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- Rating Enforcement
Germany has a long tradition of rigorously and effectively enforcing the prohibition on cartels. In 2013–2014, the Federal Cartel Office (FCO) has uncovered and investigated a large number of different competition law infringements in many different industries, and has imposed fines of several hundreds of million euros. The FCO repeatedly announced that cartel enforcement will continue to be a top priority on its enforcement agenda.
Legislation and competent authority
The relevant provisions regarding the prohibition of cartels are contained in sections 1 and 2 of the German Act against Restraints on Competition (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. Section 1 ARC 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 in that it exempts agreements from the prohibition in section 1 ARC if they contribute to an improvement in the production or distribution of goods, or help to promote technical or economic progress, while allowing customers a fair share of the resulting benefit, and which do not impose restrictions which are not indispensable to the attainment of these objectives, or afford the undertaking the possibility of eliminating competition in respect of a substantial part of the products in question. Pursuant to section 2(2) ARC, EU block exemption regulations also apply to restrictions of competition within the meaning of section 1 ARC. Section 3 ARC exempts – under certain conditions – restrictions of competition between small and medium-sized undertakings. It is generally not possible to obtain a formal exemption decision from the FCO confirming the legality of any agreement or practice. It is up to the undertakings concerned to decide whether the agreement or practice satisfies these conditions.
Cartels are not criminalised under German Law. Rather, cartels generally qualify as an administrative offence, with one important exception: bid rigging constitutes a criminal offence under section 298 of the German Criminal Code and can be sanctioned with up to 5 years in prison.
The FCO has published the following guidelines in respect of important aspects of public cartel enforcement, which are available on the FCO’s website (www.bundeskartellamt.de) and also in English:
- Leniency Programme, Notice No. 9/2006, which entered into force on 15 March 2006 replacing the old Notice No. 68/2000;
- fining guidelines which entered into force on 25 June 2013; and
- de-minimis guidelines, Notice No. 18/2006, which entered into force on 13 March 2007.
The prohibitions laid down in the ARC are mainly enforced by the FCO, an independent higher federal authority assigned to the Federal Ministry of Economics and Technology (the local cartel offices in Germany’s federal states play a minor role in practice). The FCO is organised into 12 operative units, the so-called decision divisions. Nine of these divisions are responsible for the application of general antitrust rules and merger control provisions in specific industries and sectors. At present, 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 instructions from above. The three cartel enforcement decision divisions are supported by a special unit for combating cartels, the main purpose of which is to assist during the investigative phase, particularly in preparing and executing dawn raids.
The substantive law is enforced on the basis of two types of different proceedings. Proceedings relating to only minor infringements are governed by the relevant provisions in sections 48 et seq ARC, whereas in cases of severe infringements that might lead to the imposition of fines, the proceedings are governed by the Code on Administrative Offences and the Code on Criminal Procedure.
Practices caught by cartel legislation
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 covers a broad range of restrictive agreements and concerted practices. It applies to express written contracts, oral agreements, non-binding arrangements and understandings, and other types of informal collusion. For example, even the exchange of commercially sensitive information between competitors, without any agreement to act on it, would be likely to restrict or distort competition such as to breach section 1 ARC. Section 1 ARC in particular prohibits 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 prosecuted and sanctioned by the FCO include resale price maintenance and information exchanges between competitors.
It is not necessary for the agreements or practices to be implemented or have any effect on the market if they were intended to have an anti-competitive effect. Similarly, it does not matter if the agreement or practice was entered into with an innocent intent, if the effect of it is anti-competitive. However, the effect must in any event be ‘appreciable’. The FCO is generally reluctant to open a cartel investigation and impose fines in cases where the conduct in question was unintentional but 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.
Section 1 ARC applies to both ‘vertical’ agreements (agreements between undertakings at different levels of supply chain, such as manufacturer and distributor, or distributor and retailer) and ‘horizontal’ agreements (agreements between competing undertakings).
Investigative and enforcement powers
In order to fully investigate a suspected infringement, the FCO may take testimonies from witnesses and accused suspects, and address information requests to undertakings. However, witnesses can refuse to testify to the extent that they might possibly incriminate themselves. Accused suspects generally have the right to remain silent on allegations that form the subject matter of the investigation, and do not have to provide any assistance or information whatsoever to the FCO. In case they do agree to be heard, they are not obliged to make accurate or complete statements. Interrogated witnesses and accused suspects must generally be instructed about their rights to remain silent and not incriminate themselves. 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.
The FCO may furthermore conduct dawn raids on offices and search private premises and objects. As a general rule, any such searches must be ordered by a judge. Only in exigent circumstances may the FCO conduct these searches without a judicial warrant. In addition, the FCO may seize objects that could be of importance as evidence in the investigation and make copies of any relevant documents. Again, a seizure order by a court is required if the material is not handed over voluntarily, and only in cases of exigent circumstances, the FCO itself may order the seizure of objects or documents. The investigative powers in respect of search and seizure also apply to material in electronic form. Computers and company servers may be searched and relevant files may be copied. Also, private locations, such as residences, automobiles, briefcases and persons can be searched. The FCO does not have the power to wiretap or make use of electronic surveillance or bugging.
If necessary, the FCO may use the coercive force laid down in the Code of Criminal Procedure to enforce its investigative powers.
Accused undertakings and natural persons have a right to be heard, which involves in particular the possibility to submit statements to the FCO. The right to be heard also encompasses a right of access to documents in the possession of the FCO. Such access to documents is, however, only granted to the lawyer of the accused suspect, not to the suspect itself. Access to the documents can be denied if the investigation has not been formally completed and if full access would endanger the objective of the investigation.
The parties have a right to legal representation throughout the entire proceedings. While in theory, when conducting dawn raids, the investigators of the FCO do not have to await the arrival of the defence counsel, in practice they normally consent to wait up to one hour.
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.
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 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. In February 2013, the Federal Supreme Court ruled that this 10 per cent threshold did not constitute a cap but that it was rather an upper limit of the statutory fine range. This is in contrast to the interpretation of a similar provision of EU Law by the EU 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 announced that following the Federal Supreme Court’s judgment the level of fines will increase.
As a consequence, the FCO published new fining guidelines in June 2013 under which the group-wide annual turnover of the company, as well as the turnover it achieved in the cartelised market during the infringement period, is taken into consideration in the fine calculation. Hence, the size of the company and the affected ‘volume of commerce’, as well as the seriousness and duration of the infringement, will be crucial factors in setting the level of fine. It is also still possible to waive or reduce a fine if a company that participated in the infringement submits an application for leniency. A reduction of 10 per cent of the fine can also be granted for an agreement to have the proceedings terminated by settlement. Cooperation by an undertaking in the proceeding outside the leniency notice will also be taken into account by the FCO when setting the fine.
When setting the fine, the FCO takes into account the undertaking’s financial capacity. Provided 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.
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 (not the FCO) has competence to investigate and prosecute cartel infringements that constitute criminal offences. In a recent case, the Higher Regional Court of Frankfurt ruled that non-German citizens can be extradited from Germany to the US.
Infringements of section 1 ARC become time-barred after five years. The opening of an investigation by the FCO, the European Commission or a competition authority of another EU member state suspends the limitation period.
The FCO operates a leniency programme similar to the EU Commission. (The leniency notice is also available 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 also qualifies as one made on behalf of individuals participating in the cartel as current or former employees of that undertaking.
The 2006 Leniency Notice applies only to cartels with severe horizontal restrictions on competition, such as agreements or concerted practices between competitors relating to, in particular price fixing, the fixing of sales quotas, market sharing, or bid-rigging. Vertical restrictions on competition (eg, in the context of distribution agreements) are not covered by the 2006 Leniency Notice. However, the FCO has previously granted immunity with respect to certain vertical restrictions, particularly in cases comprising both horizontal and vertical restrictions.
In 2013, the FCO received a total of 65 leniency applications from corporate entities and individuals. Leniency applications have been submitted in almost every cartel case handled by the FCO in recent years.
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, 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 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.
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 period of up to eight weeks within which a full leniency application has to be submitted.
The FCO promptly (usually within three to seven days) confirms in writing that a marker has been placed or that the application has been received, stating the date and the time of the 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 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 the statements of a whistle-blower 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 ECJ’S Pfleiderer ruling of 14 June 2011, the local court of Bonn and the Higher Regional Court in Düsseldorf held that parties injured by a cartel have no right to access 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 judgment of the ECJ in Donauchemie remains to be seen.
Contrary to the EU Commission, the FCO has not established formal rules 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 requires from the part of the undertakings concerned a guilty plea if they wish to enter into a settlement agreement. 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 EU 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.
The duration of the proceedings before the Higher Regional Court has increased significantly. This and the threat of also increasing the fines has led to a sharp rise in the number of settlements with the FCO. Unless the undertaking fined by the FCO withdraws its appeal to the Court, the fines do not bear any default interest. It is now also discussed whether the Court may increase the fines simply for the fact that the undertaking did not have to pay the fines and this advantage would have to be compensated for.
The Eighth amendment to the ARC of June 2013 introduced into the German Code of Administrative Offences a new legal basis for the levying of fines on full or partial legal successors of the entity that committed the competition law infringement. This new legal basis was critically required; according to the recent case law of the German Federal Court of Justice, the existing legal framework only allowed the imposition of a fine on a legal successor if – from an economic point of view – the successor entity was identical or almost identical to the entity that committed the offence. This was in particular not deemed to be the case where the infringing entity was acquired by and merged into a larger group of companies. Under the new legal rules, in cases of universal succession, the successor can now be held liable for any competition law infringements committed by the target prior to the transaction.
In December 2013, the FCO broke new grounds when it closed its investigation against online travel agent Hotel Reservation Service GmbH (HRS) and ordered HRS to eliminate the most-favoured-customer clause (MFC clause) from its general terms and conditions. Under this MFC clause, HRS obliged its hotel partners to always offer their best conditions and cheapest fares via the HRS portal so that the hotels were prevented from offering better conditions on their direct distribution channels (eg, walk-ins, hotel homepages, etc). The FCO considered this clause to significantly restrict competition. Also, the FCO did not follow HRS’s argument that the MFC clauses would create significant efficiencies and contribute to lower end consumer prices. Many other competition authorities in the EU have meanwhile started similar investigations and will likely follow the FCO’s example.
The FCO has, at least compared to other cartel enforcement agencies in Europe, a particular focus on restrictions of online business in vertical relationships. The main objectives of the FCO are to promote online sales and online marketing in selective distribution systems and to make essentially undertakings in consumer good retail compliant with cartel law.
Also, the FCO recently implemented an electronic system which allows it to receive anonymous tip-offs of cartel law infringements. The system guarantees the anonymity of informers while still allowing for continual reciprocal communication with investigative staff at the FCO via a secure electronic mailbox. According to FCO officials, the new whistle-blowing system has yielded a number of meaningful submissions and has thus significantly contributed to the FCO’s fight against cartels.
Haver & Mailänder
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Haver & Mailänder is an independent German law firm advising on a large number of business law fields. The firm has a long-standing particular focus on counselling and litigation in cartel law matters. Haver & Mailänder renders its services to domestic and international clients essentially on European and German cartel law. Our activities cover the whole range of matters in cartel law such as defence in fining proceedings or in proceedings relating to the abuse of dominant market positions, merger control, follow-on damage claims, advice on distribution systems and on cooperation between undertakings, essentially between competitors, and compliance programmes. We provide our clients with top-tier legal advice, develop tailored and workable legal solutions for them, assist them in negotiations, and represent them in proceedings before the European Commission or the Federal Cartel Office as well as before domestic and European Courts.
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