French online gambling market: incumbent horserace betting operator PMU to indemnify competitor Betclic for abuse of dominance

France

On 12th September 2018, the Paris Court of Appeal ruled that French incumbent horserace betting operator Pari Mutuel Urbain (“PMU”) had abused its dominant position between 2010 and 2015 and also recognised the right for new entrants in online gambling and betting markets to receive compensation for harms suffered due to anticompetitive practices.

This highly-anticipated ruling exemplifies the interplay between public and private enforcement of competition law since it follows a French Competition Authority (“FCA”) 2014 commitment decision in which the FCA agreed to accept structural commitments from PMU in lieu of a fine.

 

French gambling sector opening up to competition

Historically, the gambling sector in France was characterised by two major public operators holding legal monopolies: “Française des Jeux” (“FDJ”) for gaming and sports betting and PMU for horserace betting. In 2006, the European Commission challenged the compatibility of these monopolies with Article 56 TFEU (which guarantees free movement of services) (IP/06/1362) and subsequently requested that France modify its laws with a view to breaking up this duopoly (IP/07/909).

Against this backdrop, France’s Parliament adopted the 12th May 2010 Act (“the 2010 Act”), which purported to liberalise online sports and horserace betting by (1) abolishing FDJ’s and PMU’s exclusive rights in these areas; and (2) by instituting a formal licensing process governed by ARJEL, a newly-established independent regulatory authority for online gambling. However, France’s legislature decided to preserve PMU’s exclusive right to operate offline horserace betting, thereby retaining PMU’s monopoly in physical outlets.

However, the 2010 Act did not implement structural measures to prevent anticompetitive practices arising from PMU’s continuing monopoly position (as happened in the telecoms and energy sectors). Instead, the law legalised existing online activities provided on the French market by entities established in other Member states (which had previously been prosecuted under French law).

Shortly after passing the 2010 Act, the FCA issued an opinion highlighting the potentially distortive effects of the 2010 Act on competition. The FCA recommended several remedies, including the creation of separate databases for offline and online players, and the use of different logos/branding for both offline and online activities (the better to differentiate the two) (FCA, opinion 11-A-02 of 20 January 2011 relative to the online gambling sector).

 

Betclic complaint before the French Competition Authority

In 2012, one of PMU’s competitors, Betclic, a Maltese company, mainly active in online gaming and sports betting, filed a complaint with the FCA claiming that PMU had breached French and EU competition law by abusively leveraging its dominance in offline betting to create a monopoly in the online horserace betting market. For example, PMU was pooling its offline and online bets – a practice which competitors could not replicate given PMU’s institutionalised monopoly over offline horserace betting. Competitors were unable to diversify their offerings or lower their prices to the same degree as PMU, who were able to provide more attractive services to consumers by leveraging its strong customer base, introducing a wide range of complex bets (such as Quinté +), and by introducing the possibility of higher winnings and more stable odds. In its preliminary assessment, the FCA considered that such behaviour could distort competition and hinder market access for competitors.

To alleviate these anticompetitive concerns, PMU committed to stop pooling its online and offline bets by the end of 2015, and to create separate websites and databases for online and offline betting, in addition to separate commercial and marketing departments. These structural commitments were directly inspired by previous FCA decisions concerning the diversification of monopolies, e.g., in the directory assistance services sector (FCA, decision 06-D-20 of 13 July 2006, relative to practices implemented by the companies France Télécom, Pages Jaunes Group and Pages Jaunes SA in the sector for the provision of directory assistance via telephone and Internet) and the public weather forecasting sector (FCA, decision n°12-D-04 regarding the diversification of Meteo France’s activities). More recently, French railway and postal operators agreed to implement similar commitments to those implemented by PMU (FCA, decision 15-D-05 regarding the practices implemented by the SNCF group in the passenger transport sector and decision 17-D-26 of 21 December 2017 regarding practices implemented in the collection and recovery of non-hazardous office waste sector).

 

The recognition of the right of new market entrants to seek damages for harm suffered as a result of anticompetitive behaviour

Following the FCA’s decision, Betclic brought an action for damages in the French civil court on the grounds that PMU had abused its dominant position and benefited from a competitive advantage over new entrants by pooling online and offline bets into a single database.

The Court of First Instance issued its ruling on 22nd February 2018; the decision was subsequently appealed, and a ruling was issued by the Paris Court of Appeal on 12th September 2018.

First, the Court of Appeal confirmed that “commitment decisions” from national competition authorities do not preclude operators from being sued for damages in tort; this is in line with a recent European Court of Justice case which held that public enforcement of commitment procedures does not necessarily preclude private enforcement of the same (ECJ, 23 November 2017, Gasorba SL / Repsol, C547/16). The Court also made clear that a commitment decision does not equate to a finding of competition law infringement, nor does it offer immunity to economic operators that offer commitments. Interestingly, however, the Paris Court of Appeal recognised that the FCA’s non-binding preliminary competition assessment could, in fact, be used as prima facie evidence of a breach of competition law.

Based on competition concerns identified by the FCA in its 2014 decision and market evidence provided by Betclic, the Court of Appeal found that PMU abused its dominant position in breach of Article 102 TFEU and law L.420-2 of the French commercial code. PMU did not object to being called “dominant” but claimed that between 2010 and 2015, it was not legally prohibited from pooling offline bets with online bets. PMU argued that the FCA’s usual rules for separation (accounting, functional and legal) did not apply in this case because it was not entering a new market, but rather was remaining active on an existing market that had merely been de-monopolised. Though the Court of Appeal agreed with this assertion, it also noted that (according to well-established case law) the mere existence of a monopoly could qualify as abuse of dominance where market forces amplify a party’s competitive advantages, thereby making it impossible for competitors to effectively compete in the relevant market. PMU should therefore have foreseen the impact of its pooling policy on competition in the newly-liberalised online betting market.

PMU’s anticompetitive behaviour directly impacted its market position - 5 years after the beginning of the liberalisation process, Betclic only held a market share of 1.46%. Betclic thus claimed 172.2 million euros for harm suffered. The Paris Court of Appeal confirmed that the scope of damages typically encompasses not only loss of profit (past and anticipated future profits), but also other harms that could be linked to the infringement such as loss of reputation However, the Court also stressed the importance of adopting an orthodox approach towards counterfactual scenarios, and following an objective assessment by an independent expert, ultimately referred the question of quantification of damages back to the Court of First Instance.

This ruling could pave the way for future legal action against PMU from other competitors, including Zeturf, Unibet (now Kindred), France Paris and JOA Online, provided that the limitation periods for each cause of action have not expired. More broadly, this ruling opens the door for new market entrants in all sectors to bring private actions against incumbent operators following commitment decisions by national competition authorities.