Commercial negotiation agreement
Art. L441-3 of the French Commercial Code provides that a written agreement must be entered into between a supplier and distributor, setting out the obligations agreed upon between the parties at the end of their commercial negotiation, i.e.:
- the conditions of the operations of sale of the products or services, including price reductions;
- the commercial cooperation services rendered by the distributor that can help the commercialization of the products of the supplier, and the remuneration of the distributor for such services (e.g. marketing services provided by the distributor that are paid for by the supplier); and
- the other obligations which foster the commercial relationship between the supplier and the distributor, and the remuneration of the distributor for such obligations (e.g. when the distributor provides logistics services wherein the supplier delivers the products to only one warehouse, and the distributor then organizes the logistics between the various stores, the supplier pays for such logistics services with a percentage of its turnover made with the distributor).
The written agreement must be entered into for one, two, or three years, no later than the 1st of March of the year during which it takes effect, or at least two months before the start of the commercialization period for products or services which are subject to a specific commercialization cycle.
If the agreement is entered into for more than one year, it must set out how the prices may be revised during the term of the agreement.
The supplier must send its general conditions of sale to the distributor within a reasonable time period before 1st March, or the start of the commercialization period for specific commercialization cycles.
In addition to the above, specific rules apply to mass consumption goods (defined as products which are not durable, and are purchased on a highly frequent and recurring basis, a list being set out by decree):
- the agreement must indicate the price list of the supplier, as communicated by the supplier with its general terms and conditions, or how such price list can be consulted, and the forecasted turnover;
- the supplier must communicate its general terms of sale at least 3 months before the 1st of March, or 2 months before the start of any specific commercialization cycle; and
- the conditions under which the supplier undertakes to offer the consumers promotional advantages on its products or services during the year must be set out in mandate agreements entered into between the supplier and the distributor.
Specific conditions also apply to food products, agricultural products, and milk and dairy products, in particular in relation to their price revision.
Any breach of the abovementioned provisions is punishable by an administrative fine of up to €75,000 for individuals, and €375,000 for corporate entities (multiplied by two in case of a fresh breach within two years from the first sanction).
In addition to the provisions relating to sudden termination set out in Section 5 herein, French law also provides for various unfair practices (Art. L442-1 to L442-8 of the French Commercial Code). We have set out hereafter some of these practices, mostly sanctioned in the distribution sector.
Any person having activities of production, distribution, or services can be held liable for damages if, within the framework of the commercial negotiation (Art. L442-1 I of the French Commercial Code):
- it obtained or tried to obtain from the other party a benefit that does not correspond to any compensation, or is manifestly disproportionate to the value of the agreed compensation; and / or
- it subjected or tried to subject the other party to obligations that create a significant imbalance between the rights and obligations of the parties.
The clauses or contracts containing obligations in breach of the aforementioned conditions can also be declared null and void.
In addition, the clauses or contracts that include the following provisions are null and void (Art. L442-3 of the French Commercial Code):
- the possibility to retroactively benefit from prices reductions or discounts or commercial cooperation agreements,
- the possibility to automatically benefit from the most favourable conditions granted to competitors of the co-contracting party.
Any interested party has the right to request that the above practices be stopped, but damages or nullity of clauses or contracts may only be claimed by the victims of the unfair practice. An action may also be brought by the Public Ministry, the Ministry in charge of the Economy, or the President of the Competition Authority, all of whom can request (i) the unfair practices be stopped, (ii) the unfair contracts or clauses be declared null and void, (iii) restitution of the advantages unduly obtained to the victims, and (iv) payment of a civil fine that can go up to the greater of (a) 5 million euros, (b) three times the amount of the advantages unduly obtained, or (c) 5% of the turnover, taxes excluded, in France by the author of the unfair practices during the preceding fiscal year.
Prohibition of Resale at a loss
Except under limited exceptions provided by law, any retailer that resells or announces the resale of a product at a price inferior to its effective purchase price may be sanctioned by a fine of up to €75,000.
The effective purchase price corresponds to the net unit price as indicated on the purchase invoice, reduced by all of the other financial advantages granted by the seller, and increased by the taxes on turnover, specific taxes applicable to the resale, and the transport cost.
A coefficient of 0.9 is applied to the effective purchase price for wholesalers that distribute products or services exclusively to independent professionals who act as retailers, transformers, or end service provider.
Minimum resale price
In addition to being prohibited under Competition Laws, any person that imposes, directly or indirectly, a minimum resale prices of goods or services, may be subject to a fine of up to 15,000 (Art. L442-6 of the French Commercial Code).
Product liability - Hidden defects
Under French law, the legal guarantee on hidden defects cannot be limited between professionals that do not intervene in the same business sector.