At a glance: automotive industry disputes in France

Disputes

Competition enforcement

What competition and antitrust issues are specific to, or particularly relevant for, the automotive industry? Is follow-on litigation significant in competition cases?

The European Commission has fined 14 price-fixing cartels in the automotive industry for a total amount exceeding €5 billion over the past 10 years. All these cases were initiated by leniency applications filed by suppliers, which revealed the existence of the cartel and provided the supporting evidence (and which, in return, were not fined). 

In 2016 and 2017, the European Commission imposed record fines of €3.7 billion on six European truck manufacturers, including a €1 billion fine, which is the highest fine ever imposed on a single company in a cartel case. Over a period of 14 years, truck manufacturers colluded on prices and on passing on the costs of compliance with stricter emission rules imposed by an EU regulation.

The European Commission punished 13 other cartels that involved car parts manufacturers for coordinating price increases to be passed on to car manufacturers, bid-rigging, allocating customers and exchanging sensitive commercial information. These practices concerned 13 categories of products: wire harnesses; alternators and starters; parking heaters; automotive bearings; thermal systems; refrigerants; braking systems; spark plugs; lighting system; occupant safety systems;  flexible foam used in vehicle seats; door modules and window regulators; latches and strikers.

The European Commission’s decisions gave rise to numerous follow-on damage actions, in particular, in the truck manufacturers’ case. The implementation in March 2017 of EU Directive 2014/104 on actions for damages under antitrust issues into French law can only encourage the development of such actions in France.

The French Competition Authority also showed interest in automotive spare parts. It issued a detailed opinion in 2012, pointing out that spare part prices were higher in France than in Germany or in the UK and making recommendations to stimulate price competition between car manufacturers and spare parts suppliers for the supply of car parts. In this respect, a Bill was tabled in April 2021 at the French Parliament to implement full price competition of spare parts in the automotive sector.  

The French Competition Authority also (May 2019) dismissed a claim by three repair companies against a car manufacturer after the latter refused to approve them. The repair companies claimed that this denial was discriminatory and would favour the manufacturer’s authorised resellers. The French Competition Authority held that the manufacturer’s decisions to refuse approval have been made on objective criteria and that the repair companies had not proven that the refusal was part of a general anticompetitive scheme implemented by the manufacturer.

Dispute resolution mechanisms

What kind of disputes have been experienced in the automotive industry, and how are they usually resolved? Are there any quick solutions along the supply chain available?

Apart from competition or antitrust and intellectual property issues, most disputes in the automotive industry relate to consumer matters, supply chain issues and criminal liability allegations.

There are several grounds in French consumer law enabling a consumer to sue an automotive manufacturer, such as defective product rules (article 1245 et seq of the French Civil Code), hidden defects (article 1641 and seq of the French Civil Code), non-conformity (article L. 217-4 and seq and L. 411-1 of the French Consumer Code) and general safety obligations (article L. 421-1 and seq of the French Consumer Code).

In most cases, consumer disputes are resolved in court and settlement agreements are less frequent.

In the past, commercial disputes along the supply chain remained limited. This has changed quite drastically in recent years. In a context of shrinking margins, fiercer competition, increased likelihood of defective technology and growing remediation costs, pressure is strong on all actors that result in more frequent litigation to share the costs or recover them from another party. The causes of such issues may also lie in insolvency or bankruptcy cases.  

As a result, one sees more and more frequently tensions between suppliers and original equipment manufacturers (OEMs) or Tier 1 companies, even leading sometimes to threats to stop supplying car manufacturers or to terminate the business relationships at the other end. In some situations, the dependency of an OEM in a single-source situation enables suppliers to exert higher prices for the remainder of the supply cooperation.

Summary proceedings are available to obtain court injunctions either in cases of urgency or when the claim cannot be seriously challenged. Interim payments can also be sought through this type of proceedings.

The covid-19 pandemic is expected to generate a surge in supply chain litigation, with some companies trying to rely on force majeure doctrine to mitigate the consequences of the pandemic.

Both automotive companies and their legal representatives have potential criminal liability exposure in the case of bodily injuries caused by their products (on grounds of involuntary bodily harm, manslaughter or placing someone under an immediate risk of injury or death). Corporations and legal persons may be prosecuted where the company financially benefited from the offence that one of its employees or representatives. Legal representatives can be prosecuted when there is either a manifest and deliberate violation of a specific safety rule or in the case of gross negligence causing serious danger.

Distressed suppliers

What is the process for dealing with distressed suppliers in the automotive industry?

Typically, distressed suppliers do their best to avoid pre-insolvency and insolvency proceedings and may seek to obtain price increases, sometimes exerting pressure by threatening to stop or actually stopping deliveries. The customer can seek court orders in summary proceedings in an attempt to force the supplier to resume the supply and comply with orders regularly placed. Courts can also acknowledge settlement agreements, where some commercial provisions may be included regarding timing and organisation of the deliveries. Such acknowledgment increases the chances of the agreement being enforced by the distressed supplier as well as facilitating the forced enforcement of the agreement in the case of failure to comply.

If the supplier is cash-flow insolvent (or anticipates difficulties it cannot overcome), it must or may (depending on the circumstances) file for insolvency proceedings with the local commercial court. An administrator is appointed by the court and typically assists the management (but does not replace them save in specific circumstances). The administrator will often ask customers to provide support by funding the insolvency period until an investor can be found or at least to give him or her a chance of finding an investor. The administrator cannot force such support but customers do not have much choice if they don’t have other supply options. This financial support often takes the format of price increases, limited in time, or in raw materials pre-payment, tooling financing, etc. All customers are usually asked to participate in the effort in proportion to their share in the volumes.

Rather than filing for insolvency, distressed suppliers can seek the opening of ‘preventive proceedings’. These are not insolvency proceedings with publicity but rather confidential proceedings led by a court-appointed ‘mediator’ who will assist the company in its discussions with its main stakeholders (in the automotive sector it is often its main customers – often the OEMs but not only (eg, shareholders, creditors) – all bound by confidentiality to try to reach a solution to avoid formal insolvency. This tool is commonly used for financial or industrial restructurings in the automotive sector.

The public authorities are often involved in distressed supplier issues through various channels. In significant cases that involve more than 400 employees, the department of the Ministry of Economy dedicated to industrial restructurings (CIRI) will oversee the negotiations and request customers (mainly French customers) to participate in the discussions. In smaller situations, which are still important locally, local representatives of the state can be involved. Dedicated funds to support distressed suppliers in the automotive sector have been created since 2008 by the French public authorities, together with French OEMs and major Tier 1 suppliers. The state-owned bank BPI is also regularly called in to support major suppliers in the automotive sector.

The process will, therefore, depend on how distressed the supplier is and how politically sensitive the issue is (ie, how many jobs are at stake).

The current crisis faced by the automotive sector due to the covid-19 pandemic is likely to generate multiple insolvency proceedings for companies at every stage of the supply chain despite the massive economy recovery plan implemented by the French government for the automotive sector in 2020.

Intellectual property disputes

Are intellectual property disputes significant in the automotive industry? If so, how effectively is industrial intellectual property protected? Are intellectual property disputes easily resolved?

There is a fair number of intellectual property disputes in France. These usually do not involve car manufacturers but rather OEMs and suppliers. The intellectual property rights most commonly relied upon in the automotive industry are patents, designs and trademarks.

Intellectual property rights in France are effectively protected. French law on intellectual property rights is the result of national statutory and regulatory provisions, statutory provisions implementing international and multilateral agreements and European regulations having direct effect in France as a member state of the European Union. The implementation of these international rules is codified with French national substantive law in the French Intellectual Property Code.

Among other things, French law includes provisions regarding patents, trademarks, designs, trade secrets, authors’ rights and database producer rights. Car manufacturers and OEMs have traditionally been among the top filers of patents in France, and they also extensively use registered design rights to protect vehicle body parts.

Intellectual property enforcement in France is for courts to ascertain. As regards patents as well as EU trademarks and EU designs, the Paris Civil Court (where decisions are issued between 18 and 24 months) has exclusive jurisdiction. This allows for harmonisation of case law beginning at first-instance level. Cases are decided in 12 to 18 months depending on the complexity of the matter. Decisions can be appealed before the Paris Court of Appeal, and a further appeal on legal issues is possible before the Supreme Court.

Intellectual property law in France provides for a specific means of obtaining evidence, the infringement seizure. The infringement seizure is a highly effective evidence-gathering procedure whereby an intellectual property rights holder, suspecting an infringement of its rights, applies ex parte for an order of the presiding judge of the Civil Court authorising a bailiff and possibly an independent person knowledgeable in the art to enter any premises (including those of competitors or suppliers) where evidence of the infringement could be found, to seize samples of the allegedly infringing product or to describe it. Following the infringement seizure, the claimant has to follow a strict timeline (ie, 20 working days or 31 calendar days to serve the defendant with its writ of summons).

On the merits, intellectual property rights holders will mainly seek a permanent injunction and compensatory damages. Intellectual property rights holders may choose to apply for a preliminary injunction in summary prima facie cases before or while an infringement case is pending on the merits.

Similar evidence gathering means and remedies are available for trade secrets since July 2018, when Directive (EU) 2016/943 on the protection of undisclosed know-how and business information against their unlawful acquisition, use and disclosure was implemented in France. Alternative dispute resolution is also available in intellectual property rights infringement issues. Ad hoc mediation enables the parties to reach a settlement. Additionally, French intellectual property law now clearly states that the exclusive jurisdiction of the Paris Civil Court ‘does not preclude the use of arbitration’.

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