The European Antitrust Review 2014 • Section 1: EU substantive areas
Cartels and Leniency
Over the past year, member states’ courts have continued to deal with the inherent tension between the rights of cartel victims to claim private damages in national courts for breaches of EU law and the effectiveness of public enforcement of the competition rules by the European Commission. Following Pfleiderer, national courts have struggled in conducting the balancing exercise to decide whether or not to disclose documents to victims of cartels resulting in an inconsistent and unsatisfactory approach in the protection of leniency evidence across different jurisdictions. The absence of EU rules meant that on the one hand, potential leniency applicants could not be sure whether the information they submitted with their application would be disclosed to a future claimant and used against them, thus putting them in a weaker defensive position than fellow cartelists who had not cooperated with the relevant competition authority. On the other hand, claimants faced an uneven playing field due to the diverse national rules governing antitrust damages actions, with the result that claimants’ ability to obtain compensation often depended on where they could bring their claims and the interpretative largesse of the judge.1 The Commission was concerned that this would result in appreciable distortions of competition in the internal market.
On 11 June 2013, the Commission published an eagerly anticipated proposal for a Directive on actions for damages,2 which is aimed at removing the practical difficulties faced by victims of cartels, while also including safeguards to ensure that the incentives for companies to cooperate with competition authorities under their respective leniency programmes were not diminished.3 Through the new rules on disclosure of evidence introduced by the proposed Directive, the Commission is clearly hoping to level out the playing field by opening the door to litigation in many member states where there have, as yet, been very few claims due to the difficulty claimants experience in obtaining the evidence they need to bring a successful claim. The proposed Directive is currently being discussed by the European Parliament and the Council according to the ordinary legislative procedure. Once adopted, member states will have two years to implement the provisions into their national legislation.
Another important issue that has arisen this year is the identification of the entity benefiting from a leniency application, and specifically who is covered by the application when there is a change of ownership in the subsidiary over the course of the cartel. This year the General Court and the Commission seem to have departed from prior practice and now find that unless parent companies themselves seek leniency in their own name, they will no longer benefit from a subsidiary’s leniency application, even though the Commission finds that they form a single economic undertaking at the time the leniency application was made. This raises the important questions of who is the leniency applicant, who is included in the application and who benefits under such a leniency application? We discuss this issue first before turning to the Commission’s proposed Directive on actions for damages.
Do parent companies benefit from their subsidiaries’ leniency applications?
The Commission Leniency Notice4 does not deal expressly with the issue of which legal entities are covered by the grant of immunity or a reduction in fines, in particular as regards its extension to parent companies.
As a matter of practice, the Commission granted leniency reductions to all the corporate entities to which the decision has been addressed even where the application itself was made only by the subsidiary (and not the parent). The rationale, although not discussed in detail, would appear to be that if there is a single economic undertaking for fining purposes, it would be illogical to treat the parent and subsidiary separately for leniency purposes.5
In the FLS Smidth case (industrial bags cartel),6 FLS Smidth was the ultimate parent company of Trioplast Wittenheim SA, which in turn was owned by an intermediary company, FLS Plast, during a period of the infringement. FLS Plast sold Trioplast Wittenheim SA to Trioplast Industrier, which was the parent company at the time of the leniency application submitted by Trioplast Wittenheim SA.
The General Court held that the Commission wrongly extended the benefit of Trioplast Wittenheim SA’s cooperation to Trioplast Industrier. The General Court took the view that despite the fact that the parent company and the subsidiary formed a single undertaking at the time the leniency application was made, because the Commission had decided to take an individualised approach and was, therefore, required to consider the individual situation of each addressee to determine its penalty, the parent company had itself to provide information justifying a reduction on account of leniency or at least join in with the subsidiary’s leniency application in order to benefit from the reduction.7
This approach is not only inconsistent with prior Commission practice but legally specious given that the Commission found that Trioplast Wittenheim SA and Trioplast Industrier formed a single economic unit for the purposes of liability of the fine.8 FLS Smidth appealed this judgment on 16 May 2012, arguing that the General Court had erred in law in that it did not benefit from a reduction of 30 per cent under the Leniency Notice as a result of its subsidiary’s leniency application despite the fact that a similarly situated parent company, Trioplast Industrier, benefited from a reduction when its subsidiary sought leniency.
Pending resolution to the FLS Smidth appeal, there is a risk that the Commission will in future cases follow the General Court’s judgment in the same case and not extend immunity or leniency granted to subsidiaries to parent companies, contrary to its prior decisional practice. Leniency applicants are better advised to submit applications on behalf of both parent companies and their subsidiaries to ensure that all entities benefit from leniency discounts.
European Commission proposes a Directive on actions for damages
Rules on disclosure of evidence: protection of leniency statements and settlement submissions
A material aspect of follow-on cartel damages actions is the extent to which claimants can request national courts to order defendants or competition agencies to disclose information produced or submitted to the agency as part of a leniency application. The Commission’s position under the Leniency Notice was that, as a matter of public policy, in order to protect the effectiveness of the Leniency Notice, leniency documents and written or recorded statements should not be disclosed in follow-on cartel damages actions.
The proposed Directive introduces new rules relating to the disclosure of evidence which are of relevance to potential leniency applicants. Under the proposed Directive, member states are to ensure that national courts order the disclosure of evidence, regardless of whether or not this evidence is also included in the file of a competition authority (subject to certain conditions), where the claimant shows that the evidence is relevant for substantiating their case and has specified either pieces or categories of this evidence as precisely and narrowly as possible (fishing expeditions are excluded). The national courts must then consider the request and limit disclosure to what is proportionate.9
Protection of evidence from the file of a Competition Authority
The proposed Directive introduces a sliding scale of protection from disclosure in national courts for different categories of evidence. This can be explained using nomenclature well known to competition practitioners:
Total protection for leniency statements and settlement submissions. Under the proposed Directive leniency statements and settlement submissions will not be allowed to be disclosed at any time and will benefit from absolute protection from disclosure in national courts.10
Protection for documents prepared specifically by defendants and competition authorities during competition proceedings. Under the proposed Directive documents prepared specifically by competition authorities (statements of objections, requests for information, and defendants’ responses to those) cannot be disclosed in national courts until the relevant competition authority has closed its competition proceedings or taken a decision referred to in article 5 of Regulation 1/2003.11 The rationale behind this temporary protection is to prevent actions for damages from compromising the investigation strategy of competition authorities.
Claimants may feel that the temporary protection of documents in the grey list still makes it very difficult for them to gain access to the evidence they need in order to bring a successful claim. However, once the proceedings are closed, this information can be disclosed as long as the claimants formulate a sufficiently precise request.
No protection for other documents including ‘pre-existing documents’. Information which is not granted total or temporary protection by the proposed Directive, including information in the competition authorities’ file which existed before the proceedings started and independently of them (‘pre-existing information’),12 can be ordered to be disclosed by a national court at any point in time.13 However, requests for disclosure of these documents must comply with the general rule on disclosure (ie, the claimant must specify pieces or categories of evidence as precisely as possible and they must show that the evidence is relevant). The national court will disclose these documents if it considers that the request is proportionate. Global requests for disclosure of the full file or of the full file of one undertaking will not be considered precisely and narrowly defined and will not be granted by national courts. The Commission also stresses that, in respect of documents in the white list, national courts should refrain from ordering the disclosure of evidence by reference to information supplied to a competition authority for the purpose of its proceedings, particularly when such proceedings are still ongoing as this could hinder public enforcement proceedings.14
The national courts’ only discretion would be as to the proportionality of the request (rather than whether it should disclose the information or not), and the proposed Directive sets out guidelines on how the courts are to determine whether the request is proportionate.15 This provides some degree of certainty to both leniency applicants and claimants as they can attempt to weigh up the likelihood of the court granting disclosure in advance. However, the risk that pre-existing documents submitted by leniency applicants will be handed over to claimants to be used against them may be greater under the proposed Directive and will need to be considered as a potential disadvantage compared to undertakings who choose not to cooperate.
As an additional safeguard, the proposed Directive prohibits the ‘trading’ of pre-existing documents once they have been disclosed and imposes an obligation on member states to ensure that evidence obtained by a claimant solely through access to the file of a competition authority can only be used in an action for damages by that person or by the natural or legal person that succeeded that person, including a person that acquired the claim.16 This means that a different claimant can only gain access to the same pre-existing information by making a separate request which, in turn, the national court must deem to be compliant with the requirements before being obliged to disclose.
Tension with the Leniency Notice?
There is a question as to whether the rules on disclosure in the proposed Directive concerning documents in the white list can be reconciled with the Leniency Notice, which states that ‘normally public disclosure of documents and written or recorded statements’ received in respect of the Leniency Notice would undermine certain public or private interests, even after the decision had been taken.17 There is a tension because although leniency corporate statements are absolutely protected from disclosure under the proposed Directive, pre-existing information (ie, emails between cartelists, minutes of cartel meetings – the ‘documents’ referred to in paragraph 40 of the Leniency Notice) could be disclosed at any time, as long as the national court considers that the claimant’s request is proportionate, which seems to contradict the Leniency Notice. However, the Commission has not stated that it intends to amend the Leniency Notice following the adoption of the proposed Directive, which suggests that the Commission believes that it can be reconciled with the proposed Directive.18
Disclosure of evidence before the proposed Directive
The proposed Directive aims at bringing legal certainty to potential leniency applicants and claimants as to what evidence can be disclosed by courts from different member states. The current uncertainty on the issue was reinforced by one relatively recent judgment and another very recent judgment of the Court of Justice.
In the Pfleiderer case19 the court found that EU law ‘must be interpreted as not precluding a person who has been adversely affected by an infringement of European Union competition law and is seeking to obtain damages from being granted access to documents relating to a leniency procedure involving the perpetrator of that infringement. It is, however, for the courts and tribunals of the Member States, on the basis of their national law, to determine the conditions under which such access must be permitted or refused by weighing the interests protected by European Union law’.20
As a result of Pfleiderer, claimants can potentially be granted access to all materials submitted under a leniency application, including corporate statements, depending on the decision of the national court in question after it had carried out the necessary weighing exercise. Interestingly, the court diverged from the Opinion of the Advocate General, who recommended that access to corporate statements should be denied, but that claimants should be able to access all other pre-existing documents submitted by a leniency applicant.21
The court handed down its Donau Chemie judgment on 6 June 2013 a few days before the publication of the Commission’s proposed Directive on actions for damages.22
In this case, a provision of national law precluded third-party access to court files of public law competition proceedings absent the consent of the parties to the proceedings.
The Court followed the Advocate General’s Opinion23 and confirmed that a provision of national law that prevented the national court from weighing up the interests protected by EU law (ie, the weighing exercise as set out in Pfleiderer) was precluded by EU law.24
The Commission is likely to consider that the Donau Chemie judgment does not affect the proposed Directive for two reasons. First, the prohibition under national legislation that was under scrutiny in Donau referred to all documents held on a competition authority’s file. The Commission, under the proposed Directive, is not preventing access to the entire file, but it is only providing three different levels of protection to certain categories of documents. Leniency corporate statements and settlement submissions benefit from absolute protection; requests for information, statements of objection and their replies benefit from temporary protection; and all other documents can be disclosed at any time subject to a proportionate request. Second, the Donau judgment specified that the judgment applied ‘in the absence of EU rules governing the matter’.25 Therefore the proposed Directive would remain inside the limits of the case law.26
With the proposed Directive the Commission has attempted to remove one of the biggest obstacles for the application of the balancing exercise – the fact that national laws vary so greatly over the various jurisdictions – and the proposed Directive aims at ensuring a more uniform application of the rules on disclosure and a greater certainty for all parties involved.
Other changes in the proposed Directive relevant for potential leniency applicants
Presumption of harm for claimants
Under the proposed Directive, there is a presumption that, in the case of a cartel infringement, such an infringement caused harm. It is for the infringing undertaking to adduce evidence to rebut this presumption.27 This improves the position of claimants, who are not only more likely to get hold of evidence under the disclosure rules, but also do not need to prove that they suffered any harm – this is automatically presumed. It is for the national judge to estimate the amount of harm.28
The proposed Directive clarifies that the limitation period in which claimants can bring their claims must be at least five years, and must be suspended if a competition authority takes action for the purpose of the investigation or proceedings, which ends at the earliest one year after the infringement decision has become final or the proceedings are otherwise terminated.
There are four criteria that must be met before the limitation period can start to run. The injured party must either know, or could be reasonably expected to know, of: the behaviour constituting the infringement; the qualification of such behaviour as an infringement; the fact that the infringement caused harm to him; and the identity of the infringer who caused such harm.29
The Commission is aiming to ensure that claimants no longer run the risk of their claims being time-barred due to lengthy investigation proceedings. Under these new rules, claimants could benefit from waiting until the relevant authority has closed its proceedings in order to obtain their evidence because they would then have the infringement decision as proof of the infringement (if such a decision is taken), and the documents in the grey list would no longer be protected from disclosure. This would enhance their ability to bring a successful claim.
Limited liability of immunity applicants
The Commission has stressed that the proposed Directive ensures that potential leniency applicants are not deterred from blowing the whistle on cartels. Immunity applicants are often the primary target of damages actions since they are unlikely to appeal a decision imposing fines, and as a result the infringement decision becomes final earlier than for other addressees who may submit an application for annulment of the decision imposing the fine. Under the proposed Directive, an undertaking that has been granted immunity from fines is only liable to its direct or indirect purchasers or providers, except when such claimants can show that they are unable to obtain full compensation from the other undertakings that were involved in the same infringement (which remain jointly and severally liable for the damage caused by the infringement).30
This aims to ensure that immunity applicants are not deterred from coming forward without unduly limiting the ability of claimants to obtain full compensation.
The Commission may consider that this gives comfort to a potential immunity applicant. However, a potential leniency applicant may question whether to come forward at all if it considers that the enhanced risk of successful damages actions (arising from the disclosure of pre-existing information, the presumption that the infringement caused harm and the extended length of time claimants have to bring their claims) outweighs the benefits of applying for immunity or leniency.
Whereas the Commission claims that the main two objectives of the proposed Directive are to optimise the interaction between public and private enforcement of competition law and to ensure claimants obtain full compensation for the harm suffered, the proposed Directive has caused concern to potential leniency applicants.31
On the one hand, potential leniency applicants are granted absolute protection over their leniency corporate statements. On the other, the proposed Directive improves claimants’ chances to get hold of evidence contemporaneous to the infringement that may ensure a successful damages claim. This, together with the extended limitation periods and the presumption of harm which benefits claimants, may be seen as a deterrent for whistle-blowers to cooperate with competition authorities.
The level of uncertainty as to the disclosability of leniency documents across member states was an unsatisfactory state of affairs for both claimants and potential leniency applicants. However, the proposed Directive should be seen as the Commission advancing the cause of private enforcement at the expense of its leniency programme. Since two-thirds of the Commission’s cartel cases brought since 2006 have stemmed from leniency applications, leniency remains a crucial enforcement tool for the Commission. Potential leniency applicants are, as a result of this proposed Directive, likely to be deterred from coming forward and cooperating with competition authorities, despite the ‘safeguards’ the Commission has included. This, in turn, will ultimately disadvantage the claimants it was originally trying to help, as fewer cartels will come to light.
Only two days after publication of the proposed Directive, the Commission argued in the Energie Baden-Württemberg case32 that there should be a general presumption for the protection of evidence in cartel cases so that the Commission’s investigation would not be undermined. However, it is questionable whether the proposed rules on disclosure do in fact create such a presumption and in fact, the Commission may be seen as sending conflicting messages about the balance it is attempting to strike.
It will be interesting to assess whether the number of immunity and leniency applications starts to decline if and when this proposed Directive is adopted in its current form.
- See Executive Summary of the Impact Assessment: http://ec.europa.eu/competition/antitrust/actionsdamages/summary_impact_assessment_en.pdf where the Commission noted there was a concentration of antitrust damages in three EU jurisdictions: the UK, Germany and the Netherlands, suggesting that these jurisdictions were considered to provide a higher chance of success for claimants in damages actions. ↑
- See: http://ec.europa.eu/competition/antitrust/actionsdamages/proposed_directive_en.html. ↑
- See: http://europa.eu/rapid/press-release_IP-13-525_en.htm. ↑
- Leniency Notice on immunity from fines and reduction of fines in cartel cases ((2006) O.J. C 298/17). ↑
- Case T-161/05, Hoechst GmbH v Commission (30 September 2009), paragraph 75. ↑
- T-65/06 FLS Smidth & Co. A/S v European Commission, Judgment of 6 March 2012. ↑
- Ibid, paragraphs 92- 93. ↑
- Case T-161/05, Hoechst GmbH v Commission (30 September 2009), paragraph 75. ↑
- Proposal for a Directive on actions for damages, Article 5. ↑
- Ibid, Article 6(1). ↑
- Ibid, Article 6(2). ↑
- Ibid, Article 4(14), pre-existing information is expressly excluded from the definition of corporate leniency statements. ↑
- Ibid, Article 6(3). ↑
- Ibid, Recital 4(2) (d) of the Explanatory Memorandum. ↑
- Ibid, Article 5(3). ↑
- Ibid, Article 7(3). ↑
- Leniency Notice, para 40. ↑
- The Commission has recognised that some legislation must be amended in order to reconcile it with the proposed Directive, for example the Commission Notice on the cooperation between the Commission and the courts of the EU Member States in the application of Articles 81 and 82 of the EC Treaty (2004) O.J. C 101/54, para 26, which states that the Commission will not transmit to national courts information voluntarily submitted by a leniency applicant (both corporate statements and pre-existing documents) without the consent of that applicant. Separately, a framework allowing for the exchange of confidential information, with the absence of confidentiality waivers of the companies involved, between competition authorities in the EU and US when they are investigating the same or related cases, is currently being discussed. This shows a move towards the favouring of disclosure of confidential information by competition authorities and may act as a possible further deterrent for leniency applicants where the cartel has transatlantic elements. ↑
- Case C-360/09 Pfleiderer AG v Bundeskartellamt, Judgment of 14 June 2011. ↑
- Ibid, para 32. ↑
- Case C-360/09 Pfleiderer AG v Bundeskartellamt, Opinion of Advocate General Mazák of 16 December 2010, paras 46-47. At para 32 the AG had stated that the 2006 Leniency Notice, although protecting a leniency applicant’s corporate statements, did not provide for the refusal of access to third parties to pre-existing documents provided by a leniency applicant under that notice. ↑
- C-536/11 Bundeswettbewerbsbehörde v Donau Chemie AG and others, Judgment of 6 June 2013. ↑
- C-536/11 Bundeswettbewerbsbehörde v Donau Chemie AG and others, Opinion of Advocate General Jaaskinen of 7 February 2013. ↑
- C-536/11 Bundeswettbewerbsbehörde v Donau Chemie AG and others, Judgment of 6 June 2013, para 49. Two main questions from Donau Chemie that the proposed Directive has addressed are (1) if national courts must look at whether disclosure of a document can undermine the public interest and (2) whether national courts have to be able to justify not disclosing each and every document or whether certain categories of document can be shielded. ↑
- Ibid, para 25. ↑
- Some commentators have argued that the rules on disclosure in the proposed Directive are bound to clash with existing EU law, could disproportionately limit the possibility to obtain effective redress (and consequently limit the effectiveness of Articles 101 and 102 TFEU), and could disproportionately restrict the procedural autonomy of Member States by excluding the ability of domestic courts to conduct the balancing exercise set out in Pfleiderer and Donau Chemie. ↑
- See Proposal for a Directive on action for damages, Article 16(1). ↑
- Ibid, Article 16(2). ↑
- Ibid, Article 10. ↑
- Ibid, Article 11. ↑
- The Commission has stressed that it has included safeguards into the proposed Directive to ensure that the incentives for companies to cooperate with competition authorities have not been diminished. The European Parliament had called on the Commission to ensure that private enforcement did not compromise the effectiveness of either leniency programmes or settlement procedures. See the European Parliament resolution of 2 February 2012 on ‘Towards a Coherent European Approach to Collective Redress’ (2011/2089(INI)): www.europarl.europa.eu/sides/getDoc.do?type=TA&language=EN&reference=P7-TA-2012-21. ↑
- Case C-365/12 P Commission v Enbw Energy Baden-Wurttemberg, Hearing of 13 June 2013. ↑
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