French Law Amends Distribution Agreement Rules

Author:Mr Eric Morgan De Rivery and Claire Lavin
Profession:Jones Day

New French legislation, the so-called "Sapin II" Law will have a significant impact on distribution agreements signed by suppliers, wholesalers, or retailers in the marketing of products or the supply of services that have an effect in France. The Law entered into force December 11, 2016, when the French Constitutional Court approved the relevant provisions. This Law significantly increases fines for certain infringements, prohibits certain practices, and adjusts the establishment of payment terms and the prior obligation to annually agree on the terms and conditions of commercial relationships (the so-called "single agreement").

Increase in fines. The Law significantly increases fines imposed for certain infringements set out under Title IV of the French Commercial Code (the FCC). First, the maximum fine for violation of the rules on standard terms and conditions, the establishment of payment terms, and penalties for late payments (Article L. 441-6 of the FCC) is increased from EUR 375,000 to EUR 2 million. Second, the maximum fine for violation of rules governing the prohibition of abusive practices (Article L. 442-6 of the FCC) is increased from EUR 2 million to EUR 5 million. Courts are likely to apply these fines to infringements committed as of December 11, 2016, even for agreements signed before this date, as they will consider that the effective violation of the law, such as non-compliance with payment terms, occurred after the entry into force of the Law.

In addition, French law used to provide that the imposition of several administrative fines on the same legal person engaged in anticompetitive practices could not exceed a maximum threshold. The Law has now removed the mention of the maximum, which means that the cap may now be exceeded if several administrative fines are imposed on one entity.

Additional abusive practices. The Law brings two changes to Article L.442-6-I of the FCC, which prohibits abusive practices that may occur during commercial partnerships. First, Article L.442-6-I-1° condemns practices such as "obtaining, or seeking to obtain, from a trading partner any advantage unrelated to a commercial service effectively rendered or which is clearly disproportionate to the value of the service rendered." The Law has extended this provision to international distributor organizations (e.g., international purchasing groups). Second, two additional abusive practices are introduced at Article L.442-6: the imposition of a...

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