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Cartels and Leniency
Last year we discussed two key developments in the field of cartels and leniency. First, the General Court’s (GC) view put forward in the FLSmidth case (industrial bags cartel)1 that a parent company could not benefit from the reduction of a fine unless it provided (additional) information justifying the extension of the reduction of the fine and explicitly joined in with the subsidiary’s leniency application. Second, the European Commission’s proposal for a Directive on Antitrust Damages Actions and the impact that its rules on disclosure of evidence on leniency could have on an applicant’s incentives to submit a leniency request.
This year there have been important developments on both topics. Regarding the issue of parent company liability within a subsidiary’s leniency application, following the appeal lodged by FLSmidth, the Court of Justice of the European Union delivered its judgment2 and set aside the GC’s reasoning with regard to the requirements a parent company would have to meet to benefit from the leniency application of a subsidiary. However, the implicit rejection of the GC’s claim leaves a margin of uncertainty that is addressed below.
As regards the Directive on Antitrust Damages Actions, the European Parliament adopted on 17 April 2014 an amended proposal of the Directive, which has now been sent to the EU Council of Ministers for final approval. The amendments have a substantive impact which, in our view, justifies a fresh analysis.
Another important development in the area of cartels and leniency was made in the judgment of the ECJ in the ÖBB Infrastruktur case,3 where the Court adjudicated on the issue of the ‘umbrella effect’ – the benefit that a non-cartel member can derive from the price increases generated by a cartel. The Court confirmed that EU Law precludes any interpretation that would deprive an injured party from seeking compensation from damages suffered as a consequence of an infringement of competition; namely, by categorically excluding civil liability of cartel members for damages caused by the ability of a non-cartel member to increase its prices.
Finally, we also address the extent to which the Commission is required to substantiate its inspection decisions; as analysed in the Nexans cases. The ECJ recently had an opportunity to refine its guidance regarding the administrative practice of the Commission in conducting antitrust investigations.4
Do parent companies benefit from their subsidiaries’ leniency applications?
At stake in the FLSmidth judgments of the GC and the ECJ was the possibility of parent companies benefiting from their subsidiaries’ leniency applications, which would be the logical result of the single economic unit doctrine. This possibility had been put into question by the GC in last year’s judgment, when it held that the Commission had wrongly extended the benefit of a leniency application to the parent company, where – having taken an individualised approach in determining its liability – it considered that the Commission had failed to take into account that the parent company had not provided any information about the infringement that would entitle it to a reduction of the fine. The ECJ set aside the GC’s reasoning and, while not addressing the question formally, implied that the Commission was correct in extending the benefit of the leniency application to the parent company, as a result of the subsidiary’s cooperation under the Leniency Notice.5
By not directly addressing the issue raised in the GC’s judgment – on the grounds that it would have been irrelevant to the case in point – the ECJ left certain important issues open. The requirement (implicitly) set out that the parent company must contribute to the detection of the infringement, may be subject to various interpretations and therefore, following both judgments, the Commission will continue to recommend leniency applicants submit their requests on behalf of both parent companies and their subsidiaries. This would ensure that all the corporate entities belonging to the group would benefit from the immunity or reduction of the fine.
However, the risks associated with this practice cannot be ignored. ‘Co-signing’ a leniency application may bring with it the legal certainty of securing a leniency discount, but it also attracts risk. On the one hand, the parent company is unlikely to be able to make a ‘decisive influence’ defence which, if successful, would eliminate its exposure to any fines imposed on its subsidiary as a result of the infringement. On the other hand, by admitting its participation in an infringement, the parent company may attract potentially adverse implications with regard to civil litigation. Also, a decision to join in the immunity application may have consequences in the liability of the parent company under the draft Damages Directive.
The Leniency Notice does not deal with the issue of which legal entities are sheltered by a leniency application submitted by a company with a view to obtaining immunity or a reduction of the fine, particularly as regards its extension to parent companies. However, the Commission has extended the immunity or reduction of the fine to all corporate entities of an undertaking to which the decision is addressed, when the leniency application was made by the subsidiary (and not the parent) and even where the parent has contested that it fulfils the requirements for liability for the actions of its subsidiary. The tacit rationale is the existence of a single criterion for the liability of a single economic unit: if there is a single economic undertaking for the purposes of fining, it would surely be illogical to treat the parent and subsidiary differently for the purposes of leniency.6
European Parliament adopts the proposed Directive on Antitrust Damages Actions
In June 2013, the Commission launched an Antitrust Damages Initiative to ensure the effective exercise of the EU right to compensation and to regulate some key aspects of the interaction between public and private enforcement of EU competition law. This resulted in the recent adoption by the European Parliament of the Directive on certain rules governing actions for damages, which has been sent to the EU Council of Ministers for final approval. Following its publication in the EU Official Journal, EU member states will have two years to transpose the Directive into their national laws.
Rules on disclosure of evidence
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 position eventually adopted in the Directive differs to some extent.
The Directive seeks to address the issue of information asymmetry (the fact that most of the evidence needed by a potential damages claimant is in the possession of the defendant or a third party) and recognises that it is appropriate to ensure that injured parties are afforded the right to obtain the disclosure of evidence relevant to their claim. However, at the same time it seeks to ensure that incentives for leniency applications are maintained. Under the Directive, member states are to ensure that national courts can order the defendant or a third party (such as a national competition authority) to disclose evidence, subject to certain conditions. Thus, to exclude fishing expeditions, the disclosure of specified pieces of or relevant categories of evidence should be circumscribed as precisely and as narrowly as possible.7
The Directive introduces a sliding scale of protection from disclosure in national courts for different categories of evidence; the nomenclature, a black list, grey list and white list, is maintained from the draft Directive.
Total protection is granted to leniency statements and settlement submissions. National courts cannot at any time order the disclosure of leniency statements or settlement submissions made to the competition authority.8 This exception from disclosure should also apply to literal quotations of a leniency statement or a settlement submission in other documents. The Directive neither determines what would constitute a literal quotation for the purposes of the Directive nor does it provide for the concept of materiality and one expects various interpretations to flourish.
Importantly, national courts should be able, upon request of a claimant, to access any document for which the black-listed exception is invoked to ensure that its contents do not exceed the definition of leniency corporate statements and settlement submissions laid down in the Directive. All the information that, following the national court’s assessment, is deemed to exceed the scope of protection envisaged would be available for disclosure subject to the relevant conditions. This provision was not included in the draft proposed by the Commission; only time will tell whether this power granted to national judges will have an impact on the number of leniency applications or their contents and quality.
Temporary protection is provided for:
- documents prepared specifically by defendants for the proceedings of a competition authority (eg, responses to requests for information and to the statement of objections);
- information that the competition authority has drawn up and sent to the parties in the course of the proceedings (eg, requests for information and statement of objections); and
- settlement submissions that have been withdrawn.
Under the Directive, these documents cannot be disclosed in national courts until the relevant competition authority has closed its competition proceedings (by adopting a decision or otherwise).9
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 it complies with the general rule on disclosure (ie, the disclosure of specified pieces of or relevant categories of evidence should be circumscribed as precisely and as narrowly as possible).
The grey-listed category of ‘withdrawn settlement submissions’ was added by the European Parliament. In settlement submissions, parties do acknowledge ‘in clear and unequivocal terms’ their responsibility for the infringement, the main facts, their legal qualification (including the parties’ role and the duration of their participation), and so on.10 In terms of acknowledgment, their content thus goes far beyond responses to a request for information or to a statement of objections. As a result, the risks associated with the inclusion of withdrawn settlement submissions in the Directive need to be considered carefully by companies.
Documents that fall outside the above categories do not benefit from any protection under the Directive. Information that is not granted total or temporary protection by the Directive – including information in the competition authorities’ file which existed before the proceedings started and independently of them (‘pre-existing information’ or ‘pre-existing document’) – can be ordered to be disclosed by a national court at any point in time.11 However, requests for disclosure of such documents must comply with the general rules that they are circumscribed as precisely and narrowly as possible12and its disclosure is proportionate to the objectives pursued. Therefore, a request for the disclosure of the entire file of the competition authority, or the documents in the file pertaining to an undertaking, would run afoul of these requirements and would not be granted by national courts.
The national courts will only retain a margin of discretion with regard to the proportionality of the request for the disclosure of evidence (rather than whether it should be disclosed or not). Potential addressees of such requests are, therefore, safeguarded from an obligation to disclose marginally pertinent, disproportionately costly or confidential information.13 The courts’ assessment of the pertinence of the requested evidence, as well as the need to substantiate the proportionality and pertinence of the request, can be construed as an additional burden of proof on the potential claimant, but ensures a degree of certainty to leniency applicants and an adequate and successful use of the disclosure mechanism within the civil procedure.
In addition, the Directive prohibits the ‘trading’ of pre-existing documents once they have been disclosed and imposes an obligation on member states to ensure that white-listed 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.14 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?
The Commission and the European Parliament seem to be of the view that the rules on disclosure contained in the Leniency Notice can be reconciled with the provisions of the Directive on damages actions. Indeed, by classifying pre-existing documents in the white list, the Directive seems to ignore the position taken by the Commission in its 2006 Leniency Notice, which states that ‘normally public disclosure of documents and written or recorded statements’ received in the context of the Leniency Notice would undermine certain public or private interests, even after the decision has been taken.15
Other changes in the Directive relevant for potential leniency applicants
Presumption of harm for claimants
Under the Directive, in the case of a cartel infringement, there is a presumption that such an infringement causes harm. It is for the infringing undertaking to adduce evidence to rebut this presumption.16 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.
The limitation period in which claimants can bring their claims must be at least five years, and must be suspended or interrupted if a competition authority takes action for the purpose of the investigation or proceedings in respect of an infringement of competition law to which the action for damages relates. The suspension shall end, at the earliest, one year after the infringement decision has become final or the proceedings are otherwise terminated.
Limited liability of immunity applicants
The Commission has stressed that the 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 Directive, an undertaking that has been granted immunity from fines is only liable to its direct or indirect purchasers or providers, and other injured parties only where full compensation cannot be obtained from the other undertakings that were involved in the same infringement of competition law.17
This aims to ensure that immunity applicants are not deterred from coming forward without unduly limiting the ability of claimants to obtain full compensation, thereby providing a more favourable treatment to leniency applicants under the Directive. 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.
Conclusions on the amended Directive
Whereas the Commission claims that the two main objectives of the Directive on actions for damages adopted by the European Parliament in April 2014 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 Directive causes – and will continue to cause – concern to potential leniency applicants.
On the one hand, potential leniency applicants are granted absolute protection over their leniency corporate statements. On the other, the Directive improves claimants’ chances of getting hold of contemporaneous evidence of the infringement, which enhances the chances of success of damages claims. Together with the extension of the statutory limitation periods and the presumption of harm benefitting claimants in cartel cases, the provisions in the Directive may be perceived as the Commission advancing the cause of private enforcement at the expense of its leniency programme.
Since the vast majority of the cartel cases investigated by the Commission since 2006 were the result of leniency applications – showing that leniency has been a crucial enforcement tool for the Commission – it remains to be seen whether, as a result of this Directive, potential leniency applicants will be deterred from coming forward and cooperating with competition authorities, which would result in fewer Commission decisions, leading to lower prospects of bringing successful follow on claims for prospective claimants.
It will be interesting to examine the evolution of leniency applications subsequent to the implementation of the Directive, both in the number of applications, as well as in their nature. Leniency applicants may have an incentive to submit a smaller set of pre-existing documents and instead provide further details regarding the infringements via oral statements. Such a strategy would not be without risk for leniency applicants as they are required to provide contemporaneous evidence carrying a significant value to the procedure (and such documents have greater value than statements under the Leniency Notice). However, should this strategy be pursued, the Commission would run the risk of, at least in certain cases, lacking sufficient evidence to trigger inspections and, thereby, securing additional evidence of the infringements.
Compensation for harm: more from the Court of Justice
Another development in the case law on damages claims for infringements of competition provisions – not addressed by the Directive – was rendered on the topic of ‘umbrella effects’ (ie, the extent to which a purchaser from a non-cartelist can sue cartelists to obtain compensation on the ground that the non-cartelists also benefited from the existence of the cartel in adapting their prices to the higher cartel level).
In a case brought before the ECJ for a preliminary ruling, the Austrian courts inquired whether a practice that prevents claimants from seeking damages for umbrella effects caused by a cartel would be consistent with EU law. In the case at hand, ÖBB Infrastruktur claimed that part of the loss it had suffered was caused by the cartel relating to the installation and maintenance of elevators and escalators, which made it possible to maintain a market price at such a high level that even competitors not party to the cartel were able to benefit from a market price that was higher than it would otherwise have been but for the existence of that cartel. The ECJ addressed the request for a preliminary ruling by the Austrian court holding that:
[T]he victim of umbrella pricing may obtain compensation for the loss caused by the members of a cartel, even if it did not have contractual links with them, where it is established that the cartel at issue was, in the circumstances of the case and, in particular, the specific aspects of the relevant market, liable to have the effect of umbrella pricing being applied by third parties acting independently, and that those circumstances and specific aspects could not be ignored by the members of that cartel.
The success of such claims will depend on the level of evidence available to the plaintiffs and required by the national courts.
Limits to the Commission’s inspection power
On 25 June 2014, the ECJ had an opportunity to further clarify the legal requirements applicable to the statements of reasons in inspection decisions.
The case goes back to early 2009, when, suspecting a cartel involving electric cables and the material associated with them, the Commission conducted inspections at Nexans’ premises. The inspection decision was appealed by Nexans and, in November 2012, the GC partially annulled the inspection decision. Nexans’ first argument related to the product scope of the inspection decision, which the company described as being overly broad and vague. The GC recognised that the wording of the inspection decision and the grounds for that decision could have been less ambiguous, but held nevertheless that these enabled Nexans to assess the scope of its duty to cooperate and, as a result, that the Commission had met its obligation, pursuant to article 20 of Regulation 1/2003, to define the subject-matter of its investigation.18 However, Nexans’ second argument was upheld by the GC, that agreed that the Commission did not have reasonable grounds for ordering an inspection covering all electric cables and the material associated with those cables (the Commission only had reasonable grounds for suspecting an infringement by the company in the high voltage sector). As a result, the GC partially annulled the Commission decision ordering Nexans to submit to an inspection, insofar as it concerned electric cables other than high voltage underwater and underground electric cables and the material associated with those other cables.19
On appeal, Nexans sought to set aside the GC’s judgment regarding a third argument that had been rejected by the GC concerning the broad and insufficiently precise determination of the geographical scope of the inspection decision.20 In its appeal, Nexans claimed that the failure to provide specific information about the geographical dimension of the Commission’s investigation had two consequences: it was not clear from the inspection decision that the alleged infringement was within the remit of the procedural powers of the Commission to initiate an investigation; and Nexans claimed that the investigative powers of the Commission should not include the examination of business records for projects located outside of the EU/EEA without it being specifically mentioned in the inspection decision.
Siding with the GC, the ECJ considered that the Commission ‘had described in sufficient detail the scope of the suspected cartel by indicating that it “probably [had] a global reach”, even though it rejected only implicitly [...] the arguments of [Nexans] relating to the very localized nature of the cable projects outside the common market and the specific characteristics of the cable projects’.21
The ECJ held that the statement of reasons for the inspection decision must indicate the subject and the object of the inspection so that a targeted company not only understands the reasons that triggered the unannounced Commission inspection but also allows the company to formulate its strategy and gauge its duty to cooperate.22 There is no requirement for the Commission to communicate all the information at its disposal concerning the alleged infringements. An inspection decision should indicate as precisely as possible the evidence sought and the issues to which the investigation relates. Furthermore, the Commission is not required to make a specific legal assessment; the aim of an investigation being specifically to gather evidence related to a suspected infringement. Thus, it is not required for an inspection decision to define precisely the markets concerned.23 The vague indication that the ‘inspection covered “agreements and/or concerted practices [which] probably have a global reach”’ was considered to be sufficient and did not ‘require more details on the type of conduct suspected outside the market, on the effect such conduct might have on that market or on the type of documents which the Commission was entitled to examine’.24
Finally, the Court found that the Commission was by no means required to limit its investigation at Nexans’ premises to documents relating to the projects which had an effect on the EU market.25
- T-65/06 FLSmidth & Co A/S v European Commission, Judgment of 6 March 2012. ↑
- Case C-238/12 P FLSmidth v Commission, Judgment of 30 April 2014, para. 83. ↑
- Case C‑557/12 Kone AG and Others v ÖBB Infrastruktur AG, of 5 June 2014. ↑
- C-37/13 P Nexans SA and Nexans France SAS v European Commission, Judgment of 25 June 2014. ↑
- Commission Notice on Immunity from fines and reduction of fines in cartel cases ((2006) OJ C 298/17). ↑
- Case T-161/05 Hoechst GmbH v Commission (30 September 2009), para. 75. ↑
- Directive on certain rules governing actions for damages, article 5. ↑
- Directive on certain rules governing actions for damages, article 6(6). As a side note, we should indicate that the Commission published in October 2013 a memorandum to guide lawyers‘ delivery of oral statements at DG Competition. The document is available at http://ec.europa.eu/competition/cartels/leniency/oral_statements_procedure_en.pdf. ↑
- Directive on certain rules governing actions for damages, article 6(5). ↑
- Settlement Notice, para. 20. ↑
- Directive on certain rules governing actions for damages, article 6(9). ↑
- Directive on certain rules governing actions for damages, article 5(2). ↑
- Directive on certain rules governing actions for damages, article 5(3). ↑
- Directive on certain rules governing actions for damages, article 7(3). ↑
- Leniency Notice, para. 40. ↑
- Directive on certain rules governing actions for damages, article 17. ↑
- Directive on certain rules governing actions for damages, article 11(3). ↑
- T-135/09 Nexans France SAS and Nexans SA v European Commission, Judgment of 14 November 2012, para. 54. ↑
- T-135/09 Nexans France SAS and Nexans SA v European Commission, Judgment of 14 November 2012, para. 94. ↑
- T-135/09 Nexans France SAS and Nexans SA v European Commission, Judgment of 14 November 2012, para. 99–100. ↑
- C-37/13 P Nexans SA and Nexans France SAS v European Commission, Judgment of 25 June 2014, para. 28. ↑
- C-37/13 P Nexans SA and Nexans France SAS v European Commission, Judgment of 25 June 2014, para. 34. ↑
- C-37/13 P Nexans SA and Nexans France SAS v European Commission, Judgment of 25 June 2014, para. 35–37. ↑
- C-37/13 P Nexans SA and Nexans France SAS v European Commission, Judgment of 25 June 2014, para. 38–39. ↑
- C-37/13 P Nexans SA and Nexans France SAS v European Commission, Judgment of 25 June 2014, para. 40. ↑
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Next Chapter: Estimating Cartel Damages