The European Antitrust Review 2014 Section 3: Country chapters

Germany: Cartels

Germany has a long tradition of enforcing the prohibition of cartels and for decades had its own cartel regulation regime. Since 2007, the relevant cartel provisions of the German Act against Restraints of Competition (ARC) have been aligned with article 101 of the Treaty on the Functioning of the European Union (TFEU). Substantive differences between German and EU antitrust rules continue to exist in the area of dominance.

The pronounced trend of increased prosecution of cartels in recent years can also be observed in Germany. In 2012, the Federal Cartel Office (FCO) imposed fines of €248 million for infringements of the prohibition to restrict competition in a number of cases that concerned a large range of different industries and sectors.

Legislation and competent authority

The relevant provisions regarding cartels are contained in sections 1 and 2 ARC. Section 1 ARC prohibits all agreements, concerted practices or decisions by associations of undertakings that have as their object or effect a restriction of competition. This provision fully corresponds to article 101(1) TFEU, except for the criterion relating to trade between member states. Section 2(1) ARC mirrors article 101(3) TFEU. Pursuant to section 2(2) ARC, block exemption regulations enacted by the European Council or the European Commission also apply to restrictions of competition within the meaning of section 1 ARC. Section 3 ARC exempts restrictions of competition between small and medium-sized undertakings from the general prohibition under certain conditions. A sector exemption for certain agreements between producers of agricultural products is contained in section 28 ARC. One form of cartel behaviour, bid rigging, constitutes a criminal offence under section 298 of the Criminal Code. The two types of procedures applied by the FCO – the administrative and the criminal procedure – are governed by provisions of the ARC as well as the Code on Administrative Procedures, the Administrative Offences Act and the Code of Criminal Procedure.

The FCO has published a number of guidelines that concern certain aspects of cartel enforcement. All are available on its website, also published in English (www.bundeskartellamt.de). These guidelines cover, inter alia, possibilities of cooperation of small and medium-sized enterprises, criteria for agreements that are de minimis and thus fall outside the scope of the prohibition to restrict competition, and leniency applications.

Pursuant to article 3(1) of Regulation 1/2003, the FCO has to apply article 101 TFEU to restrictions of competition that affect trade between member states. Where the FCO applies sections 1 and 2 ARC and article 101 TFEU in parallel, it cannot prohibit conduct on the basis of national rules that is permissible under EU rules.

The rules on the prohibition of restrictions of competition in the ARC are mainly applied and enforced by the FCO, an independent higher federal authority assigned to the Federal Ministry of Economics and Technology (FMET). The FCO is located in Bonn. In addition, the 16 German federal states have their own competition authorities that enforce the provisions of the ARC and apply them to cases that only affect the territory of individual federal states. Cartel enforcement by the federal states is of limited practical
relevance.

The FCO is organised into 12 operative units, the ‘decision divisions’. Nine of these decision divisions are responsible for the application of general antitrust rules and merger control provisions in specific industries and sectors. Three decision divisions deal exclusively with the cross-sector prosecution of cartels and hard-core restrictions. The decision divisions are independent bodies that take their decisions without any instruction from the president of the FCO or the FMET. The cartel decision divisions are supported by a special unit for combating cartels. The operative decision divisions are further assisted by the general policy department, the litigation department and the central services department.

Practices caught by cartel legislation

Like article 101(1) TFEU, section 1 ARC prohibits all agreements, concerted practices or decisions by associations of undertakings that have as their object or effect a restriction of competition. Section 1 ARC in particular applies to hard-core restrictions of competition (cartels) such as price fixing, sharing of customers and markets, allocation of production or market share quotas or bid rigging. Further practices against which the FCO imposed fines include resale price maintenance and information exchange between competitors.

Section 1 ARC also applies to conduct that restricts competition by effect. However, the FCO is reluctant to open a cartel investigation and impose fines in cases where the conduct in question may have an anti-competitive effect. In these cases the FCO is more likely to open an administrative procedure and issue a cease and desist order against the undertakings concerned.

Investigative and enforcement powers

The investigative and enforcement powers depend on the type of procedure that the FCO initiates, ie, the administrative and the fine procedure. The FCO may choose the type of procedure as it sees fit and it may switch from one procedure to the other at any time. In general, the FCO may make use of evidence collected in one procedure in the course of another. The investigative powers of the FCO under the administrative procedure exceed its competencies under the fine procedure. Pieces of evidence gathered in an administrative procedure are therefore excluded in a fine proceeding if the FCO opened the administrative procedure only to make use of its greater powers.

When prosecuting cartels, the FCO usually opens a fine procedure. Only this procedure allows the FCO to impose monetary fines on the undertakings concerned and on the officers involved. In administrative proceedings, the FCO is only entitled to impose cease-and-desist orders against the undertakings concerned and to impose further obligations to remedy the infringement of competition rules.

The opening of a fine investigation of a cartel is typically prompted by a leniency application or by whistle-blowing from (often former) employees, by complaints from customers or third parties, by media reports or as a consequence of information received through the European Competition Network from other EU competition authorities. In the beginning, the FCO makes use of its investigative powers to establish whether there is an initial suspicion against the undertakings and persons concerned. However, in this case it may open a fine procedure without having to immediately inform the suspects. In order not to compromise the investigation, the FCO will usually inform the suspects when it produces a search warrant prior to inspections of business premises.

When investigating a cartel, the FCO may carry out unannounced inspections of business premises or residential homes of suspects. It may seize documents or other pieces of evidence and may create copies of data stored on IT systems. The exercise of these powers is subject to prior authorisation by the competent court. The FCO may also address information requests to undertakings and hear natural persons as witnesses. Under the German Code of Criminal Procedure, natural persons have the right to refuse a witness statement if they are directly related to a suspect or if they would incriminate themselves by testifying. Suspects have the right to remain silent on the allegations that are the subject matter of the investigation and do not have to provide any assistance or information to the FCO. If suspects agree to be heard, they are not obliged to make accurate or complete statements. This is a key difference compared to cartel investigations by the European Commission under Regulation 1/2003, where only a limited right to remain silent is recognised by the European Court of Justice. According to a forthcoming amendment of the ARC, the right of suspected undertakings to remain silent is curbed in that they will be obliged to provide data on their (global) turnover. This is intended to accelerate procedures and prevent lengthy investigations. The FCO does not have the power to wiretap or make use of electronic surveillance or bugging.

German law protects correspondence between defence counsel and the persons or entities subject to a fine procedure from seizure and review by the FCO. However, the law only protects correspondence between an outside counsel and his client that directly relates to the investigation at hand and that was created after the opening of the proceeding. All correspondence dating from before the opening of the proceeding is not protected; nor is correspondence between in-house counsel and the undertaking, regardless of when it was created.

Sanctions

The FCO may impose monetary fines on undertakings or individuals for wilful or negligent infringements of the prohibition to restrict competition pursuant to section 1 ARC and, in case the conduct in question affects trade between member states, article 101 TFEU. Fines levied on individuals for wilful participation in a cartel may not exceed €1 million. In cases of negligent infringements, the maximum fine is €500,000. Not all individuals may be fined, only directors, officers and certain senior employees. However, if lower-ranking employees have committed the cartel offence and cannot be held responsible, directors or officers can be sanctioned with a fine for breaching their duty of supervision. The FCO may impose fines on undertakings of up to 10 per cent of the worldwide turnover achieved by the corporate group to which the undertaking belongs in the most recent fiscal year.

There was a hot debate about the legal nature of the provision that the FCO may impose fines on undertakings of up to 10 per cent of the worldwide turnover achieved by the corporate group to which the undertaking belongs. The FCO took the position that this rule constituted a cap, whereas the Higher Regional Court of Düsseldorf held in a judgment in 2009 that it was an upper limit of the statutory fine range. The FCO appealed to the Federal Supreme Court which upheld the position of the Higher Regional Court of Düsseldorf that the provision concerned contains an upper limit. This is in contrast to the interpretation of a similar provision of EU Law by the European Commission and the European Court according to which the 10 per cent rule constitutes a cap. The decision of the Federal Supreme Court on this controversial point has great practical relevance for the amount of fines the FCO will impose in the future.

The FCO published guidelines on the setting of fines in 2006, also published in English on their website, that largely resemble the 2006 fining guidelines of the European Commission. However, these guidelines are currently not applied in practice as the FCO has announced that it will review them to bring them in line with the judgment of the Federal Supreme Court. It is unlikely that this judgment will lead to a complete change of the practice on the setting of fines. The FCO will probably continue to apply a two-step procedure to determine the fine. In the first step, the FCO calculates a basic amount by taking into account the gravity and duration of the infringement. The basic amount may be up to 30 per cent of the turnover achieved during and as a result of the infringement. The turnover achieved as a result of the infringement corresponds to the domestic revenues generated by the undertaking with products or services that are the object of the infringement. In its guidelines, the FCO explains that, as regards the gravity of the infringement, it takes into account determining factors such as the nature of the infringement, its effects on the market, the market position of all participating undertakings, and the size and significance of the market affected. In the second step, the base amount is adjusted by aggravating or mitigating factors. The FCO may raise the basic amount by up to 100 per cent for deterrence purposes. Aggravating factors that lead to an increase of the fine include serious forms of deliberate intent or a high degree of negligence, if the undertaking concerned is a repeated offender or if the undertaking was ringleader of the cartel. In contrast, if the undertaking concerned played a passive role in the cartel, was coerced to join the agreement, or if it has compensated victims of the cartel, the FCO could reduce the basic amount.

However, the FCO now has to decide whether the conduct constitutes a light, average or grave breach of the cartel prohibition and on this basis has to decide on the amount of the fine. Only particularly grave infringements can be sanctioned by a fine corresponding to 10 per cent of the undertaking’s worldwide group turnover. Under this method of calculation, fines will presumably be lower, in particular for small groups with a comparably low turnover, as most cases would qualify as average violations and thus only attract fines significantly below the 10 per cent threshold. On the other hand, fines might also be higher, especially for large corporate groups. The FCO has never actually imposed a fine corresponding to 10 per cent of group turnover but, rather, fines have been considerably lower. The FCO might sanction average breaches by fines in the middle of this range. Especially in case of groups with significant worldwide turnover, the middle of the range could be a very high figure.

When setting the fine, the FCO takes into account the undertaking’s financial capacity. Provided that the undertaking provides sufficient evidence that it is unable to pay the fine in the short or medium term, the FCO usually offers that the fine is paid in instalments. If this is not feasible, the FCO may defer the payment of the fine for a certain period of time. Only in very exceptional circumstances, when the undertaking concerned can prove that the fine threatens its existence in the long term, will the FCO consider a reduction of the fine. In previous cases, the FCO has requested detailed information on the assets and the financial status of the undertakings concerned to establish the amount of a fine that has a deterrent effect without threatening the economic existence of the undertakings.

The FCO may also take into account fines imposed for similar infringements by other cartel authorities of the European Competition Network. For example, fines imposed against flour mills for price fixing in February 2013 were reduced with a view to financial penalties levied on the undertakings by the French and Dutch competition authorities for similar violations. The proceedings were said to have been conducted in cooperation with the neighbouring countries’ authorities.

Infringements of the cartel prohibition do not constitute criminal but rather administrative offences. The only exception is bid rigging. Collusion in public or private tender procedures is a criminal offence. Persons who take part in a bid-rigging agreement shall be liable to imprisonment of no more than five years, or a fine. In recent years, courts have also convicted individuals participating in bid rigging for fraud. Only the Public Prosecution Office and not the FCO has competence to investigate and prosecute cartel infringements which constitute criminal offences.

Leniency

The FCO operates a leniency programme largely similar to the European Commission. The leniency notice is available also in English on the FCO’s website. The notice sets out the conditions for immunity from or reduction of fines for leniency applicants in cartel procedures. A leniency application filed by an undertaking is also rated by the FCO as one made on behalf of individuals participating in the cartel as current or former employees of the undertaking.

The conditions for full immunity differ depending on whether the FCO already has sufficient knowledge of a cartel. If the FCO does not have sufficient evidence to obtain a search warrant, it will grant full immunity to the first cartel participant who files a leniency application, and who provides the FCO with verbal and written information and, where available, evidence that enables it to obtain a search warrant. If the FCO is already in a position to obtain a search warrant, it will grant immunity from a fine to an applicant if he is the first participant in the cartel to contact the FCO before it has sufficient evidence to prove the offence, provided that no cartel participant has received full immunity under the first alternative. In addition, leniency applicants applying for full immunity under both alternatives must not have been the only ringleader of the cartel or have coerced others to participate in the cartel, and must cooperate fully and on a continuous basis with the FCO.

A cartel participant who does not qualify for a full immunity may still obtain a fine reduction of up to 50 per cent, provided that he or she provides the FCO with verbal or written information and, where available, evidence that makes a significant contribution to proving the offence and cooperates fully and on a continuous basis with the FCO. The FCO clarifies in its leniency guidelines that the amount of the reduction will be based on the value of the contributions to uncovering the illegal agreement and the sequence of the applications.

Cooperation by an undertaking in the proceeding outside the leniency notice (eg, by making available evidence in its possession) will also be taken into account by the FCO when setting the fine, albeit not in a formalised way.

The FCO accepts markers from undertakings to be the ‘first in’. The timing of the placement of the marker determines the status of the application. The marker can be placed verbally or in writing, in German or English. The FCO asks for basic information on the cartel when the marker is placed, such as the type and duration of the infringement, the product and geographic markets affected, and the identity of those involved. The FCO also asks for clarification as to whether, and at which other competition authorities, leniency applications have been or are intended to be filed. Upon placement of the marker, the FCO grants a time period of up to eight weeks within which a full leniency application has to be submitted.

The FCO confirms in writing that a marker has been placed and that a leniency application has been submitted, including the date and time of receipt. In case of an application for full immunity, where the FCO does not provide sufficient evidence to obtain a search warrant, the FCO will confirm that the applicant will be granted immunity from the fine provided that the other conditions for immunity are and continue to be met. In all other cases the FCO will inform the applicant of his or her provisional position in the ranking order and that the application is in principle, eligible for immunity or a reduction, especially if he or she fulfils all duties to cooperate. Only when the FCO has reviewed the evidence gathered during the investigation will it make a final decision on immunity or reduction. When making this decision, the FCO will take into account if the undertaking has continuously complied with its other duties as leniency applicant, especially regarding confidentiality and cooperation.

Within the limits set by the procedural rights of other undertakings subject to the investigation, as well as of third parties, the FCO will endeavour to assure the confidentiality of the process and will seek to avoid revealing the identity of leniency applicants or granting access to applications. Once the FCO issues a statement of objections for a cartel infringement, the other undertakings concerned have the right to full access to the file including all confidential information. If the FCO has to rely on statements of a whistleblower or leniency applicant as evidence to prove its case, it will have to disclose the identity of the applicant and information received especially when its decision is challenged in court.

The rights of third parties such as (direct or indirect) customers preparing a damages action against members of a cartel for access to the FCO’s file were disputed in a former case. At the heart of the dispute was whether leniency applicants can be sure that the FCO will not grant access to their application to damages claimants who could use the information provided by the applicant to prove their case. The local court of Bonn referred the question to the European Court of Justice as to whether a provision of national law such as the right of third parties for access to the file was incompatible with Regulation 1/2003. In its judgment in Pfleiderer of 14 June 2011, the European Court of Justice held that EU law did not in principle preclude granting damages arising from claimants’ access to leniency applications, but that it was for the member states to define the conditions under which leniency documents can be disclosed, provided that the respective interests in favour of disclosure of the information and in favour of the protection of that information provided voluntarily by the applicant for leniency are properly weighed against each other. That weighing exercise can be conducted by the national courts only on a case-by-case basis according to national law and taking into account all the relevant factors of the case. However, the Court of Justice gives some guidance as to which interests should be taken into account during such a balancing exercise. On the one hand, the Court of Justice acknowledged that leniency programmes are useful tools to uncover competition infringements and that the effectiveness of those programmes could be compromised if documents related to the leniency procedure were disclosed to persons wishing to bring an action for damages. On the other hand, the Court recalled its case law in Courage v Crehan and emphasised that it was necessary to ensure that the applicable national rules are not less favourable than those governing similar domestic claims, and that they do not operate in such a way as to make it practically impossible or excessively difficult to obtain such compensation.

Applying the ruling of the European Court of Justice, the local court of Bonn and the Higher Regional Court in Düsseldorf held that parties injured by a cartel have no right to access to the leniency information voluntarily submitted by the leniency applicant. Whether or not this rather restrictive approach can be upheld in the light of the recent judgement of the European Court of Justice in Donauchemie remains to be seen.

On 11 June the European Commission adopted a proposal for a Directive on antitrust damages actions which includes, inter alia, a provision concerning the restriction on access to the file in competition proceedings as well as a provision concerning the quantification of harm. Member states have two years to implement the provisions into their national legal frameworks, once the proposal has been accepted by the European Parliament and the Council of Ministers.

Settlement

Other than the European Commission, the FCO has not published formal guidelines on the settlement of cartel procedures. However, an informal practice has evolved in recent years that provides a possibility for entities subject to a cartel investigation to enter into a settlement with the FCO. The FCO understands a settlement to be an agreement on the outcome of a cartel procedure. It requires from the part of the undertakings concerned a guilty plea. In return, the FCO grants an additional deduction of up to 10 per cent when setting the fine in addition to any deductions granted under the leniency notice. It should be noted that the Federal Supreme Court has held that a waiver of appeal by the undertakings concerned may never be a part of a settlement agreement.

According to the FCO, certain principles govern settlement proceedings. The most important is a strict equal treatment of all undertakings concerned. The undertakings concerned usually waive the right for a complete access to the file and an extensive statement of objections. In return, the decision of the FCO contains only a short summary of the relevant facts, which makes it more difficult for third parties to extract from the decision any information that may be relevant for the preparation of a case against the cartel member concerned. Settlements are always individual in character. Nothing prevents the FCO from settling a case with one undertaking concerned but to end settlement discussions with another.

Legal review and limitation

Decisions of the FCO in which it holds that there has been an infringement of the cartel prohibition and imposes a fine are subject to full review by the Higher Regional Court of Düsseldorf. Judgments by the Higher Regional Court may be appealed on questions of law to the Federal Supreme Court. Investigations by the FCO become time-barred five years after the infringement has come to an end. The opening of an investigation by the FCO, the European Commission or a competition authority of another EU member state suspends the limitation period.

If it upholds a fining decision of the FCO which is under appeal, the Higher Regional Court of Düsseldorf may decrease or increase the amount of the fine. In a recent case the court increased the fines against members of a cartel by 33 per cent in total and by up to 85 per cent for individual companies.

Recent developments

Cartel enforcement has continued to be on the top of the FCO agenda in the past 12 months. In 2012, the FCO conducted 14 searches of business premises of more than 72 undertakings and residential homes. The FCO imposed fines of €248 million. The products and industry sectors concerned included concrete paving stones and pipes, fire engines, chemical wholesalers, railway rails, automatic door systems, confectionery and power transformers. The highest fine of €124.5 million was imposed on members of the rail cartel.

In March 2012 the government published a draft of an amendment of the ARC. One goal of the reform is to make cartel procedures more expedient and efficient. To this end, the right of undertakings to remain silent on allegations of participation in a cartel in a fine procedure will be restricted by an obligation to provide data relating to the (global) turnover of the undertaking. Another amendment concerns the liability of legal successors of undertakings that have been involved in cartels.

After a lengthy political debate, which focused mainly on the applicability of the ARC to statutory sickness funds as well as public water supply, a compromise was struck recently by the two houses of the German parliament. The bill amending the ARC will therefore enter into force in the course of 2013. The provisions amending the rules on cartel procedure are not affected by the compromise and will be enacted largely according to the government draft.

In June 2012 the FCO implemented a whistle-blowing system that allows it to receive anonymous tip-offs of cartel law infringements.

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