Orange Caraïbe et al. vs Digicel Antilles Françaises Guyane
On 17 June 2020, the Paris Court of Appeal (Court) delivered its judgment (Orange judgment) in which it ordered Orange to pay EUR 249.5 million (EUR 181.5 million in damages plus EUR 68 million in interest) to Digicel Antilles and Guyana, following the implementation by the former of a number of anti-competitive practices in the early 2000s.[1] This is one of the most important compensation amounts granted by French courts in the context of an action for damages related to anti-competitive practices.
The Orange judgment provides key clarifications on how damages are estimated and quantified in relation to abuse of dominance cases. In particular, the Court addressed in the judgment three forms of damages that relate to:
- Digicel’s development/growth, for which geographic and time comparative methods were used;
- additional financing costs resulting from the application of contractual exclusivity clauses; and finally
- loss of opportunity (or opportunity cost), for which the Court applied an individual interest rate as from day the harm occurred.
Factual background
On 9 December 2009, the French competition authority (FCA) adopted a decision by which it sanctioned Orange Caraïbe and France Telecom (together referred to as Orange) a total amount of EUR 63 million for implementing anti-competitive practices in the mobile telephony market in the Antilles-Guyana (Decision).[2] In the early 2000s, Orange Caraïbe was the established and main operator in the area holding more than 75% of the cell phone market.[3] In its decision, the FCA considered that Orange Caraïbe and France Telecom’s anti-competitive practices resulted in hindering potential competitors’ (Bouygues Telecom Caraïbe (BTC), now Digicel, together referred to as Digicel) from entering and developing on that market.[4] The practices consisted of exclusivity agreements with distributors, a subscriber loyalty program, and abusive price discrimination.[5]
Following the Decision, Digicel brought an action for damages before the Paris Commercial Court. In December 2017, the Paris Commercial Court upheld most of Digicel’s claim and awarded an amount of EUR 179.64 million in damages, applying to this sum an actualisation rate (taux d’actualisation) of 10.4% from the date of notification of the writ of summons.[6] Subsequently, Orange appealed this ruling, ultimately resulting in the judgment by the Paris Court of Appeal subject of this article.
Brief discussions
The Court’s reasoning on the estimation and quantification of harm covers three main forms of damages that are further addressed below.
1 Digicel’s potential development/growth assessed on the basis of comparative time and geographic methods
The Court qualified damages caused to development or growth as lucrum cessans (loss of profit).[7] Concretely, this is to be understood as the non-realisation of a profit or Digicel’s loss of developing itself on the Antillean-Guyanese mobile telephony market because of the anti-competitive practices. Loss of profit is the type of damage which is primarily compensated by French courts in abuse of dominance cases.[8]
The Court stated that the abusive practices[9] committed by Orange had ‘cumulated over time and reinforced each other, all contributing to a single overall result: hindering the development of Digicel on the Antillean-Guyanese cell phone market’.[10]
Given the interaction of the different practices and the difficulty in isolating the effects of each one of them, the Court justified that an ‘overall’ comparative approach can be taken to evaluate the damage caused to Digicel’s lost turnover.
To evaluate the damage pertaining to Digicel’s growth, the claimant proposed two complementary comparison-based methods. The first method is an estimation of the market’s progression or evolution in the absence of the anti-competitive practices, by comparing the period not concerned by the offence to the period when the anticompetitive practices were operating (i.e., comparison over time). The second method is based on the growth experienced by entrants in mobile telecommunications markets comparable to that of the Antillean-Guyanese market in terms of structure and concentration (i.e., comparison between geographic markets).
The Court agreed with the claimant’s approach and referred to the European Commission’s Communication on quantifying harm in actions for antitrust damages to uphold the use of comparative methods.[11] The Court asserted that both comparative methods resulted in a very close result in terms of quantification of the damage pertaining to Digicel’s development,[12] demonstrating the relevance of both methods.
1.1 Method of comparison over time
The Court upheld the analysis of Digicel identifying the damage related period (2002-2005) and the post-damage related period (2006-2009). The first period starting in 2002 was characterised by Digicel’s unusual stagnation of its market share in the mobile telephony market due to the anti-competitive practices put in place by Orange. In the post-damage related period (2006-2009), Digicel was considered no longer to be impacted by the anti-competitive practices.[13]
Orange attempted unsuccessfully to identify pitfalls of this comparative method. In particular, it argued that Digicel failed to account for major changes which happened just between both periods such as (i) Digicel acquiring BTC in April 2006, (ii) the development of new technologies and consumption habits, (iii) the entry of other operators on the market, etc. Orange argued that these particular changes accounted for Digicel’s better growth in the post-damage related period (2006-2009), not the termination of the anti-competitive practices. Orange also pretended that Digicel’s market-share stagnation during the damage related period (2002-2005) could not have solely resulted from the anti-competitive practices.
The Court rejected Orange’s arguments by stating that Digicel’s stagnation in the damage related period could not simply have been the result of a general market evolution but instead resulted from the anti-competitive practices. In this regard, the Court confirmed that Digicel’s better growth in the post-damage period was linked to the termination of some of the anti-competitive practices rather than caused by the ‘major changes’ identified by Orange between both periods.
1.2 Method of comparison between geographic markets
This comparative method consisted of a comparison analysis with other geographic markets having similar structure than Antillean-Guyanese mobile telephony market. It aims at estimating the market share that Digicel would have had in the absence of the anti-competitive practices, namely the number of customers and earnings lost.
Orange argued that this method was erroneously drawn up since the counterfactual scenario was based on a sample of only four countries (namely Bulgaria, Ireland, Luxembourg and Malta), which according to Orange (i) is too limited to be representative, and (ii) presents no similarities with the Antillean-Guyanese market allowing for sensible comparisons.[14]
The Court once more rejected Orange’s arguments and stated that the geographic comparison had grouped together markets which were comparable based on essential characteristics that are (i) the degree of competition and concentration in the markets, (ii) the cost and demand characteristics, and (iii) the barriers to entry. Notably, the Court added that it was not necessary for all characteristics of the compared markets to be the same.
It is noteworthy that in the Orange judgment the method of comparison between geographic markets was upheld by the Court, as there has generally been a reluctance by French courts to take foreign markets as reference points.[15] Whenever such type of comparisons were proposed in earlier cases, they were considered either ‘less robust’[16] or ‘not relevant’.[17]
2 Harm in the form of additional financing costs resulting from exclusivity clauses
The Court accepted the additional heads of damages related to the extra financing costs paid by the claimant as a result of the anti-competitive practices implemented in the form of (i) exclusive distribution clauses, and (ii) repairer exclusivity clauses.
Between 2000 and 2005, all independent distributors signed exclusive distribution clauses with Orange Caraïbe according to which distributors were (i) only allowed to sell Orange Caraïbe’s service, and (ii) prohibited from selling other competitors’ service without Orange Caraïbe’s consent. The Court found that the exclusive distribution clauses had the effect of closing off access to the existing specialised and well-established distributor networks. Digicel was forced to opt for less experienced distributors, paying higher costs for the maintenance of qualitative commercial network.
Between 2003 and 2005, Orange Caraïbe and the only approved mobile device repairer in the Caribbean (Cetelec Caraïbe) had signed several contracts stipulating the obligation for the latter to provide maintenance services for mobile telephones and accessories exclusively for Orange Caraïbe throughout the Antilles and Guyana. These exclusivity clauses were financially detrimental to Digicel because (i) they degraded Digicel’s brand image due to the fact that Digicel was unable to provide any after-sales services for its customers, compared to Orange Caraïbe, and (ii) Digicel was left with no choice but to send its devices back to France (rather than having them repaired in Antilles and Guyana) and in parallel to invest in replacement devices.
The Court confirmed the estimation of damages at EUR 7.12 million without actualisation (taux d’actualisation) for the additional costs resulting from the exclusive distribution clauses and at EUR 737 500 without actualisation (taux d’actualisation) for the exclusivity with the only local authorised repairer.
3 Loss of opportunity calculated as interest starting to accrue from the date of harm
Damage relating to cash flow loss is to be understood as the loss of opportunity which results from having been deprived of the amount of the main or primary loss.[18] Examples of cash flow loss include unnecessary costs of borrowing had the main damage not occurred or the expected profitability on investments which could not be financed because of the lost profits.[19] Damage caused from a loss of opportunity or cash flow loss is thus linked to but distinctive from the lost profits or revenues.
The Court notes that such damage is repaired by the payment of a compensatory interest starting to accrue from the date of harm and refers to EU case law to underline that ‘its reparation constitutes an essential component of the reparation of damages related to anti-competitive practices’.[20]
In this respect, the Court specified that if the victim company demonstrates that the unavailability of the sums it was deprived of led it either (i) to restrict its activity without being able to find alternative means of financing through debt or equity, or (ii) to give up duly identified investment projects that were likely to yield the equivalent of the average cost of capital, the opportunity cost is calculated by applying the weighted average cost of capital (WACC) on the foregone investment.
Digicel claimed that it had to give up two investment projects (one of them being a 4G network deployment in the Antilles and Guyana) due to a lack of financial resources. The Court rejected this claim as the 4G network had indeed been deployed in the area, so that Digicel had failed to argue that (i) it had to abandon investment projects or that (ii) its parent company had refused to fund these projects and that it had been unable to find alternative sources of funding. For these reasons, Digicel was not entitled to claim compensation for this lost opportunity of investing into projects at the WACC rate.
Furthermore, the Court considered that for the second period (as of 1st January 2006 till 31st December 2018) the loss of opportunity could be estimated by applying to the sum Digicel was deprived of the statutory rate (le taux d’intérêt legal) corresponding to a risk-free investment. This statutory rate[21] which has generally been lower than 1% in the last years[22] is thus distinctive from and lower than the borrowing rate at which Digicel was awarded damages in the 2003-2005 period (5.3%). This shows that the statutory interest rate provides a minimum basis for full damage compensation, however not precluding the judge to apply another individual interest rate higher than the statutory interest rate, that would allow for better estimation of the harm.
Comments
The Orange judgment provides key clarifications on how damages are estimated and quantified in abuse of dominance cases. Particularly significant is the use by the Court of comparative geographic methods to evaluate loss of profit by reference to foreign markets having similar structure. Also important is the confirmation by the Court that interest accruing from the date of harm constitutes an essential part of the right to full compensation. In that regard, the Court combined the statutory interest rate and an individualised interest rate, taking into account the specific circumstances of the case. That the unavailability of lost profits giving rise to full compensation could consist in loss of opportunity, higher indebtment, or prevented growth, has recently been dealt with by the EU Court of Justice in its latest Otis judgment. In this judgment the EU Court of Justice stated that any person harmed by an antitrust infringement could seek full compensation for any harm resulting thereof, including losses of an investment opportunity due to unavailability of the amounts, provided that breach of law, harm and causal link are present.
By Vera KERAUDREN* and Vasil SAVOV**
* Vera KERAUDREN is currently a legal trainee with CDC Cartel Damage Claims in Brussels.
** Vasil SAVOV is executive director of CDC Cartel Damage Claims.
[1] Cour d’Appel de Paris, SA Orange et al. contre SA Digicel Antilles Françaises Guyane, RG 2009016849, 17 June 2020.
[2] Autorité de la concurrence française, Décision relative à des pratiques mises en œuvre par Orange Caraïbe et France Télécom sur différents marchés de services de communications électroniques dans les départements de la Martinique, de la Guadeloupe et de la Guyane, n°09-D-36, 9 December 2009, para. 490.
[3] Supra note 2, para. 490.
[4] Supra note 2, para. 490.
[5] Supra note 2, para. 490.
[6] Tribunal de commerce de Paris, Digicel Antilles Françaises Guyane contre Orange Caraïbe, RG 2009016849, 18 December 2017, p.13.
[7] Supra note 1, p.40.
[8] Carval, Suzanne; Laborde, Jean-François, La réparation des préjudices causés par les abus de position dominante, Concurrences No 1-2018, p. 4.
[9] Such as the ‘Change mobile offer’, on net and off net price differentiation, exclusive distribution clauses, exclusivity clauses with the local authorised repairer, as well as the ‘Avantage Améris’ offer. The ‘Change mobile offer’ allowed Orange’s customers to accumulate loyalty points with every invoice but made their use conditional on the acquisition of a device (be it a phone or tablet) with a 24-month re-commitment. The ‘Avantage Améris’ offer consisted in a discount for many professional customers on calls from a fixed line to the Orange mobile network exclusively.
[10] Supra note 1, p.41.
[11] European Commission (2013), Communication from the Commission on quantifying harm in actions for damages based on breaches of Article 101 or 102 of the Treaty on the Functioning of the European Union, Official Journal of the European Union, 2013/C 167/07, 13 June 2013, paras. 3 and 9.
[12] Damages were estimated at EUR 179.94 million for the method of comparison over time and at EUR 173.64 million for the method of comparison between geographic markets.
[13] Although the Court noted that the effects of some of the anti-competitive practices still persisted until 2007. See Supra note 1, p.42-43.
[14] Orange claimed that there were significant differences in the rates of penetration of telephony markets between for instance Malta which is at 93% versus Antilles-Guyana which is at 108%. Orange pointed out to other differences such as the standard of living, unemployment rates, etc.
[15] Supra note 8, p. 8.
[16] Cour d’appel de Paris, SA Orange Caraïbe et al. contre SAS Outremer Telecom, RG 15-05918, 10 May 2017, p. 28.
[17] Tribunal de commerce de Paris, SAS Numéricable et al. contre SA France Telecom Orange, RG 2009073089, 30 March 2011, p. 12.
[18] Supra note 8, p. 5.
[19] Supra note 8, p. 5.
[20] Supra note 1, p 50.
[21] For more information on the calculation of interest on damages resulting from antitrust infringements in French law, see Monti, Giorgio; Van Leeuwen, Barend; Robertson, Viktoria H.S.E.; Cauffman, Caroline; Hubkova, Pavlina; Havu, Katri; Amaro, Rafael; Schmidt-Kessen, Maria José; Stasi, Maria; Sousa Ferro, Miguel; Husár, Ján; Csach, Kristian; Ruiz Feases, Alexandre; Strand, Magnus and Szreder, Katarzyna, EU Law and Interest on Damages for Infringements of Competition Law: A Comparative Report (2016). EUI Department of Law Research Paper No. 2016/11, p. 131-156. Available online at: https://cadmus.eui.eu/bitstream/handle/1814/40464/LAW_2016_11.pdf?sequence=3&isAllowed=y
[22] For an overview of the statutory interest rates in the last years, see: https://www.service-public.fr/particuliers/vosdroits/F783
