Developing a Global Settlement Strategy
Often, the same conduct triggers overlapping antitrust investigations or litigation in different jurisdictions over many years. In this complex environment, developing and implementing a successful settlement strategy can be daunting. Without careful planning, it is difficult for target companies to manage overall global financial exposure, or to minimise settlement disclosures and admissions that could be harmful in future related matters.
Each chapter in this Guide explores these problems in greater depth, and in different jurisdictions. We begin here with a discussion of overarching questions to consider when developing a successful master settlement strategy across multiple enforcers, claimants or countries.
Managing parallel matters
Frequently, antitrust conduct matters begin with a dawn raid in a headquarters jurisdiction. The surprise, stress and urgency of such new investigations often force target companies to devote all resources to that initial jurisdiction and initial enforcer, perhaps leading to early settlement engagement.
That sometimes is a mistake. Increasingly, antitrust conduct matters spread quickly and widely. A dawn raid in Japan may, in a few short years, metastasise into a dozen jurisdictions with parallel investigations and copycat private damages claims across the globe. The decisions made at ground zero, with the initial enforcer, can have serious repercussions and can expand aggregate exposure.
While inherently speculative, early efforts to predict where derivative conduct investigations may later arise will yield benefits. Before a global settlement strategy can be planned, clarity on likely venues is critical. Core factors include where the cartel participants reside, where affected product sales are concentrated, where key direct and indirect purchasers are based, and which major active enforcers have a sizeable nexus to the conduct or affected commerce. These identified jurisdictions and claimants should then be prioritised based on relative risk.
The next focus should be an early comparative assessment of each priority jurisdiction’s approach to remedies, penalties, private damages claimant exposure, class or collective action exposure, privilege protection, required disclosures or admissions, and settlement procedures. These factors are the building blocks for planning a comprehensive strategy.
Before the first settlement, a target and its counsel should then consider the secondary effects in each priority jurisdiction that could follow, even if no investigation has yet arisen there. Will a confidential disclosure be discoverable elsewhere, and what impact will it have? Does one jurisdiction require disclosure of harmful documents that may be privileged elsewhere? Does a factual admission have unforeseen consequences in another jurisdiction? Does the value of commerce calculation for a fine create any floor for private litigants’ settlement expectations in follow-on damages cases? On a positive note, could a factual admission (such as the geographic scope of harm, or the scope of affected products) be negotiated narrowly to satisfy the settling authority, while assisting the target company in future litigation in a secondary jurisdiction? The more carefully such questions are considered, the more likely a successful overarching settlement strategy can be achieved.
Also, process matters. Before any dialogue begins, a target should understand how settlements can occur in each jurisdiction, what the process involves, how long it takes and when it can begin. For example, US antitrust class action settlements can take many months to implement because they require court approval after notice to absent class members and a fairness hearing. Sequencing and timing involves more than selecting which dialogue to begin; target companies need to consider how long dialogue may take, and whether events in other parallel litigation or investigations may get ahead of the priority venue where settlement dialogue is initiated.
Another fundamental threshold consideration is, of course, whether to settle at all. After the factors above are framed and considered, and before settlement dialogue begins, a target should carefully consider the comparative advantages and disadvantages of settling over litigating on the merits. Potentially, it may be prudent to litigate in one jurisdiction where defences are relatively strong. A victory could be deployed later in negotiations as leverage for a favourable settlement in jurisdictions where more risk lies. A target should make a rough assessment of the probability of success on the merits, weighed against the costs of litigation and the financial exposure from a loss. This analysis should be attempted early on, and revisited regularly. This assessment requires some grasp of the potential monetary exposure for the portfolio of related matters arising from the conduct, discussed further below.
Controlling damages exposure
Remedies differ widely across jurisdictions, as detailed in later chapters. Here we begin by exploring some core questions a target should ask at the outset of conduct investigation to begin preparing an overall strategy to limit financial exposure.
At the heart of global settlement strategy is the ability to predict, early on, what potential aggregate exposure may arise across jurisdictions and claimants. Then targets need to plan how to manage the timing of settlements, the sequencing of settlements, and the amount of settlements.
It is essential to identify, as early in the process as possible, the most likely claimants and jurisdictions for claims. Some jurisdictions have active and highly aggressive damages litigation and may have rules that promote contingency fees, litigation funding and collective actions or opt-in/opt-out class actions. Class action and collective redress jurisdictions raise the risks, as damages litigation can result in claims that are proportionately much larger than may be the government penalty exposure. Other jurisdictions have not seen any damages litigation and may have rules that make effective damages litigation difficult to run or uncommercial. Step one is to identify priority jurisdictions with the greatest potential for damages exposure that have a nexus with the conduct and potential injured parties.
Then the hard part: quantifying exposure. When trying to quantify potential damages claims, the first step is to identify and articulate the theory of harm in the case. Without clarity on the theory of harm, damages modelling will, at best, be guesswork and, at worst, a futile exercise. The theory of harm needs to take into account any differences in competition law principles across the various relevant jurisdictions under consideration. It must also coherently link the anticompetitive practice to the individual or individuals alleging to have suffered harm. Advice from each priority or high-risk jurisdiction on how the theory of harm may be framed locally is key.
Once a theory of harm has been established, the potential damages exposure needs actual quantification. Early guidance, even in general terms, from an antitrust economist is useful to develop even a cursory early range of potential aggregate exposure. There is, of course, no one model that will be appropriate in every case or jurisdiction. A common fundamental starting point is to ask: but for the anticompetitive conduct, what would prices have been in the jurisdiction? This test sounds simple when stated at this level of abstraction, but can be very difficult to apply in practice, given the complexities of how cartel conduct might have affected markets and the numerous other factors that impact markets over time. Some common approaches include comparison of products or services affected by the conduct with ‘similar’ products or services, or looking at how prices of the affected products or devices changed after the cartel conduct was discovered and stopped, or before it began. While economic damages modelling would, of course, be more refined and comprehensive later in a fully litigated matter, early cursory assessments can be very useful in creating rough estimates of cumulative exposure across likely jurisdictions.
Any initial assessment of quantum will usually, by necessity, be high level and probably non-empirical. However, the approximations at this stage should be sufficient to help guide strategy by disclosing which jurisdictions are most likely to give rise to significant damages exposure and the expected magnitude of damages or penalty. This is what is required at an early stage to help drive decisions on whether, and to what extent, to cooperate with regulators, and in what sequence.
Another point that can significantly affect quantum is the availability or otherwise of a passing-on defence. The availability of the defence can be a positive or a negative depending on one’s perspective. The absence of the defence may, in some circumstances, concentrate the right to claim in a large and well-resourced upstream business that has both the volume of commerce and the financial ability to launch and maintain a sustained claim for damages. In other circumstances, the availability of the defence may allow the larger target to avoid the preponderance of the claim on the argument that any loss has been passed on to customers who may have little interest in pursuing what could, at an individual level, be quite (or very) small claims. This would be a more likely scenario in jurisdictions where there is no effective class action system in operation.
It is also worth considering who assesses damages claims in each relevant jurisdiction. Is it a court, a regulator, both? A jury? Courts can be prepared to recognise the inherent difficulty in quantifying losses in competition cases and to consider harm to both direct and indirect purchasers. Often, legislation or case law provides assistance, making it clear it is a matter of estimation, rather than strict proof and relaxing historically stricter case law on causation. However, judicial models generally tend to be bound by stricter rules than administrative systems, so jurisdictions that allow regulators to assess damages may raise the risks of damages being awarded and increase the potential for higher quantum.
Consideration also needs to be given to whether there is joint and several liability in any priority jurisdiction. This risk, of course, could magnify exposure for ‘small-share’ cartel participants who could bear broader market loss. It can also be difficult to determine the ‘fair share’ for a particular cartel member. For example, in a market-sharing case that divided markets across a number of jurisdictions, how should damages be assessed against each cartel member in each of the jurisdictions, when, because of the very nature of the cartel conduct, there is no evidence or starting point in trying to assess the market position the cartel members would have had but for the agreement?
And then there is the question of timing and whether it is better to try to settle early. There may be very good reasons for wanting to settle early. It may help to repair relations with customers or reduce brand damage from ongoing publicity. However, in other cases, the defendants may feel there is not enough evidence to show that there was actual harm and opt to wait until the case is more developed to assess whether settlement makes sense. A defendant that is being used as an anchor defendant in a strategic market may also find this makes it harder to negotiate an early settlement.
Finally, once exposure potential has been estimated across jurisdictions, the target must decide whether settlement in a certain jurisdiction, or with a certain key claimant, is strategically effective. If a ‘low’ settlement range is achieved in a certain important jurisdiction, it may lower claimant expectations, and dominoes may fall in similar fashion elsewhere. Overpaying early with a particularly aggressive enforcer or claimant, in contrast, could elevate the overall exposure and set an expected floor for future settlements. While managing simultaneous settlements across parallel jurisdiction can be exceptionally complex and difficult logistically, in some circumstances it could result in lower cumulative exposure.
In short, there are numerous damages issues that parties need to be thinking about from the very beginning as they develop and move forward with their settlement strategy. Many of the variables depend on the jurisdictions involved and the rules that apply in those jurisdictions. The jurisdiction-specific chapters of this Guide are designed with these issues in mind, to help to give more nuance and to inform settlement strategies for defendants looking at cross-border exposure.
Managing disclosures and admissions
Financial exposure is not the only risk to manage. Settlement negotiations usually require (to some degree) disclosure of information, and admission of guilt to the relevant competition authorities. Requirements vary among jurisdictions, as discussed in this Guide. The facts including any admission of guilt may be included in the public decisions relating to the settlement, in the investigated parties’ files or in the authority’s files. The obvious risk is third-party access to such information and statements. In particular, competition authorities in other jurisdictions might use them to start new antitrust investigations or bolster ongoing ones. The common example is a factual admission of cartel participation in a government settlement that is used later by private litigants pursuing damages.
Any settlement strategy therefore needs to include an early assessment as to the administrative and private litigation risks the settlement itself might create. Settling parties need not only focus on their own jurisdiction, but need to take a global perspective when assessing the risk.
While it is usually advantageous to minimise disclosures and admissions as much as possible, there may be settlement proceedings where the disclosure of information or admissions of guilt cannot be avoided, as these are necessary to reach a settlement. To assess the severity of the alleged violation (for potential fine reductions under the settlement), competition authorities often require the submission of detailed information.
Unsurprisingly, the disclosure strategy plays an essential part of the overall settlement strategy. The key factors to consider are the scope of information disclosed during the respective settlement proceedings, the timing and sequence of disclosures in various jurisdictions, admissions during multiple simultaneous settlement proceedings, and the form of disclosure (orally or in written form). These core factors must always be evaluated not just in the context of the matter at hand, but also in the context of parallel and future matters. In other words, the settlement strategy needs to be global, and it needs to be planned completely before entering into the first settlement.
Once the relevant jurisdictions have been identified, the first step is reviewing the applicable procedural laws, especially discovery rules. Before any submission, a target should determine the risk that information and statements submitted during a settlement proceeding will be successfully requested by a foreign competition authority or a private plaintiff. Settlement candidates need to consider that some jurisdictions grant competition authorities extensive leeway when it comes to the public disclosure of information relating to ongoing investigations. For example, competition authorities may publish the fact that a settlement proceeding has been initiated or that a settlement has been reached, together with detailed facts on the investigated violation. And the US discovery rules are notoriously broad compared to those in most other countries. Accordingly, an effective disclosure strategy must include a decision regarding the sequence of disclosures made under the respective settlement proceedings in order to avoid, to the extent possible, a harmful publication of facts. This Guide’s country chapters provide colour on how various jurisdictions approach these issues differently.
As a second step, an effective disclosure strategy requires an understanding of the exact scope of information protected by legal privilege under the relevant jurisdictions. It should be noted that there are jurisdictions where the concept of legal privilege protection is simply non-existent, such as in the United Arab Emirates or China. Furthermore, even if the concept of legal privilege protection is recognised, there can be subtle, but important, differences between the various jurisdictions. For example, during European Commission competition investigations, legal privilege is only granted to communications between external legal counsel, who are admitted as attorneys-at-law in a Member State of the European Union, and their clients, and only to the extent that it concerns the client’s rights of defence in a competition investigation. By contrast, under German law, legal privilege protection in an investigation of the German Federal Cartel Office must additionally require that the attorney–client communications were made in relation to an ongoing investigation that has already been opened, meaning that German law is stricter than European law. Notably, even if made from, to or between in-house lawyers, in-house communication in many civil law countries (such as France, Italy and Austria) is exempt from legal privilege protection. By contrast, many common law countries (such as England and Australia) generally view in-house counsel as ‘privileged persons’, provided they are admitted to the governing bar association. Mapping and understanding these privilege variants across all potentially relevant jurisdictions is essential before any disclosure is made.
To provide clarity, it is usually the best option to approach the investigating competition authorities early on in the settlement proceedings to discuss whether and to what extent information and statements submitted during the proceeding will be kept confidential. In some countries, such consultations are also possible on an anonymous basis.
In short, the chess game of predicting what disclosures and admissions are needed, where they need to be provided, and what repercussions they may have elsewhere is vital before the first disclosure occurs.
This chapter highlights just a few high-level considerations to confront early in a conduct matter. These themes and risks are explored more fully throughout this edition, and across different jurisdictions.
1 Mark H Hamer, Nicolas Kredel and Stephen Crosswell are partners at Baker McKenzie. The authors thank their colleague Florian Kotman for his work on this chapter.