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    On October 9, 2018, the French National Assembly adopted, at first reading, the PACTE bill (Action Plan for Business Growth and Transformation).

    Among the many measures in the bill, whose objective is to lower the obligations that weigh on companies, Article 55 is aimed at reinforcing the framework of foreign investments in France.

    The current regime

    Foreign investments in France are free as a matter of principle (Article L.151-1 of the Monetary and Financial Code). Nevertheless, investments in certain sectors, considered strategic, are subject to prior authorisation from the Minister of Economy (Article L.151-3 of the Monetary and Financial Code).

    The authorisation procedure, established in 2005 and strengthened in 2014, currently concerns investments that foreigners wish to make in France and which might infringe upon public order, public security or the interests of national defence.

    Initially, the list of sectors was narrow: gambling, private security, counterterrorism, equipment designed for wiretapping, IT security, companies entrusted with national defence secrets, weapons trade, companies dealing with the Defence Ministry.

    However, in 2014, the list of sectors concerned was extended to also target energy and water supply, transportation and electronic communications networks, vital infrastructures and facilities as defined by the Defence Code, as well as the public health sector.

    In the abovementioned sectors, a foreign investor must make a request to the Minister of Economy for an authorisation to invest. Once the audit has been made, the Minister can: (i) authorise the investment, (ii) deny the investment, if the investor is likely to commit a series of offences or if the investment risks infringing on national interests, or (iii) authorise the investment subject to certain conditions aimed at ensuring that the planned investment does not infringe on national interests.

    In the event that the investor does not comply with the Minister’s decision, the latter may request the investor “not to follow through with the operation, to modify it or to re-establish the former situation at the investor’s expense“.

    If that demand is not complied with, financial sanctions may be imposed, the amount of which may go up to “twice the amount of the irregular investment“.

    The PACTE bill

    The two main changes foreseen by the PACTE bill are as follows:

    • 1. Extension of the business sectors concerned so as to better protect promising sectors. The list of activities would thus be extended to semi-conductors, the space industry, drones, and if related to national security, artificial intelligence, cybersecurity, robotics and mass data storage.
    • 2. Stronger sanctions. The Minister will have a wider, more calibrated range of sanctions since he will be able, in the event of non-compliance with his decision and the conditions imposed on the investment, to define additional conditions not provided in the initial agreement or even order the investor to honour his commitments, subject to penalties. The Minister will also be able to take protective measures such as the suspension of voting rights or the investor’s right to receive dividends, or he can appoint an agent commissioned to ensure the protection of national interests within the company.

      The regime of financial sanctions will also be modified. The fine determined by the Minister will not be able to exceed the highest of the following amounts: twice the amount of the irregular investment, 10% of the target company’s yearly turnover, €1 million for individuals and €5 million for legal entities.

    The PACTE bill will be examined by a Senate committee as from January 2019. We will keep you informed of the conditions for the effective implementation of the new measures having a direct impact on foreign take-over operations of a French company.

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    Aude Le Tannou specializes in Corporate law. Admitted to the Paris Bar since 2005, she holds two post-graduate degrees in Business Law (University of Paris II – Panthéon Assas) and in International Trade (University of Paris I – Panthéon Sorbonne), as well as an MBA from Sciences Po Paris.

    After beginning her carreer at PDGB and Reinhart Marville Torre, in January 2014 she joined Schmidt Brunet Litzler (part of SBKG at the time) as an associate to work alongside Philippe Schmidt in the Corporate law department. She has assisted many entrepreneurs in the structuring, growth and optimization of their businesses, and also in defending their interests in disputes. She has advised French and international companies, managers and investment funds, in raising funds, private equity (growth capital and LBOs), mergers and acquisitions, and alliances (partial asset contributions, joint ventures, business transfers).

    We commend the remarkable work Aude has achieved over the last five years at the firm, and we are pleased to continue this journey with her as a partner, because she shares our standards of excellence and client satisfaction”, says Philippe Schmidt.

    I am pleased to continue contributing to the development of Schmidt Brunet Litzler along with the partners and dynamic teams with whom I share the same values, level of client service and involvement at the international level, and identify with their professional and personal commitment”, adds Aude Le Tannou.

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    Decision by the Social Chamber of the French Supreme Court dated September 12, 2018
    (Cass. Soc. 12 September 2018, n° 16-11.690)

    As per a September 12, 2018 decision, the French Supreme Court (called “Cour de cassation”) answered the following question: Can an employee who denigrates his/her employer in a limited and closed group on Facebook be dismissed for gross misconduct ?

    In the case at hand, an employee created a closed group on Facebook entitled “Extermination des Directrices chieuses” (Extermination of Crappy Directors) in which the employee made insulting and threatening remarks about her immediate supervisor. Upon becoming aware of the remarks, the employer dismissed the employee for gross misconduct.

    The Supreme Court confirmed the Court of Appeal decision, ruling that the dismissal was without good and sufficient cause, and therefore unjustified, as the remarks had been posted in a closed group to a limited number of people. In fact, the group had been set up by the employee and could only be accessed by people she had authorised, namely 14 people. As such, the Supreme Court ruled that it was a private conversation.

    The Supreme Court clearly made a distinction between public remarks (open groups, large number of people) and private remarks (closed group, limited number of people) to justify a dismissal for gross misconduct.

    This decision deserves credit for dispelling certain doubts that existed before, since this is the first time the Supreme Court has ruled on the legitimate character of a disciplinary dismissal for a cause such as this one. However, it gives rise to other questions.

    Indeed, as the Supreme Court retained two cumulative conditions, both the closed group and the limited number of people, it is logical to wonder if the decision would have been the same if the closed group had been made up of a large number of members or if the group members had been the company’s employees.

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    Bénédicte Litzler will attend to the 26th Conference of Avocats Conseils d’Entreprises, on the 27th and 28th of September in Antibes.
    Member of the Social Law commission, she will be part of all Social Law Workshops.

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    For the past several months, French legislators (deputies) have sought to implement a tax break on transfers by gift or inheritance.

    To this end, last May, legislators introduced a bill mainly aimed at increasing the tax allowance beyond which an inheritance or a gift is taxed, raising it from €100,000 to €159,325.

    Those legislators also proposed to apply tax allowances every 10 years instead of every 15 years as is currently the case in effect.

    Although the bill has not been voted on, it now seems to have little chance of being passed.

    In answering two ministerial questions raised, the French Government expressed its intention of not changing those tax rules.

    As per the increase of the current €100,000-allowance, the Ministry of Economy and Finance considers that the amount is “very close to the median net assets of all households, which, according to the INSEE, reached €113,900 per household in early 2015” and “that, on its own, it results in a very large majority of transfers being tax exempt“.

    As for the time period related to past gifts, the Ministry considers that the current time period is adequate, and as a reminder points out that “contrary to the sentiment expressed by (public) opinion, over three-fourths of inheritances are exempt from the payment of gift or inheritance tax.

    It is therefore in the best interest of taxpayers with a substantial estate to plan the transfer of their assets to their descendants in advance.

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    As summer ends, now is as good a time as any to be reminded of an indispensable precautionary measure that should be taken by all entrepreneurs!

    Unlike in the American system, under French law, your company is not automatically the owner of the creations (such as artwork, design or photo) that you order from and which are developed by external service providers, or those developed in-house by your company’s own employees.

    In order to be allowed to use those creations freely, within the framework of your employment contracts or your service contracts concluded with external service providers, your company must make sure to include a transfer of rights clause adapted to your business sector, scrupulously complying with the provisions set forth in the French Code of Intellectual Property. If such a transfer has not been set up – or in the event of a poorly prepared transfer – the property rights regarding the creation will remain in the ownership of the creator who can object to the said creation being used by your company, in any form whatsoever.

    That negligence is not without consequences for your company, whose entire business could, in extreme cases, be jeopardised.

    The absence of a transfer of invention rights to your company might also delay action by certain investors or buyers, or even cause them to reconsider their planned acquisition or investment.

    As a result, it would be especially unfortunate to be confronted with this complication when, in fact, it can be avoided beforehand, by making simple, albeit specific and adapted, arrangements in advance.

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    On June 21, 2018, the French Senate finally adopted the Bill aimed at transposing European Directive 2016/943 on trade secrets adopted by the European Parliament in June 2016 and introducing a new Title V in the French Commercial Code entitled “Protection of Trade Secrets”.

    The text in the reform is aimed at protecting company know-how and information against industrial espionage and unfair competition, regardless of their size or field of business.

    Companies should adopt good practices in compliance with these new regulations as of now:

    1. Information covered by the protection

    Trade secrets deal with information of various types such as technical, commercial, accounting and financial, or strategic data.

    In order to be considered a trade secret and be covered by the new protection regime, information must meet the following three requirements. It must:

    – be secret, i.e. not readily accessible by the public,
    – have commercial value,
    – be the subject of reasonable protective measures, such as pre-contractual or contractual measures or personnel awareness measures.

    2. Acts considered as an infringement of trade secrets

    If the abovementioned prerequisites are all met, the law makes it possible to object to access, use and disclosure of the protected information as well as punish the perpetrator whose conduct was unfair or who must have been aware, under the circumstances, of the illicit character of his/her act(s).

    The perpetrator having committed acts constituting direct infringement of the trade secret shall be civilly liable according to the terms of Article L. 152-1 of the Bill and may be sentenced to pay damages if the infringement of the information occurred without the legitimate holder’s consent.

    With regard to any person who imported, exported, produced or marketed products reproducing secret know-how, the reform provides stronger protection compared to the current regime since it makes it possible, in particular, to punish that person even if s/he did not personally participate in the misappropriation of the know-how, provided it can be proven that s/he knew, or ought to have known, of the fraudulent origin of the information. To that end, it will be possible to send a letter of warning to the perpetrator beforehand “informing of potential infringement”.

    3. Additional exceptions to the protection

    In view of the criticism targeting the European Directive, regarding the violation of the right to freedom of expression, the national legislator decided to extend the situations in which trade secrecy cannot be raised.

    While, in accordance with the European Directive, Article L. 151-7 of the Bill provides that trade secrecy cannot be raised when “acquisition, use or disclosure of the secret is required or allowed by European Union or national law”, Article L. 151-8 of the Bill adds an additional exception for situations in which acquisition of the information took place “within the framework of the exercise by employees or their representatives of their right to information and consultation”.

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    Decision by the Social Chamber of the Court of Cassation dated May 3, 2018 (Cass. Soc. 3 mai 2018, n°17-11.048).

    While it is customary for an employer to request certain personal documents for operational purposes, there is nevertheless sensitive information in an employee’s private life that an employer is not allowed to request.

    Requesting documents pertaining to an employee’s personal life does not necessarily characterize infringement on the right to privacy in their private and family life. That is the conclusion that should be drawn further to a ruling by the Social Chamber of the Court of Cassation dated May 3, 2018 (Cass. Soc. 3 mai 2018, n°17-11.048).

    To justify her claim for damages, an employee referred to a clause in her employment contract requiring that she informs her employer of any changes occurring to her name (marital status), family situation, or place of residence.

    The question put to the Court of Cassation was therefore to know whether the employer could, based on that clause, lawfully collect such information.

    The Court of Cassation judges answered in the affirmative, even though the laws on the matter are clearly established and protect employees from excessive interference by the employer in the employee’s private life (*). Indeed, the judges considered that the Court of Appeal had validly held that “the information requested was necessary in order for the employer to assure the employee’s rights” and that, as such, the litigious clause could not constitute a breach of the employee’s fundamental rights and freedoms.

    By means of the present ruling, the Social Chamber reiterated the scope of the notion of ‘interference in an employee’s privacy’ and rejected such a condition when the request for personal information is in the employee’s interest.

    (*) Article 9 of the French Civil Code, Article 8 of the European Convention on Human Rights, and Article L1121-1 of the French Labour Law.

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    In a ruling dated 13th June 2018 (CE plén. 13-6-2018 n° 395495), the Council of State has finally clarified the notion of an “active holding company,” which it defines as a company: “whose principal activity, in addition to managing a portfolio of investments, is to play an active role in the management of the group’s policy and the running of its subsidiaries and, where relevant and on a strictly internal basis, the provision of specific administrative, legal, accounting, financial and property services.

    Before the 13th June ruling, only the Cour of Cassation have issued a definition of active holding companies. The Council of State’s definition builds on the definition issued by the Cour of Cassation, adding that management must be the company’s “principal” activity.

    As such, companies with non-controlling minority shares in businesses may qualify for “active holding company” status.

    Furthermore, the Council of State mentions a certain number of factual elements to be used to prove “active holding” status, notably including:

    – Minutes from meetings of the company’s board of directors attesting their involvement in the management of their subsidiaries’ policies; or else

    – The existence of a contract for administrative and strategy and development support, specifying that the holding company will play an active role in the strategy and development of its subsidiaries, without compromising their respective autonomy as legal entities.

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    The Court of Justice of the European Union has decided on Tuesday 12 June and has sided with Christian Louboutin: a colour, when placed on a product or part of a product, may be registered as a trademark in the European Union insofar as it allows the consumer to identify the origin of the purchased product.

    Court of Justice of the European Union, Grand Chamber, 12 June 2018, C-163/16, EU:C:2018:941, Mr. Louboutin and Christian Louboutin SAS vs. / Van Haren Schoenen B.V.

    Christian Louboutin will therefore retain its trademarks in the European Union, consisting exclusively of colour 18-1663 TP of the Pantone colour chart, placed on the sole of its high-heeled shoes.

    Among its numerous trademarks, the Benelux trademark was registered in 2010 in the “shoes” class and, as of 2013, in the “high-heeled shoes” class. This trademark is described as consisting of “the colour red (Pantone 18-1663 TP) applied on the sole of a shoe as represented (the contour of the shoe does not form part of the trademark but is used to show the placement of the mark)”.

    In 2013, Mr. Louboutin and his company filed a lawsuit for trademark infringement against a Dutch company named Van Haren, which had marketed high-heeled shoes with red soles in 2012.

    In its defence, Van Haren argued that the trademark invoked was invalid due to the fact that this trademark was solely constituted of the shape of the product in question (in this case, the sole of a high-heeled shoe).

    Having been called upon by the Hague Tribunal, the Court of Justice of the European Union (CJEU) responded to its interlocutory question regarding the validity of the colour trademark (Pantone red 18-1663TP) invoked by Christian Louboutin.

    According to its decision of 12 June 2018, the Court decided that the term ”shape” mentioned in the law must be construed according to its common meaning. However, a colour in itself, when not delineated in space, does not constitute a shape.

    This applies even if the shape of the product (or part of the product) plays a role in delineating the colour in its space: the sign for which trademark protection was sought cannot be considered to consist of its shape, for which no registration was requested, but rather only as the application of a colour on a specific area of the product, in this case, a positional mark.

    While this decision is a legal decision, the work and investments of Mr. Louboutin to ensure the monopoly of Pantone 18-1663 TP red soles have also ensured this favourable decision. Indeed, the impact of the considerable investments made by Mr. Louboutin and his Company to promote his “colour trademark” and their communication efforts on their red-soled shoes should not be downplayed. They have largely contributed to giving a strongly distinctive characteristic to the red-coloured soles as a result of constant use.

    In addition, given the numerous decisions of the European Union Intellectual Property Office (EUIPO) refusing to register positional marks for “lack of distinctive character”, we can only temper the future enforcement of the general rule set by the CJEU.

© Schmidt Brunet Litzler