Global leader in the zinc sector fined €69.2 million for abuse of dominant position in France

Written on 5 Jul 2016

On 23 July 2016 the French Competition Authority(FCA) fined the Belgian group UMICORE, the main supplier of rolled zinc in France, for long-running exclusivity agreements in France.

Both the parent company and its French subsidiary were fined for implementing a trade policy between 1999 and 2007 that forced UMICORE’s distributors to purchase their supplies exclusively from UMICORE.  The trade policy was accompanied by surveillance, threats and a retaliation system aimed at ‘taming’ the distributors and enforcing exclusivity.

Dominant position

UMICORE sells its products in France under the brand “VM Zinc” and was found to be dominant in its sector (zinc-based roofing products and rainwater systems), with a 70% market share.

With the use of both contractual and commercial systems UMICORE exerted pressure on its distributors in order that they were severely limited – if not excluded entirely – from supplying products manufactured by UMICORE’s competitors.  Exclusivity can be anti-competitive where a supplier has a strong market position, because it has the ability to lock out competitors.

Contractual restrictions

From 1999 until 2004, UMICORE introduced into its distributor contracts a promotional clause under which the distributors committed to ensure the “promotion of UMICORE’s products and brands to the exclusion of products and brands from competitors”.  While this clause is ambiguously worded, the FCA found that distributors considered themselves to be absolutely restricted from selling competing products.

Stockists supplying VM Zinc products were also under an obligation to make the entire range of VM Zinc products permanently available in store.  To enforce this clause, Umicore practiced unscheduled stock visits.  The FCA found that the aim of these visits was to detect the presence of competitors’ products, rather than to verify the volume of VM Zinc stock, or check the conditions of storage  of VM Zinc products.

A unilateral tonnage review clause, which was supposed to enable UMICORE to make forecasts for its product manufacture, was also used to detect the sale of competitors’ products by VM Zinc stockists.

Threats and retaliation

To ensure compliance with the exclusivity clause, UMICORE exerted threats and retaliation aimed at encouraging VM Zinc stockists to maintain exclusivity.

Several types of retaliation were implemented against VM Zinc distributors found to have sold competing zinc products, including: reduction or suppression of bonuses (discounts), suspension of “VM Zinc status”, and withholding preferential terms (special supplier rates, attractive payments and delivery conditions).

These threats and retaliation measures allowed UMICORE to ‘tame’ the market, by signalling to its distributors that breaches of exclusivity would be heavily penalised.

Harmful effects on competing suppliers

The FCA found that UMICORE’s commercial policy, which was implemented continuously against its distributors between 1999 and 2007, prevented the development of competitors on the French market, reduced the intensity of competition, and, in all likelihood, contributed to supra-competitive prices (which were found to have increased between 5% and 15%).

€69,2 million fine for UMICORE; so what next?

The FCA took into account the seriousness of the anti-competitive practice, the damage caused to the economy and the duration of the practices in order to set the fine. Given the economic bargaining power of UMICORE, and to ensure the deterrent effect of its decision, the FCA applied a 10% increase in the fine – while making sure that the company was able to pay it without difficulty.

We would also note that, given the numerous potential victims of UMICORE’s conduct, this appears to be a case which may attract private enforcement of damages claims. It is therefore certainly one to watch in the coming months.

This case is also a useful reminder that a competition authority will go beyond the wording of an agreement and look at a company’s motivation in practice. In this case, the FCA was satisfied that the parties considered their agreement to be exclusive – and that UMICORE had anti-competitive motives when it carried out stock reviews and removed preferential terms. To ensure competition law compliance, companies must therefore look at their day to day practices and at what goes into their correspondence, not just their terms and conditions.