved a turnover exclusive of tax of more than seven billion francs, provided that two at least of the businesses which are parties to the deal have a turnover of at least two billion francs”;

Given firstly that (i) it appears from the documents in the file before the Court that The Coca-Cola Company has nearly 40% of the votes on the Board of Coca-Cola Enterprises Inc. And that as to more than 90% of its turnover this company distributes products sold under a trade mark and made in accordance with manufacturing techniques of which The Coca-Cola Company holds the intellectual property; and (ii) without it being necessary to make a finding on the question as to whether the first of these companies exercises a determining influence on the second, it flows from the above that the two companies and their respective subsidiaries must be considered to be economically linked within the meaning of Article 38 cited above;

Given secondly that (i) in order to define the national market of products which are capable of substitution which is to be taken into account for the purposes of determining the market share held by the businesses which are parties to the amalgamation proposed by The Coca-Cola Company, the ministers have, on the one hand, found that within the market of alcohol-free refreshing drinks, bottled water, non-fizzy drinks and “colas” could be only partially substituted for other drinks because of their physical characteristics, the habits of consumers, and data relating to prices or the image of the product and that it was therefore appropriate to find the existence of a market for alcohol-free fizzy drinks “other than colas”; and (ii) by proceeding in this way and basing themselves on the existence within the market so defined of two distribution circuits, that of the “food chain” (“distribution alimenatire”) and that of “ex-household” distribution (“distribution “hors foyer””), the latter to be distinguished from the former by reason of the services accompanying it and the spatial constraints peculiar to the distributors who operate in it, the ministers correctly analysed the pertinent markets of which account had to be taken, and proceeded to a true evaluation of the facts of the case;

Given thirdly that it appears from the documents in the file before the Court and that it is not contested that in 1996, the last year for which data was available, The Coca-Cola Company and Compagnie Financière des Produits Orangina and its subsidiaries together held 25% of the market for alcohol-free fizzy drinks “other than colas”, destined for “ex-household” consumption, that is to say a market share superior to the threshold fixed by Article 38 cited above for the determination of businesses whose proposed amalgamations are subject to the control of the relevant ministers;

Given that it flows from all the foregoing that the ground of the petitioning company claiming that the proposed amalgamation, which it itself submitted to the competent authority, did not fall into the field of control of such authority must be rejected;

Concerning the anti-competitive effects of the proposed amalgamation deal:

Given that (i) the ministers, in order to evaluate the anti-competitive effects of the proposed amalgamation deal, based themselves upon the existence within the sector under consideration, of a “range” or “portfolio” effect resulting from the fact that, taking into account the difficulties of access to this sector it is indispensable for a producer which wished to enter it or to stay in it, to propose to buyers a mixture of complementary alcohol-free fizzy drinks, including at one “cola”, an orange-flavoured fizzy drink, and a clear fizzy drink, one of such products also needing to be distributed under a trade mark considered to be “unavoidable” (“incontournable”) in the light of the demand of consumers; (ii) the minister also observed that the Coca-Cola group, which holds 89% of the market for “ex-household” “colas”, as well as an “unavoidable” trade mark in this sector, would, had the deal been done, hold 61% of the connected market of alcohol-free fizzy drinks of the “ex-cola” “ex-household” type, as well as another “unavoidable” trademark on this connected market, (iii) thus, in the market for alcohol-free “ex-cola “ex-household” fizzy drinks the Coca-Cola group could benefit from a “range” or “portfolio” effect which could bring about an anti-competitive situation; (iv) the ministers noted that the Pepsico group, bound by a distribution agreement with Orangina and placed in a situation of direct competition with the Coca-Cola group, would no longer have at its disposal a complete range of sufficiently well-known products to constitute an alternative to the offers of Coca-Cola; and (v) the ministers found that this situation on the “ex-household” market would not fail to produce anti-competitive effects on the “food chain” market;

Given that (i) the elements produced by the petitioner company and included in the file before the Court attempt to play down the incidence of the “range” or “portfolio” effect highlighted by the ministers, since this effect can also result from the admixture of other refreshing drinks than those set out above, and since it has no systematic nature; and (ii) however, the possession by Coca-Cola of two products considered to be “unavoidable” would constitute, for purchasers in the “ex-cola” ex-household” market, and in particular those who have a national dimension, a determining factor in the choice of their supplier, and so would have anti-competitive effects on the relevant market;

Concerning the alleged existence of set-off of anti-competitive effects by a sufficient contribution to economic and social progress:

Given that (i) the petitioner company mentions development prospects abroad for the mark Orangina thanks to the proposed deal, as well as the development possibilities for the Pernod-Ricard group arising from the proceeds of the sale of its assets relating to Orangina drinks; and (ii) the imprecision, however, of the data supplied on these two points does not permit the Court to establish that the anti-competitive effects of the proposed deal could be set off against a sufficient contribution to social and economic progress linked to the possibilities of development which the deal would have brought to Orangina and the Pernod Ricard group;

Concerning the legality of the injunction issued:

Given, in the first place, that (i) although the petitioner business, as permitted by Article 40 cited above of the said Statute, presented certain proposed undertakings intended to compensate for the anti-competitive effects which have been indicated by the competent ministers of which the principal involved granting a exclusive licence for the sale and distribution of “Orangina” products in part of the “ex-household” market for a guaranteed period of five years to an independent third party, such proposals were insufficient in this case because the period of the licence was too short and its extent too limited; and (ii) as a consequence, when they refused such proposals, the ministers did not proceed to a mistaken evaluation;

Given, in the second place, that (i) The Coca-Cola Company claims that it fell upon the ministers, once they rejected the proposed undertakings proposed by it, to set out adequate and proportional actions which might be imposed upon the parties to the amalgamation deal and to authorise this deal by adding to it an injunction to put such measures into effect, but (ii) it appears from the papers in the file before the Court that in view of the nature and importance of the anti-competitive effects of the proposed amalgamation and the correlative difficulty of determining measures which would be adequate to compensate for them, the decision taken by the ministers simply to oppose the proposed deal cannot be considered to have caused excessive harm to the freedom of trade and industry;

Concerning the abuse of power:

Given that the alleged abuse of power is not proved;

Given that it flows from all of the above, and without it being necessary to come to a decision as to whether the petition could be heard;

DECIDES:
Article 1: The petition of The Coca-Cola Company is rejected
Article2: (…)

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