On 17 June 2020, the Paris Court of Appeal (hereinafter the “Court”) handed down its judgment (hereinafter the “Orange ruling”) in which it ordered Orange to pay EUR 249.5 million (EUR 181.5 million in damages plus EUR 68 million in interest) to the telecom operator Digicel for anti-competitive practices implemented in the West Indies in the early 2000s .
This is one of the most significant sanctions granted by French courts in the context of a compensation dispute relating to anti-competitive practices.
The Orange ruling is the outcome of a “follow-on damages” action which was brought following the adoption, on 9 December 2009 by the French Competition Authority (FCA), of a decision sanctioning the two companies Orange Caraïbe and France Telecom (now Orange) for a total amount of EUR 63 million. In this decision, the Competition Authority concluded that these companies had implemented a number of anti-competitive practices such as exclusivity agreements, a subscriber loyalty program and price differentiation practices at the time when Bouygues Telecom (now Digicel) was attempting to enter the Antillean-Guyanese market. This decision of the FCA was upheld on appeal and in cassation.
The Orange ruling is remarkable for several reasons:
First of all, this judgment illustrates particularly well the finding that civil compensation can far exceed the fines imposed by the FCA.
Secondly, in this judgment the Court draws very largely on the case law of the Court of Justice of the European Union and the provisions resulting from the transposition of the Damages Directive, which are not applicable to the case in point, to consider that civil liability is established by the final decision adopted by the FCA.
Among the principles identified by the Court of Justice and the Damages Directive, the Court of Appeal recalls that “the right to compensation covers not only the losses suffered and the loss of profit but also the payment of interest. The Court of Justice specified that full reparation must include compensation for the negative effects resulting from the passage of time since the occurrence of the damage caused by the infringement, namely monetary erosion, but also the loss of chance suffered by the injured party as a result of the unavailability of capital” (page 30).
The court of Appeal also raises the principles set out by the European Commission in its Communication on quantifying harm in actions for damages based on breaches of Article 101 or 102 of the TFEU, “When foreclosed competitors seek redress, they may seek compensation not only for the profits they did not make during the infringement, but also for the profits they were deprived of after the infringement ceased. Such compensation makes sense, in particular, when they have not been able to return to the market or to regain full market share because of the ongoing appreciable effects of the infringement that has been terminated. Compensation would thus be sought for future profits, that is those that are likely to be lost once the damages case is judged. “(page 29).
Several other interesting points relating to procedure, substance and the general approach of the Court are to be noted in this judgment:
Regarding the statutory limitation, the starting point of the limitation period is the date of adoption of the Decision (i.e. 9 December 2009). Indeed, the Court specifies that “it is on the day the Authority ruled on the merits of the objections, the liability of the practices in question, their duration and the convictions that the victim was able to act in full knowledge of the facts, it being of little importance that the victim had itself referred the matter to the Competition Council” (page 17), even though Digicel had denounced the said practices to the FCA as early as July 2004;
Concerning the wrongdoing, the Court then confirmed the wrongful nature of the anti-competitive practices by stating that “the violation of the law resulting from this anti-competitive practice necessarily constitutes a civil fault (…) of such a nature as to engage [the] civil liability [of Orange and Orange Caraïbe] on the basis of Article 1240 of the Civil Code” (page 21). This is a significant statement by the Court as it departs from the judgment of the Paris Commercial Court on the issue of exclusivity, whereby it was deemed that Digicel had indeed been the victim of the exclusive distribution practice;
Lastly, in relation to the damage, Digicel had requested the condemnation in solidum of Orange Caraïbe and Orange to compensate its loss of profits, the extra costs and its financial prejudice:
- With regard to the valuation of the loss of profits, the Court validates the use of an overall assessment considering that “the different practices have accumulated over time and strengthened each other” (page 41), all contributing to a single overall result. The Court also specifies that this global assessment is justified by the difficulty of isolating the specific effects of each practice (page 41);
- Concerning the assessment of the damage, the Court approves the use of comparative methods (comparison between geographical markets and comparison over time) which are in line with the recommendations of the European Commission. In this respect, it considers that “these methods appear particularly suitable for assessing loss of profits linked to exclusionary practices, since, by virtue of the principle of full reparation, the injured party must be placed in the situation in which it would have been had the infringement not occurred, which leads to the construction of a “counterfactual” scenario of what the normal evolution of the market would have been if the practices had not existed” (page 42). The Orange decision also teaches us that Digicel submitted two comparative methods that the Court considered to be complementary since they lead to an assessment that is very close to the damage suffered excluding discounting;
- In relation to the additional costs paid by the victim as a result of the practices in question, the Court acknowledges the existence of damages linked to the additional costs resulting from, on the one hand, the effects of the exclusivity which continued after the cessation of the practices and, on the other hand, the exclusivity of the only local approved repairer;
- Concerning the financial loss, Digicel had claimed compensation for its loss of opportunity due to the unavailability of capital in the form of a discount at the WACC rate (weighted average cost of capital) over the period of the deprivation of sums, that is EUR 520.53 million as of 31 December 2018. The Court noted, first, that “it is up to the victim to prove a loss of opportunity resulting directly from the unavailability of capital” (page 50). It also sets a very high standard of proof by requiring the victim to prove the refusal of its parent company to finance these investment projects and the impossibility of finding other sources of financing. In doing so, it dismisses the application of WACC on the grounds that Digicel has not shown that it was obliged to abandon these investment projects because of the unavailability of sums corresponding to the amount of the loss suffered (page 51);
- With regard to the legal interest rate, the Court agreed to discount this amount – between 2002 and 2005, at a rate of 5.3%, corresponding to the borrowing rate borne by Digicel (page 52). In this respect, it notes that, if it had disposed of the sums in question, it would not have had to take out this loan but would have financed its development with its own funds. For the subsequent period, the legal interest rate (corresponding to a risk-free investment) is applied to discount the loss.
This decision shows how long and difficult it is to obtain reparation for victims of anti-competitive practices, but the Paris Court of Appeal tries to make the practice more accessible by detailing its method of reasoning at each stage of the determination of damages. This is an important decision that could still be appealed to the Supreme Court.
By Sarah Subrémon