The economic crisis has not spared law practices and 2008 and 2009 saw the turnover of many law firms decline in France’s with certain areas of activity more affected than others.
With a 78% reduction in LBO credit in one year, 75% less private equity business and a 40% drop in transaction values on the mergers and acquisitions markets globally and 70% in France, those depending on that business are inevitably suffering. Business relating to real property is also affected due to a fall in the number of transactions. Generally, law firms are facing a decline in demand for legal services with in-house legal departments forced to tighten their belts, even asking for reductions of up to 20% of lawyers’ hourly rates.
On the other hand, some activities are on the rise because of the crisis e.g. the ‘M&A blitz’, employment law – due to corporate restructuring, and, oddly enough, competition law, where there has been considerable development in 2009 despite the recession in legal services.
How have competition lawyers avoided the crisis? There appear to be two main reasons for this: (i) the fact that the competition authorities act independently of the economic crisis and (ii) the clear need for undertakings to use the competition rules strategically in a time of crisis.
I. Counter-cyclical actions by Competition Authorities
In France, the Competition Authority (l’Autorité de la concurrence) which took over from the Conseil de la concurrence has been significantly reorganised with an increase of its staff and supplementary powers. The reduction of the control thresholds in the distribution sector has partly offset the drop in the number of transactions carried out, although smaller operations falling under national control have suffered less than the bigger ones.
Leniency procedures are now an established part of the landscape and each year provide a growing contribution to the flow of cases.
The authorities are also striving to reduce the backlog of cases and to accelerate proceedings.
At the European level, the authorities have had to face a flood of state aid procedures, which have generated a significant amount of work for lawyers but have also set off a lot of legislative drafting, generating a considerable amount of consultative work for firms specialising in competition and distribution law. The Commission has launched two public consultations with a view to defining the new system of rules for vertical agreements after expiry of Regulation No 2790/1999 on 1 June 2010 on the one hand, and, on the other, the new rules pertaining to motor vehicle distribution.
However, the current situation for competition lawyers is also down to the strategic aspect of competition law that can be developed by undertakings.
II. Development of Competition Law as a weapon of commercial strategy
In a recession, relationships are often more difficult and commercial problems more pointed. The competition rules can provide a series of tools with which to strategically assist undertakings both defensively and offensively.
Using competition law, an exclusive distribution deal preventing an operator from selling a leading product can be invalidated – e.g. the Apple/Orange case in France where the exclusive deal granted to Orange by Apple for sale of the iPhone was suspended by the Competition Authority and the Court of Appeal, thus allowing Bouygues Telecom and SFR to distribute the iPhone with their own mobile phone plans.
It can also bring operators into a distribution network whose qualitative and/or quantitative selection criteria are not sufficiently precise, or on the contrary, get them out of an overly restrictive contract by asserting its invalidity.
An action based on the competition rules can also be highly effective against a well planned takeover bid.
Other more Machiavellian strategies are sometimes thought up by undertakings, such as applying for leniency in order to have competitors fined, including on fictitious charges, and they constitute an abuse of the use of the competition rules and need to be foiled. These abuses also generate a lot of work from the victims who have to refute such claims.
Finally, even though there is no tradition of class action suits in France, damages claims to compensate for anti-competitive injury are becoming more common.
To conclude, competition law remains unaffected by the crisis and specialists in this area will continue to compete for business. The economic model of the boutique firm specialised in competition law seems to be more efficient in a recession than full service law firms with one department dedicated to the field. Boutique firms are generally less dependent on M&A activities than their rivals from the big firms, have lower operating costs and fees – good for the client facing drastic budget cuts – and can take full advantage of the huge increase in litigation at such a time.