Businesses and respect of regulations – particularly compliance in France: risks and opportunities of unfair competition

As early as 1984, the Court of Cassation ruled that exercising a regulated profession – in this case that of a taxi-driver – without the necessary administrative authorisations, constituted an act of unfair competition (Cass. com., 16 May 1984, no. 83-11.678, a solution more recently applied by the Paris Court of Appeal to the UBER company concerning its ‘UBER POP’ service: CA Paris, 4 October 2023 – no. 21/22383).

  

Since then, the Court of Cassation and the lower courts have regularly ruled that a company‘s failure to comply with regulations applicable to its commercial activity constitutes unfair competition.

  

This has been the case in particular in the event of a breach of regulations relating to:

  

More recently, in a ruling dated 27 September 2023, the Court of Cassation extended this principle to a fast-growing area of regulation in France and elsewhere in the world, namely compliance, and more specifically the rules on combating money laundering and the financing of terrorism (known as ‘LCB-FT’) set out in articles L. 561-1 et seq. of the French Monetary and Financial Code (Cass. com., 27 Sept. 2023, no. 21-21.995).

  

As clearly explained in this latest ruling, the reasoning developed by the Court of Cassation in two stages is as follows:

  

This approach, which follows a clear and compelling logic, can therefore be applied to all regulations applicable to companies. While acts of unfair competition can thus be easily established, but any claims for damages still presuppose being able to demonstrate the existence of a loss. An analysis of case law in this area shows that it is increasingly favourable to the injured party.

  

  

However, the Court of Cassation has lightened the burden of proof for the injured party somewhat, since it has long held that damage ‘necessarily follows’ from acts of unfair competition (Cass. Com., 22 October 1985, no. 83-15.096), ‘even if is only moral prejudice’ (Cass. Com., 11 January 2017, no. 15-18.669). In this way, the Court has established a genuine presumption of damage once the acts of unfair competition have been proven. While the principle of damage is automatically accepted, its extent must still be proven, which is not always easy at first sight in unfair competition cases.

  

However, The Court of Cassation has once again facilitated the task of the injured party by proposing a calculation method based on a quantified assessment of the undue advantage – i.e. the resulting savings - that the injuring party has gained from the actions (Cass. com., 12 February 2020, no. 17-31.614 – the ‘Cristal de Paris’ judgment). It thus ruled that, in the case of unfair competition through breach of the law, ‘compensation for loss may be assessed by taking into account the undue advantage that the perpetrator of the acts of unfair competition has granted itself, to the detriment of its competitors, adjusted in proportion to the respective volumes of business of the parties affected by those acts’.

  

The case concerned two companies competing in the manufacture and sale of crystal products. One company was accused by its competitor of misleading consumers about the composition, origin and substantial qualities of the products sold, in particular by usurping the words ‘made in France’, thereby gaining a competitive advantage to the detriment of its competitor who complied with the applicable regulations. The Court of Appeal noted that the misleading commercial practices had enabled the offending competitor to obtain much lower cost prices, enabling it to have just one employee for the product range in question, whereas the disadvantaged competitor employed eight. The first competitor‘s salary savings were quantified at 300,000 euros, which it was ordered to pay to the plaintiff.

  

It should be noted that even though the calculation method mentioned does exist, it is not always easy to implement. It is not difficult to imagine that the parties will argue bitterly about how to quantify the costs directly linked to compliance with the regulations in question and the amount of undue advantage actually received by the perpetrator of the unfair practices. The party damaged by unfair conduct naturally does not have access to the competitor‘s commercial documentation to identify and quantify the undue advantages received by the competitor.

  

In order to overcome this difficulty, a company that already has a body of evidence of unfair competition against a competitor can bring the matter before the court by way of a petition under article 145 of the Code of Civil Procedure, without the competitor‘s knowledge. This procedure makes it possible to request the appointment of a court commissioner – possibly accompanied by an IT expert –​ with the task of visiting the competitor‘s premises and making copies of documents, files and emails that may characterise the breaches committed, and the extent of the damage caused.

  

It was in the context of this procedure that the Court of Cassation ruled, as indicated above, that breaches of the LCB-FT regulations constituted a legitimate reason for implementing investigative measures (Cass. com., 27 Sept. 2023, no. 21-21.995).

  

Alternatively, if the priority of the injured company is to put an end to the unfair practices committed against it, it may apply to the court for interim measures in order to request that the offending competitor be ordered to cease the practices in question, subject to a daily fine. They will then have the option to appeal to the judge in the main action to claim compensation for the damage suffered, if necessary by requesting an expert opinion to determine the precise extent of the damage.

In conclusion, it can be seen that the potential for unfair competition litigation is in reality limited only by the extent of the regulations imposed on businesses. The result is a real risk of litigation for economic players who, faced with an increasing number of rules, often find it difficult to apply them systematically. Furthermore, this may be seen as an opportunity for certain companies to settle scores with some of their competitors.