The European Antitrust Review 2014 • Section 2: EU industry sectors
Cartel Enforcement in the Chemicals Sector and Risks Arising from REACH Implementation
Cartels represent, without doubt, one of the most predictable areas for potential antitrust risks in the chemicals sector. The industry is especially vulnerable to engaging in cartel activity due to the highly concentrated markets and homogeneous nature of most products involved. Since the adoption of the first EU cartel decisions (the 1969 Quinine and Dyestuffs chemicals cases), the sector has been hit with a high number of Commission decisions imposing heavy fines. Over the last decade, the Commission addressed 21 cartel decisions to the chemical industry (out of 59 issued overall), which thus maintains the highest cartel record compared to any other sector.
Several chemicals groups have already been fined in one or more cartel cases in Europe and face the risk of new, higher fines if found to have infringed again. The risk is now greater than ever, as the recession that has marked the last years may have exacerbated companies’ vulnerability to engage in cartel activity. The chemicals sector has been heavily affected by the recession, as the Commission assessed in recent reports. Although the sector may have been entering a phase of potential economic recovery, the crisis is not yet over and companies should still be particularly vigilant in their dealings with competitors and aware that the Commission will not consider the economic crisis as a justification for collusion. Strict cartel enforcement remains at the top of the Commission’s antitrust agenda. The Commission will, at best, consider whether fines may be lowered for companies who can prove that the full fine would likely expose them to bankruptcy and cause assets to lose significant value.
While antitrust compliance programmes should remain a high priority to prevent risks, companies should also aim towards the early detection of cartel violations that may have already occurred to avoid, or at least limit, the sanctions involved. In particular, in-house counsel in chemicals companies should carefully monitor that environmental requirements, such as those arising from REACH,1 are implemented in compliance with the antitrust rules. Internal audits should especially be run to ensure that any past or ongoing cartel activities conducted within the framework of legitimate regulatory initiatives are detected and promptly dealt with. By prompting cooperation among competitors, REACH risks creating a cover for collusive conduct.
This chapter reviews the Commission cartel enforcement in the chemicals sector in the last five years2 (in reverse chronological order); draws on some lessons from these recent cases; and, lastly, gives an overview of REACH and the coordination risks it raises.
Recent Commission chemicals cartel cases
Since January 2008, the Commission has adopted eight cartel decisions in the chemicals sector (out of 29 cartel decisions issued in total). The most recent is Consumer Detergents in April 2011. More chemicals cases are in the pipeline, as confirmed by recent investigations launched in a number of products (eg, into polyurethane foam and cement-related products), which will likely result in cartel decisions in the next year or so. While the most relevant aspects of each case are discussed in detail below, the main themes can be summarised as follows.
First, recent chemicals cases confirm the general trend in EU anti-cartel enforcement to impose very heavy fines on cartel offenders. In April 2011, the Commission imposed fines of €315.2 million on washing powder producers and, in June 2010, €176 million upon the animal feed phosphates cartel. Earlier, in October 2008, the Commission had imposed fines of €676 million on paraffin wax producers (including a €318 million fine on Sasol), the highest ever in a chemicals cartel to date.
Second, these cases set a benchmark in the application of the ‘recidivism’ uplift mechanism under the 2006 Fining Guidelines and give insight into the level of fine increase that multi-recidivist companies may expect to receive in future cases. In five decisions, respective uplifts of 50, 60, 90 and 100 per cent were applied to companies who had previously infringed one, two, three or four times – thus still below the exponential ‘up to 100 per cent’ uplift per prior offence that the Commission is entitled to apply under the 2006 Fining Guidelines, but higher than the standard 50 per cent increase normally applied, no matter how many prior violations, under the previous 1998 Fining Guidelines.
Third, confirming a further general trend, several smaller chemicals companies had fines set at 10 per cent of total worldwide sales (before any leniency or settlement discount). In most cases, the high fines resulted from the cartel’s long duration, as under the 2006 Fining Guidelines each year of infringement increases the basic amount for gravity by 100 per cent.
Fourth, the EU cartel settlement procedure is increasingly being applied to resolve cartel cases. Two of the seven settlements reached to date by the Commission concern chemicals companies (ie, washing powder and animal feed phosphate producers), as well as the first settlement in a ‘hybrid’ case scenario, reached in the animal feed phosphate cartel late in July 2010. The case, which remains the only settlement reached in a ‘hybrid case scenario’, shows the Commission’s willingness to promote the settlement procedure and make it work even where only some of the parties are ready to settle.
Fifth, companies may face parallel investigations (and fines) by the Commission and national competition authorities for the same categories of products, as the consumer detergent cartel shows. The case is a good example of how regulatory compliance measures which are entirely legitimate in themselves may offer a framework for unlawful collusion and expose companies to cartel risks.
Sixth, these decisions reflect the Commission’s increasingly tough approach in applying its leniency programme. In some cases, the Commission granted discounts considerably lower than the maximum reductions available under the leniency notice. In other cases, it granted no reward at all to companies coming late after the dawn raids (eg, in the aluminium fluoride cartel, none of the parties received a leniency reduction). The common theme was that the companies had provided limited or no ‘significant added value’ information compared to the evidence already in the Commission’s file.
Seventh, the Commission lowered fines on chemical companies found to be unable to pay in three cases (ie, in Calcium Carbide, Heat Stabilisers and Animal Feed Phosphates). These chemicals cases reflect the Commission’s increased willingness to take account of companies’ financial difficulties, especially in times of recession.
In April 2011, the Commission imposed fines totalling €315.2 million on Procter & Gamble (P&G) and Unilever for operating an EU-wide cartel related to washing powders.3 Henkel, also a participant in the cartel, received full immunity from fines as it approached the Commission first. The three companies were found to have stabilised market shares and fixed prices in heavy duty household laundry detergent powders for machine washing in eight EU countries (Belgium, France, Germany, Greece, Italy, the Netherlands, Portugal and Spain) from January 2002 to March 2005. The Commission settled the case with all companies.
Interestingly, the illegal cooperation occurred in the context of a legitimate environmental initiative that the main European detergent manufacturers had launched in 1997 through AISE, the International Association for Soaps, Detergents and Maintenance Products. The initiative, which was endorsed by a 1998 EU recommendation, aimed to promote a more sustainable consumption of laundry detergents in Europe by gradually reducing products’ dosage, weight (‘compacting’) and volume (‘downsizing’), as well as packaging materials to minimise waste. The Commission found that, within regular meetings held to discuss the environmental initiative, the companies put in place collusive practices aimed to fix prices and ensure that market shares remained stable as these measures were implemented. More specifically, the companies agreed to: leave prices unchanged while gradually reducing products’ weight, volume or number of scoops (wash loads) per package; coordinate on various parameters related to the presentation of products, such as pack dimensions and pack fill levels; restrict marketing activities by excluding certain types of promotion; and directly increase prices on certain markets in 2004. Moreover, the participants exchanged sensitive market information on prices and other trading conditions.
The investigation was launched after Henkel applied for immunity in April 2008. Following unannounced inspections at the premises of P&G and Unilever in June 2008 and, again, at Unilever’s premises in April 2009, P&G and Unilever applied for leniency. Interestingly, already in March 2008, Unilever had approached the French competition agency and disclosed – thus being first to do so – illegal competitor cooperation taking place in France and some other EU countries. The company, however, had not also approached the Commission, which was first contacted by Henkel a month later.
The Commission started proceedings in December 2009 and issued the SO reflecting the parties’ submissions in February 2010. All parties confirmed their willingness to engage in settlement discussions, which lasted six months until January 2011, when the parties clearly and unequivocally acknowledged their liability. P&G was fined €211 million, reflecting a small increase for deterrence with a multiplier of 1.1, and reductions of 50 per cent for its cooperation under the leniency programme and 10 per cent for settling the case. Unilever was fined €104 million, reflecting a 25 per cent leniency reduction for its cooperation and a 10 per cent settlement discount.
Interestingly, in parallel to the Commission’s investigations, the French and other EU national competition authorities (eg, the Slovak and Czech agencies) conducted investigations into household laundry detergents and imposed fines. The investigations were launched after Unilever and Henkel approached the competition agencies under the relevant EU and national leniency programmes.
In December 2011, the French competition authority (FCA) imposed fines totalling €240.2 million on Henkel and P&G.4 Henkel, the first to reveal the existence of an infringement at EU level, had argued that the French infringement was part of the EU infringement and that it should be covered under the EU investigation. Therefore, according to the company, it should have received immunity also in France or at least a 50 per cent leniency discount. The FCA took the view that the French infringement was distinct and that, as a result, it had remained competent to pursue a separate investigation and impose a separate fine. The FCA relied on a statement by the Commission confirming the distinct nature of the national and EU cases concerning the products, participants, duration and their geographical scope. While the French case related to direct price-fixing and promotion of detergents in the specific context of the Galland Law, the EU infringement concerned indirect price coordination put in place in the context of the AISE environmental initiative. Moreover, the French investigation covered all types of laundry detergents (powder, liquid and tablets), while the EU case only covered powders, under the compacting measures promoted by AISE.
Animal Feed Phosphates
In July 2010, the Commission closed its investigation in the long-standing animal feed phosphate cartel and imposed fines totalling €175.6 million on five European and non-European chemicals groups (Tessenderlo, Quimitécnica, Timab/Group Roullier, FMC and Ercros).5 Individual fines ranged between €83.8 million for Tessenderlo and €2.8 million for Quimitécnica. Kemira, the first to disclose the cartel, obtained full immunity from fines for all of the group companies taking part in the cartel. All parties, except Timab, settled with the Commission in return for a 10 per cent reduction in the fine, in the first EU ‘hybrid’ cartel settlement to have been reached to date.
Animal feed phosphates are chemical compounds used in feed for animals such as cattle, pigs, poultry, fish and pets. The Commission found that, for nearly 35 years between 1969 and 2004, producers had operated a single and continuous cartel designed to allocate markets and customers, as well as to fix prices, in most EEA countries. In frequent meetings, the companies coordinated and exchanged commercially sensitive information to monitor the agreed prices and market shares.
Although the long duration of the cartel resulted in a very high multiplier for some of the companies (almost 35, the highest ever in a cartel case), fines were limited overall. This was either due to the limited value of sales in the relevant products or the small overall size of the companies concerned. For example, the fine on Tessenderlo (before leniency and settlement discount) reached 10 per cent of the company’s worldwide revenues in the last financial year and was capped under the 10 per cent turnover limit under article 23(2) of Regulation 1/2003.
This case has two main interesting aspects. First, it shows that the Commission is willing to follow the settlement procedure in cases where not all investigated parties are ready to settle (‘hybrid’ cases). Thus, it addressed the scepticism in this sense raised by many at the time the settlement procedure was adopted. Second, the Commission reduced the fine on one company because of its financial difficulties and the resulting risk of bankruptcy. This was the second time that the Commission reduced fines on chemicals companies based on the ‘inability to pay’ defence under point 35 of the 2006 Fining Guidelines, after Heat Stabilisers in November 2009.
First EU ‘hybrid’ cartel settlement
Animal Feed Phosphates is the first case in which the Commission settled a cartel in a ‘hybrid’ scenario, that is, with only some of the parties to the investigation. At the time, it was the second-ever EU cartel settlement reached, after DRAM in May 2010. Until then, it had been unclear if and how the new procedure, intended to speed up cartel investigations and reduce litigation, would work in cases where even just one party refused to settle. Interestingly, the case offers an overview as to how the Commission treats such ‘hybrid’ settlements in practice. It remains to be seen, however, to what extent the Commission will be willing to settle in future cases where more than one party refuses to do so and procedural efficiencies are clearly lower.
The investigation started in February 2004, with dawn raids prompted by Kemira’s immunity application under the 2002 Leniency Notice. Following the inspections, Tessenderlo, Quimitécnica and Timab applied for leniency. While receiving leniency cooperation from some of the parties, the Commission explored, in parallel, whether the case could be settled under the new procedure.
Thus, in January 2009, the Commission invited all six investigated groups to indicate whether they would be interested in participating in settlement discussions. All companies accepted. As a result, they engaged in bilateral discussions with the Commission, and obtained restricted access to the file (limited to evidence supporting the alleged facts) and an indication of the range of likely fines. When invited to submit formal settlement requests, within the time limit set by the Commission, five of the six groups responded, acknowledging in clear and unequivocal terms their participation in the cartel and their related liability. Timab, on the contrary, while continuing to cooperate under the leniency programme, decided to discontinue the settlement discussions and to opt for the ordinary procedure.
As a result, in November 2009, the Commission issued a statement of objections (SO) to the various companies. With regard to Timab, the Commission reverted to the standard procedure and granted the company full access to the file. The five settling groups submitted simplified replies to the SO, essentially confirming in clear and unequivocal terms that the SO reflected the contents of their settlement submissions and that they remained interested in settling. Timab, on the other hand, submitted a standard response to the SO and asked to be heard in an oral hearing held in 2010.
The Commission adopted two final decisions. A simplified settlement decision was addressed to the five groups who agreed to settle and were rewarded with a 10 per cent reduction. In the case of Tessenderlo and Quimitécnica, this reduction was added to the respective 50 and 25 per cent fine reductions for leniency. A standard decision under the ordinary procedure was addressed to Timab, who was rewarded with a 5 per cent fine reduction for its leniency cooperation. Timab lodged an appeal with the General Court in October 2010 (Case T-456/10), which is still pending and serves as the first judicial test of a hybrid settlement of this sort.
The case also interestingly shows how the ‘settlement procedure’ and the ‘leniency programme’ interact in practice, while pursuing different objectives. The settlement system simply rewards companies for helping speed up proceedings, by granting an equal 10 per cent fine reduction to all settling parties. The leniency programme, on the other hand, is intended to incentivise companies to be ‘first in the door’ to self-report a cartel’s existence. The fine discounts granted vary widely depending on the timing of the application and the ‘added value’ of the information provided. A settlement reduction is available regardless of whether a defendant is also a leniency applicant, and is cumulative with any leniency discount.
‘Inability to pay’ under the 2006 Fining Guidelines
During the Animal Feed Phosphates proceedings, two groups claimed to be unable to pay the fine due to their difficult financial position, and requested a reduction under point 35 of the 2006 Fining Guidelines to avoid forced liquidation. The Commission accepted only one application and lowered the fine by 70 per cent. The Guidelines entitle the Commission to grant, in exceptional cases, a fine reduction to companies unable ‘to pay in a specific social and economic context’. The reduction is based solely on objective evidence that imposition of the fine ‘would irretrievably jeopardise the economic viability of the undertaking concerned and cause its assets to lose all their value’. The mere finding of an adverse or loss-making financial situation would not be enough.
In its press release, the Commission reports that it assessed each application on the basis of company financial statements for recent years, projections for the current and coming years, ratios measuring the financial strength, profitability, solvency, liquidity and relations with outside financial partners, such as banks and shareholders. In particular, in line with the Guidelines, the Commission assessed whether, in the specific social and economic context for each applicant, the fine would have likely forced the company into liquidation and caused the assets to lose significant value.
This was the second time the Commission lowered fines in a chemicals cartel case based on the ‘inability to pay’ defence under point 35 of the 2006 Fining Guidelines, after Heat Stabilisers in November 2009. In Calcium Carbide in 2009, the Commission had reduced fines outside point 35 of the Guidelines imposed on one company in a difficult financial position. Also, this represented the third successful case in 2010 in which the Commission reduced fines on the basis of inability to pay, after the fine reductions in Bathroom Fittings and Prestressing Steel late in June 2010. The Commission granted reductions ranging between 75 and 25 per cent to five parties (out of 10 applications) in the Bathroom Fittings case and to three parties (out of 13 applications) in the Prestressing Steel case.
These outcomes reflect the Commission’s increased receptiveness to consider companies’ economic difficulties as a result of the recession and willingness to lower fines on companies able to show that paying the full amount would result in bankruptcy and loss of asset value.6 In announcing the fine reductions in the Bathroom Fittings cartel, Commissioner Almunia remarked: ‘Companies should not be made bankrupt because of the Commission’s fine. Where their financial difficulties are real, the Commission will take that into account and lower the fine.’ The Commission, he explained, assesses whether the fine ‘would cause, as it is alleged, the bankruptcy of the company’ and ‘for this to happen, the company would need to be in a very bad shape already and the fine would push it over the cliff’. It is the Commission’s concern not to ‘provoke a company’s bankruptcy’ as ‘[c]ompetition policy is about promoting competition, not eliminating firms from the market place’.
While the Commission has granted ‘inability to pay’ reductions in more recent cases (eg, Refrigerators Compressors in December 2011 and Window Mountings in March 2012), it remains to be seen whether this trend will continue in future decisions.
In November 2009, the Commission imposed fines totalling €173.9 million on eight EU, US and Swiss chemicals groups for operating worldwide market-sharing and price-fixing cartels in two plastic additives in different periods (between 1987 and 2000 in tin stabilisers, and between 1991 and 2000 in ESBO/esters).7 Tin stabilisers improve thermal resistance in the processing of PVC into final products, while ESBO/esters are used as plasticisers and heat stabilisers of PVC products. The companies were found to have fixed prices, allocated markets and customers, and exchanged commercially sensitive information.
The EU investigation was launched in February 2003, after Chemtura applied for immunity under the 2002 Leniency Notice. The cartel was first uncovered and prosecuted by the US Department of Justice (DoJ), after Chemtura, under the ‘Amnesty Plus’ programme, was ‘first in the door’ to self-report, while being investigated and prosecuted for the rubber chemicals cartel in which it did not have amnesty. The Commission conducted surprise inspections near-simultaneously with the DoJ, the Japan Fair Trade Commission and the Canadian Competition Bureau. This was the first reported instance of a cartel investigation coordinated among this many antitrust agencies worldwide.
Ciba received the highest fines (€68.4 million), followed by Akzo (€40.6 million), Elementis (€32.5 million) and Elf/Arkema (€28.6 million). The smallest fines (€348,000) were imposed on AC Treuhand, a Swiss consultancy firm. AC Treuhand was fined for its cartel facilitator role, insofar as it organised regular cartel meetings at its premises and facilitated the exchange of commercially sensitive information. As the Commission noted in the decision, the firm ‘distributed ‘red’ and ‘pink’ papers containing details of fixed prices and allocation of sales volumes’ (at section 4.3.4).
Elf/Arkema France’s fines were increased by 90 per cent for recidivism, as the Elf Aquitaine group, to which Arkema belonged at the time of the infringement, had already been fined in three previous cases, namely, PVC in 1994, Polypropylene in 1986 and Peroxygen Products in 1984. Also, Elf Aquitaine’s fine was further increased on account of ‘deterrence’ due to its very high overall revenues.
Chemtura was rewarded with full immunity from fines, while other companies obtained fine reductions for having cooperated with the Commission. In the tin stabilisers cartel, Arkema, Baerlocher and Ciba’s fines were respectively lowered by 30, 20 and 15 per cent. In the ESBO/ester cartel, Arkema and Ciba obtained respective fine reductions of 50 and 25 per cent. Akzo received no reduction as, in the Commission’s view, its leniency submissions contributed no ‘significant added value’ information. Interestingly, as it became clear from the Summary Decision published in November 2010, this was the first time the Commission lowered fines in a chemicals cartel case based on the ‘inability to pay’ defence under point 35 of the 2006. In the calcium carbide cartel in July 2009, the Commission had reduced fines outside point 35 of the Guidelines imposed on a company in a difficult financial position.
In July 2011, the Commission repealed the decision (and fines) in respect of Ciba/BASF and Elementis to comply with the European Court’s ruling in ArcelorMittal, clarifying the applicable rules on limitation periods for the imposition of antitrust fines. The Commission acknowledged that the limitation period for imposing fines on the two companies had expired.8
In July 2009, the Commission imposed fines totalling €61.1 million on nine chemicals groups for operating a price-fixing and market-sharing cartel in most EEA countries between 2004 and 2007.9The cartel concerned calcium carbide powder and granulates and magnesium granulates for the gas and metallurgic industry. The Commission found that cartel members had agreed on stabilising their market shares through price fixing and customer allocation, and had regularly exchanged information on sales volumes and prices to facilitate and monitor the agreements’ implementation.
Fines ranged between €19.6 million for Novácke chemické and €3 million for Almamet. The Commission increased Evonik Degussa’s fine by 50 per cent for one past cartel infringement and Akzo’s fine (before immunity) by 100 per cent for four prior offences (Sodium Gluconate in 2001, Organic Peroxide in 2003, Choline Chloride in 2004 and MCAA in 2005). AkzoNobel obtained full immunity for being the first cartel member to reveal the cartel’s existence. Two other companies, Donau Chemie and Evonik Degussa, obtained respective leniency reductions of 35 and 20 per cent.
The Commission rejected various companies’ applications for fine reductions based on ‘inability to pay’ under point 35 of the 2006 Fining Guidelines. Almamet’s fine, however, was lowered by 20 per cent outside the scope of point 35, following ‘an evaluation of its special circumstances, its financial position and the required deterrent effect of the fine’.10 The Commission investigation was rather quick in this case. A final decision was adopted just two-and-a-half years after Akzo applied for immunity in November 2006. After surprise inspections in January 2007, the Commission issued the Statement of Objections to the parties in June 2008 and held an oral hearing in November 2008. For the first time in this case, Slovakian and Slovenian companies were part of a Commission cartel investigation.
In October 2008, the Commission imposed fines totalling €676 million on nine chemicals groups (ENI, ExxonMobil, Hansen & Rosenthal, MOL, Repsol, RWE, Sasol, Total and Tudapetrol) for fixing prices and exchanging commercially sensitive information in paraffin waxes in the EEA between 1992 and 2005.11 These are the highest fines ever imposed on chemicals companies (and the sixth highest overall, at the time of writing). Sasol had the highest individual fine (€318 million), including a 50 per cent increase for its ‘role of leader’, followed by Total with €128 million and ExxonMobil with €83.6 million. ENI’s fine (over €29 million) included a 60 per cent recidivism increase for having participated in two previous cartels (Polypropylene in 1986 and PVC II in 1994). Tudapetrol had the lowest fine with €12 million. Shell had also participated in the cartel but was not fined because it was the first company to approach the Commission and report the cartel.
Some of the companies (ExxonMobil, MOL, Repsol, Sasol, Shell and Total) were found to have also allocated markets and customers. Another group (ExxonMobil, Sasol, Shell, RWE and Total) was found to have also fixed prices on German end-customers for slack wax, the raw material used to produce paraffin waxes. Slack wax is produced in refineries as a by-product in the manufacture of base oils from crude oil. Paraffin waxes, whose EEA market was estimated to be worth some €500 million, are used to manufacture a wide variety of products, including candles, chemicals, tires, automotive products, waxed paper and paper cups and plates. Cartel activities were disguised as participation in regular technical meetings.
The Commission’s investigation started with surprise inspections in April 2005, prompted by Shell’s immunity application under the 2002 Leniency Notice. Sasol, Repsol and ExxonMobil cooperated with the Commission under the leniency programme and were rewarded with respective reductions in the fines of 50, 25 and 7 per cent. The Commission explained that the limited reward on ExxonMobil was due to the overall vagueness of the company’s submissions, which provided ‘significant added value’ evidence only in regard to three technical meetings.
Two other points are worth reporting. First, the Commission treated the cooperation in paraffin waxes and slack wax as a single and continuous infringement, mainly based on the circumstances that the cartel activity occurred at the same meetings and that the two products were economically linked. Second, the Commission established parental liability over the actions of both wholly-owned subsidiaries and 50/50 joint ventures who had taken part in a cartel. The Commission recalled that parent companies’ decisive influence over wholly-owned subsidiaries’ actions is presumed and that the burden to rebut such presumption lies on the parent company, through evidence proving the subsidiary’s independent market conduct. Regarding 50/50 joint ventures, each parent holding 50 per cent of the joint venture and decisive influence over the company is to be held liable, similarly to a single parent of a wholly-owned subsidiary.
In June 2008, the Commission imposed fines totalling €79 million on three chemicals groups for market-sharing and price-fixing practices (with related exchanges of information in meetings and telephone conversations) in sodium chlorate between 1994 and 2000.12 Sodium chlorate is an oxidising agent mainly used to manufacture chlorine dioxide, a product that the pulp and paper industry uses for the bleaching of chemical pulp. The EEA market was estimated to be worth some €200 million.
The Commission imposed fines of €59 million on Arkema/Elf Aquitaine, €10.5 million on Finnish Chemicals and €9.9 million on Aragonesas/Uralita. EKA Chemicals/AkzoNobel, the first group to reveal the cartel in March 2003, obtained full immunity from a €116 million fine under the 2002 Leniency Notice. The fine on Arkema, formerly Atochem and an Elf Aquitaine subsidiary at the time of the infringement, was increased by 90 per cent for three past infringements. This was the first case in which the Commission imposed an increase for recidivism on account of three previous cartel infringements under the 2006 Fining Guidelines. The Elf Aquitaine group’s fine was further increased by 70 per cent on account of deterrence for its particularly large turnover beyond the sales related to the infringement.
Only Finnish Chemicals was rewarded with a 50 per cent leniency reduction. As the fine exceeded 10 per cent of the group total sales, it was capped under the statutory 10 per cent ceiling. Arkema had approached the Commission before Finnish Chemicals but obtained no discount because the Commission took the hard line that the company’s cooperation added no significant value to the information already in its possession.
In June 2008, the Commission imposed fines totalling €4.97 million on three groups of aluminum fluoride producers for fixing prices worldwide between July and December 2000.13 Boliden Odda disclosed the cartel to the Commission in March 2005 and obtained full immunity from fines. Aluminum fluoride is a chemical used to lower the temperature in the aluminum smelting process and reduce energy consumption, a major cost factor in aluminum production. The Commission found that no other substitutes for this specific use were available on the market.
The fines imposed in this case were quite low (€1.7 million on SICF, €1.67 million on Industrial Quimica de Mexico and €1.6 million on Fluorsid), due to the small size of the companies involved and the infringement’s short duration. None of the parties benefited from leniency reductions. Fluorsid had applied for leniency in 2007 but received no reduction as the Commission viewed its cooperation as providing no ‘significant added value’ information.
Two other points are of interest. First, the infringement consisted of one single meeting in July 2000, where the parties agreed on worldwide target prices and market sharing and exchanged related sensitive information, followed up by bilateral contacts in the second half of 2000 aimed at monitoring the agreement’s implementation. Second, for the first time ever under the 2006 Fining Guidelines, the Commission relied on the companies’ worldwide sales to calculate their EEA sales value for the purposes of the ‘basic amount’ for gravity. Given the worldwide scope of the cartel, wider than the EEA, the method was seen as better reflecting the real weight of each cartel member in this case.
Nitrile Butadiene Rubber
In January 2008, the Commission fined Bayer and Zeon a total of €34.2 million for fixing prices in nitrile butadiene rubber (NBR) between 2000 and 2002.14 The companies received respective fine reductions of 30 and 20 per cent under the 2002 Leniency Notice. NBR is a type of synthetic rubber consisting of unsaturated copolymers of acrylonitrile and butadiene, which is mainly used in the automotive industry for manufacturing fuel and oil handling hoses, seals, o-rings and water handling applications. The EEA market was estimated to be worth some €145 million.
The investigation was launched in March 2003, prompted by the amnesty application of an anonymous competitor with both the US and EU antitrust agencies. Bayer’s fine was increased by 50 per cent for its participation in the citric acid cartel. In calculating the increase for recidivism, the Commission took no account of Bayer’s previous fines in the three previous synthetic rubber cartel infringements as they took place in a similar period of time and were thus treated as parallel infringements. Bayer’s fine was also increased by 10 per cent for ‘deterrence’ under point 30 of the 2006 Fining Guidelines.
Some lessons to draw
These recent cases show how the Commission cartel enforcement exposes companies to the risk of heavy fines. Some fundamental lessons may be drawn on to limit such a risk.
First, companies should bear in mind that even one meeting (followed up by bilateral contacts) may amount to cartel activity exposing them to fines (as recalled in Aluminium Fluoride).
Second, larger chemical groups with huge revenues and a record of prior infringements should realise how big the potential risk is of being heavily fined due to the ‘recidivism’ and ‘deterrence’ factors. Combined with the ‘duration’ multiplier, these increases may raise fines to several billion euros in long-lasting cartels. The Commission can impose fines up to 10 per cent of a group’s consolidated turnover. The settled Commission practice on parental liability, as recalled in Candle Waxes, implies that a parent company will be liable for infringements put in place by any wholly owned subsidiary or (decisively influenced) joint venture, thus broadening the scope of recidivism to cover cartel activities of companies active in totally different sectors.
Third, smaller companies may also be heavily hit with comparatively higher fines, very often reaching 10 per cent of worldwide total revenues (before leniency or settlement discounts, if any) especially in long-lasting cartels. These companies should be fully aware that their ‘small size’ does not exempt them from fines, in particular when participation in European-wide cartels is at stake.
Fourth, an immunity application under the leniency programme represents the only way to avoid fines, no matter how large a company is. Therefore, it is essential that when an infringement is detected (for example, through internal audits) and contesting is not an option, a company aims to be ‘first in’ to report, bearing in mind that for international cartels coordinated action is required in a number of jurisdictions.
Fifth, when it is too late to apply for immunity (for example, a dawn raid has already taken place), companies should aim to approach the Commission as early as possible and be ‘second in the door’ to benefit from the highest possible leniency reduction, ie, up to 50 per cent on the fine to be imposed. The reward may be higher where additional facts of which the Commission was not previously aware are disclosed. High quality of leniency submissions and timing are essential to make a leniency application successful and rewarding.
Sixth, where applicable, companies should carefully assess whether to apply for an ‘inability to pay’ reduction from a potential fine. Numbers of ‘inability to pay’ applicants have soared over the past few years, clearly encouraged by the Commission’s significant reductions to fines in view of a company’s difficult financial situation during the recession. However, it is essential that the relatively high thresholds are genuinely met by applicant companies in order to qualify for a reduction.
Finally, the risk of a Commission investigation and huge fines remains high, following the recession and slow start to any potential economic recovery. The economic crisis may have made cartel activities particularly tempting for salespeople feeling pressured to hit their business targets, probably unaware of the heavy consequences for the business and the individuals involved. Competitors who are aware of the ‘first in the door’ benefits, in particular larger companies, will not hesitate to ‘blow the whistle’ and inform the antitrust agencies of any cartel violations they may be able to detect. Thus, it is desirable for companies to aim to uncover any possible wrongdoing earlier than competitors, through targeted measures such as specific compliance programmes and internal audits. When cartel activities are detected and evidence has been assessed, companies should aim to decide very quickly whether to approach the antitrust authorities to increase their chances to avoid or at least significantly mitigate sanctions.
REACH: an area to watch for compliance
By requiring chemicals companies to cooperate in the registration process (in sharing technical data and submitting joint dossiers through Lead Registrants) and encouraging their cooperation in the parallel authorisation phase, REACH creates a platform for regular meetings and contacts among competitors. While the regulatory context for these contacts is totally legitimate and the nature of the information involved in ‘mandatory data sharing’ is in principle unproblematic, REACH does, however, risk offering a cover for cartel activity and other illegal cooperation.
Chemicals companies should focus fresh attention on anti-cartel compliance specifically related to their REACH implementation.
Five years of REACH: from registration to authorisation
REACH is the EU regulatory framework for chemicals. Entered into force in June 2007, the Regulation became fully operational in June 2008, when the European Chemicals Agency (ECHA) started its activity. REACH represents the most far-reaching chemicals legislation currently in force in the world. It has two main goals. First, to gather – through registration – information on the many thousands of chemicals that are on the European market today. Second, to control – through authorisation, restriction and evaluation – the risks from use of certain dangerous substances and gradually replace them with safer substitutes. Chemicals that are regulated by other sector-specific EU legislation (eg, on pharmaceuticals) are partially or totally exempted from REACH requirements.
To ensure a higher protection of human health and environment, REACH sets a stricter standard for the manufacturing, placing on the market and use of chemicals in Europe. Industry is charged, in particular, with the burden of:
- registering a huge number of substances with ECHA, as a precondition for lawfully supplying or using these chemicals in Europe (‘no data, no market’ principle). In practice, suppliers are required to submit a technical dossier including information on a substance’s intrinsic hazardous properties and uses. Registration is substance-specific and is required for each legal entity established in the EEA that meets the registration requirements;
- requesting use-specific authorisation for ‘substances of very high concern’ that the Commission intends to phase out; and
- ensuring the safety of all chemicals handled in the supply chain, by assessing risks, taking adequate risk management measures and communicating these along the supply chain (‘duty of care’ obligation).
Registration has been the main focus of REACH implementation in the last five years. REACH set three alternative registration deadlines for existing substances that would be pre-registered by November 2008 (ie, 30 November 2010, 31 May 2013 and 31 May 2018, depending on a substance’s hazardous nature or volumes supplied). After the initial efforts to meet the 2008 pre-registration deadline, allowing to benefit from protracted registration, the chemicals industry faced intense pressure to prepare and timely submit the many dossiers required under the first registration deadline. The 2010 deadline, triggered for substances supplied in higher volumes in Europe (above 1,000 tonnes per year) and for certain categories of substances of concern, involved most larger chemical groups, closely working together with competitors – within SIEF forums or REACH consortia – in preparing joint registration dossiers. These companies have continued working together to meet the second registration deadline, concerning substances supplied in volumes of 100–1,000 tonnes per year. As reported by the Commission, companies submitted overall some 24,680 registration dossiers by November 2010, corresponding to 4,300 substances, and another 9,084 dossiers by May 2013, covering 2,923 additional substances.15
While companies continue cooperating to follow up on the submitted dossiers and to meet the 2018 registration deadline, involving a higher number of substances (supplied in quantities of 1–100 tonnes per year) and of smaller suppliers, the focus of REACH implementation for those concerned by ‘substances of very high concern’ is now turning to the authorisation process. Several group of companies have already started working together in the aim to obtain an approval to delay the phasing out of their products in Europe. Authorisation, which relates to a substance’s uses, directly affects also the many manufacturing industries that are customers to the chemicals sector. These industries will need to take an active role in the process.
Authorisation: delaying the phasing out of dangerous chemicals
Authorisation is one of REACH’s core mechanisms. It aims to achieve REACH’s major goal to ensure that dangerous substances are progressively phased out and substituted with safer alternatives. Following review of the intrinsic properties of certain categories of chemicals raising risks for human health and environment (such as CMR, PBT and vPvT), the Commission is currently selecting a number of substances of very high concern (SVHCs) for inclusion in Annex XIV REACH (List of Substances Subject to Authorisation). As of a given date (‘sunset date’), specifically set for each substance, listed SVHCs cannot be marketed or used anymore in Europe except for specific uses that the Commission has authorised or that are exempt from the authorisation requirement. As a result, companies who intend to continue using or placing on the market a listed substance need to obtain an authorisation for the intended use(s) prior to the sunset date. In practice, an applicant needs to demonstrate that:
- the risks to human health or the environment resulting from the substance’s use are either adequately controlled or outweighed by socio-economic benefits; and
- no suitable alternatives to the substance’s use (in terms of substances or techniques) are available or their substitution is not technically or economically feasible by the sunset date based on the specific production processes or R&D.
An application involves the submission of one dossier including:
- a detailed description of the uses applied for;
- a Chemical Safety Report, describing the risk management measures proposed to adopt for controlling the risks;
- an Analysis of Alternatives (AoA), explaining whether, for each use, suitable alternatives to the substance are: generally available on the market and specifically available to the applicant or downstream users covered by the application, based on R&D activities and affordable investments. Particularly where other competitors have already switched to alternatives or are about to do so, an applicant considering that it is unable to transfer to viable alternatives within the sunset date will need to explain why this is so and which measures it intends to take to ensure substitution in the near future;
- a Substitution Plan (SP), providing a timetable for the applicant’s transfer to suitable alternatives. An SP is required where the AoA suggests that substitutes are available; and
- a Socio-economic Analysis (SEA), showing that risks arising from the substance’s use are outweighed by socio-economic benefits. An SEA is required where an applicant cannot show adequate risk control and states that no suitable alternatives are available.
Importantly, after an application is submitted, ECHA launches a public consultation offering third parties – including actual and potential competitors – an opportunity to inform the Commission about the existence of alternatives to the substance’s use. If, based on the information received, the Commission considers that the substance’s specific use can be replaced by less hazardous alternatives that are economically and technically viable it will likely refuse to grant an authorisation.
An authorisation is, in principle, required for each intended use of a listed substance. Contrary to registration, it is not company-specific. An authorisation obtained by a company may cover the use (or supply) by other companies within the same supply chain for that use. The scope of an authorisation, however, may vary depending on what actor in the supply chain is the holder. Thus, to avoid duplicating costs, suppliers and downstream users are encouraged to coordinate on who will make the application for the specific use, although each company in the supply chain is entitled to do so (eg, not to disclose a specific use or process which is confidential). Unlike in registration, REACH requires no mandatory joint application in authorisation. Any eligible applicants may submit an application either: individually or jointly with other eligible applicants; for one or more of the substance’s intended uses; or for two or more substances belonging to a ‘group of substances’ as defined under REACH.
At the time of writing, 22 substances are already listed in Annex XIV, including four phthalates and several chromium compounds used in various different manufacturing industries. Sunset dates vary between early 2015 for the phthalates and late 2017 for the chromium compounds. Another 144 substances identified as SVHCs are currently included in a Candidate List for Authorisation. As it has recently confirmed, the Commission intends to add, by 2020, all relevant currently known SVHCs to the candidate list (some 440 substances in a worst-case scenario) for review and possible inclusion in Annex XIV.16
Competitor cooperation and related antitrust risks
By creating a platform for regular meetings and contacts among competitors, as described above, REACH risks offering a cover for cartel activity and other illegal cooperation. Competing companies should, in particular, be very careful in handling the authorisation process, which may potentially turn into a vehicle for unlawful collusion on the determination of viable alternatives and exchange of highly strategic information.
Within registration, competitors are obliged to cooperate in sharing the data required to prepare the technical dossiers and in submitting joint dossiers.17 In practice, groups of competitors have been working together for a number of years, within the framework of either industry trade associations or voluntary consortium agreements specifically set up for REACH purposes, as well as SIEF forums, to prepare joint registration dossiers and meet the 2010 and 2013 deadlines. Such mandatory cooperation is, in principle, limited to the sharing of scientific information on substances’ properties and thus unproblematic from an antitrust perspective. It does not cover the joint operation of commercial activities, unlike, eg, maritime consortia for the joint operation of liner shipping services. Similarly, it does not involve the sharing of price-relevant information, unlike, eg, joint study compilations in the insurance sector, which offer crucial price risk information (and are covered by the revised EU insurance block exemption).
Registration-related operations, however, may raise antitrust concerns insofar as, in implementing the regulatory obligations, competitors may end up engaging in cartel activity or exchanges of commercially sensitive information that are unnecessary for REACH registration purposes and can be avoided, such as production or sales volumes, capacities or customers. For example, while consortium members are allowed to share costs proportionally based on individual production or sales volumes, measures should be taken to collect and neutralise the individual figures, and communicate individual costs and resulting voting rights to each member to ensure antitrust compliance.
The antitrust risks triggered by exchanges of individual commercially sensitive data in concentrated markets for homogeneous products such as in the chemicals sector are clear,18 particularly in cases where competitors agree to adjust costs and voting rights on a regular basis (eg, once or twice a year, on the basis of results achieved in the prior financial year). Such exchanges allow competitors to monitor each other’s market movements and may be found in breach of article 101 TFEU. The Regulation itself, in the section on data sharing in registration, specifically warns registrants to ‘refrain from exchanging information concerning their market behaviour, in particular as regards production capacities, production or sales volumes, import volumes or market shares’. Also, in its Guidance on Data Sharing,19 ECHA recalls the need not to share information on customer relationships, marketing plans, product manufacturing and specific uses (unless publicly known), because commercially sensitive, or to appoint a trustee when such information exchanges are required, for example because a joint chemical safety report is carried out.
Within authorisation, REACH imposes no mandatory cooperation between competitors and, in particular, no joint application for authorisation of a specific use. Cooperation is essentially voluntary. While this is encouraged in respect of high-level discussions on generally available alternatives for a substance’s use, the Commission explicitly warns companies of the risks that ‘certain decisions between competitors as to whether an alternative is or not suitable could be seen as unlawful collusion’ and that ‘exchanging detailed information about alternatives could give raise to concerns, particularly if there is a concerted action as to whether, when and how companies switch to an alternative’.20
Moreover, competing companies should be very careful in deciding whether to make a joint application for the same substance’s use. Based on the currently applicable legal framework, a joint application involves the submission, by a submitting applicant, of one single dossier normally including highly sensitive company-specific information (for instance, whether and why alternatives to a listed substance’s uses would or not be technically or economically viable for a company, based on, eg, its R&D activities, production processes or costs). No mechanism appears to be available for separate submission of confidential information on an individual basis or via an independent third party. While a joint application may make sense for non-competing companies or for companies belonging to the same group, it may be problematic for independent companies competing in the same products or uses.
It is crucial for companies involved in the REACH process to identify areas of antitrust risks and detect any possible wrongdoing before others do so. Disregarding or covering up risks may prove problematic and more costly later.
- Regulation No. 1907/2006 concerning the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH), 18 December 2006,  OJ L136/3. ↑
- These include Commission cartel decisions adopted in the period 1 January 2008 to 15 July 2013. ↑
- IP/11/473, 13 April 2011. Decision available on DG Competition’s website. ↑
- Decision No. 11-D-17, 8 December 2011. ↑
- IP/10/985, 20 July 2010. Decision available on DG Competition’s website ↑
- See P Kienapfel and G Wils, ‘Inability to Pay – First cases and practical experiences’, Competition Policy Newsletter 2010-3. ↑
- IP/09/1695, 11 November 2009. Decision available on DG Competition’s website. ↑
- IP/11/820, 4 July 2011. ↑
- IP/09/1169, 22 July 2009; Summary Decision,  OJ C301/18, 11 December 2009. Decision available on DG Competition’s website. ↑
- Summary Decision, at paragraph 15. ↑
- IP/08/1434, 1 October 2008. Decision available on DG Competition’s website. ↑
- IP/08/917, 11 June 2008. Decision available on DG Competition’s website. ↑
- IP/08/1007, 25 June 2008. Decision available on DG Competition’s website. ↑
- IP/08/78, 23 January 2008. Decision available on DG Competition’s website. ↑
- REACH Review Report, COM(2013)49 and COM(2013)25. ↑
- Roadmap for SVHCs Identification, European Commission, DG Environment, 5 February 2013. ↑
- The obligation mainly concerns vertebrate animal testing. However, when any other study needed for REACH registration is requested, competitors are obliged to grant access. The relevant provisions are set up in articles 10, 11 and 25 to 30 of the REACH Regulation. ↑
- See, eg, Commission Guidelines on Horizontal Cooperation, at section 2. ↑
- ECHA, Guidance on data sharing, as revised in April 2012. ↑
- Guidance on the preparation of an application for authorisation, January 2011. ↑
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