EU: Settling Antitrust Cartel Conduct Matters with the European Commission

The European Commission (the Commission) has for many years pursued a zero tolerance enforcement policy for cartels under Article 101(1) of the Treaty on the Functioning of the European Union (TFEU).^[2] With a view to punishing and deterring firms from involving themselves in cartels, the fines imposed on firms have skyrocketed.^[3] The Commission’s fining policy very clearly spells out how seriously it views cartel behaviour.^[4] In parallel, the Commission’s leniency programme,^[5] which awards parties that ‘come clean’ an opportunity to obtain immunity from fines or reduced fines, has proved a success.^[6]

In fact, by 2007, the leniency programme had become so successful that the Commission noted a stream of applications at a rate of two to three per month, although it only managed to adopt between five and nine decisions each year. Paradoxically, the Commission’s own policy instruments had produced a threat to the effectiveness and credibility of its zero tolerance policy. Not only did the Commission experience a significant backlog in its cartel investigations, but its decisions, once adopted, were usually challenged before the European Union’s courts. The cartel settlement procedure was formalised in 2008,^[7] specifically to increase the efficiency of the Commission’s anti-cartel enforcement programme.

Since 2010, when the Commission adopted the first cartel settlement decisions in DRAMS^[8] and Animal Feed Phosphates,^[9] the Commission has adopted 59 prohibition decisions in cartel cases; 33 were settlement decisions and six were ‘hybrid’ settlement decisions in which some parties elected to not settle. The process was, for instance, used in Power Exchanges,^[10] where two parties settled and the Commission imposed fines in the total amount of €5.9 million, and also in Trucks,^[11] where six parties settled, and the Commission imposed the highest total amount of fines in any cartel decision to date (€2.9 billion). Investigations under the cartel settlement procedure complete more than one year sooner than under the normal investigation procedure^[12] and the number of appeals to the EU courts against Commission cartel decisions has dropped significantly.^[13] These data points suggest that the process has been a success for the Commission. The remainder of this chapter considers what the process means for parties.

Cartel settlement proceedings

The Commission’s standard investigation procedure for the imposition of fines, which applies to all Commission antitrust investigations,^[14] requires the Commission to carefully gather and analyse evidence, prepare a detailed statement of objections (SO), grant the investigated parties access to its voluminous case file, allow them to present views in writing and at an oral hearing, consult the Advisory Committee and finally to prepare a decision detailed and solid enough to withstand appellate scrutiny. These are resource-intensive and time-consuming, contentious proceedings.^[15]

The cartel settlement procedure allows the Commission to conduct a truncated investigation.^[16] In essence, investigated parties are given an overview of the Commission’s analysis of the facts, are provided targeted access to the file, and acknowledge their breach of Article 101 TFEU and waive certain procedural rights in a formal submission, thereby allowing the Commission to write merely ‘short form’ versions of the SO and of the final decision. In exchange for contributing to that expedient procedure, the settling parties’ fines are reduced by 10 per cent, compared with the fines that the Commission otherwise would have imposed upon them. Such ‘settlement rewards’ are distinct from, and are granted in addition to, any fine reductions afforded to the settling parties under the Leniency Notice, in exchange for cooperation at the investigation’s fact-finding stage.

Identifying candidate cartel settlement cases

Not all cartel^[17] investigations are suitable for settlement. The Commission will evaluate whether it is likely that it and the investigated parties can reach a common understanding on the scope of the potential objections within a reasonable time frame. If so, the matter has the potential to generate the procedural efficiencies that the cartel settlement procedure was designed to produce.^[18]

To that end, the Commission will consider, for instance:

• the number of parties involved in the investigation: the fewer the number of parties, the higher the likelihood of reaching a common view for settlement;^[19]
• the parties’ interest in a settlement: the number of parties that cooperated under the Leniency Notice is one indication as to the level of interest;^[20] a ‘critical mass’ of investigated parties should opt for settlement, but it is open to the Commission to pursue a ‘hybrid’ resolution where some parties settle and others do not;^[21]
• any foreseeable conflicting positions regarding the attribution of liability;^[22]
• the extent of contestation of the facts;
• the scale of burden involved in providing access to non-confidential versions of documents in the case file and organising hearings;^[23]
• the possibility of setting a precedent or relying on an existing precedent: where there are no or few novelties, it is generally easier to reach a common view;^[24] and
• the lack of aggravating circumstances for purposes of determining the level of fines, which are factors that generally become a source of extensive debate.

The Commission retains a wide margin of discretion at all stages of the settlement procedure, including with respect to identifying candidate cases and whether to explore or conclude settlements.^[25] It is of course open to an investigated party to indicate at an early stage its willingness to explore, or even formally request the Commission to explore, settlement. Ultimately, it is for the Commission to decide on the path for resolution of the matter (i.e., by way of the standard or cartel settlement procedure).

Initiating the cartel settlement procedure

The settlement procedure would begin after the Commission has completed its fact-finding regarding a suspected cartel and formed initial views on the facts. The fact-finding typically draws on firms’ applications under the Leniency Notice, as well as evidence obtained by way of Commission inspections of premises, information requests and other fact-finding tools. Once the settlement procedure has been formally initiated, it is no longer possible for parties to seek leniency under the Leniency Notice.

Typically, the settlement process starts shortly after the Commission has formally initiated proceedings^[26] in respect of the suspected infringement.^[27] If the Commission believes that the matter is a candidate settlement case, it will write to each party to test whether there is interest in exploring settlement. In the letters, the Commission will set a time limit (not less than two weeks) for the parties to declare in writing whether they are interested in participating in ‘bilateral settlement discussions’ with a view to, possibly, introducing ‘settlement submissions’. The period is an opportunity for each invited party to consider the pros and cons of exploring a settlement, and it is also an opportunity for the parties that did not previously apply for leniency to consider the merits of making a last-minute application. There would not normally be a reason to decline exploring a settlement, as such declarations do not imply any admission of liability and a party, like the Commission, remains free to walk away from the exploratory discussions. Parties have no right, and also no obligation, to settle.

Bilateral discussions to explore settlement

If a sufficient number of parties declare an interest in exploring a settlement, the Commission may decide to pursue the settlement procedure. This would be done by way of bilateral discussions between the Commission’s services and the parties concerned. Confidentiality around the content, and even existence, of these settlement discussions is key. The discussions are bilateral and confidential with each of the parties that are exploring settlement.^[28]

The Commission clearly leads these discussions. It retains full discretion with respect to, for instance, the order and sequence of discussions, or the timing of the disclosure of information (including evidence on the Commission’s file).^[29]

In substance, the settlement process is mainly conducted verbally and covers three main areas. During the first meeting, the Commission’s staff shares its analysis of the case such as it stands at that stage of the proceedings. The party is given a ‘case overview’ comprising essential elements of the Commission’s case, such as the facts alleged and their legal classification.

To form its own view, the party is then given access to non-confidential versions of specific key documents on the Commission’s case file.^[30] In this regard, the Commission discloses the evidence that forms the basis of the case overview (essentially, such documents that would be relied upon in support of an SO adopted in the standard procedure).

The settlement candidate may also access additional evidence following a motivated and reasonable request, on the basis of a list of non-confidential versions of documents available in the case file. But there are certain procedural limitations, compared with standard cartel proceedings: settling parties do not have access to the full case file and will not be able to request an oral hearing. However, they may call upon the Commission’s Hearing Officer^[31] at any time during the settlement procedure in relation to issues that might arise relating to due process.

As part of the discussions, the party will be given opportunities to express its views on the Commission’s analysis orally and may also make written submissions. As a result, the Commission may or may not alter its analysis (for instance, as regards the scope, duration or gravity of the infringement attributed to a party). In this regard, the Commission adamantly maintains the position that the settlement procedure does not involve ‘negotiations’ over the existence of an infringement or the appropriate sanction.

In a second settlement meeting there is the possibility of reaching a common understanding on the nature and scope of the suspected cartel. If this is achieved, the meeting will also cover the value of the party’s affected sales that could form the basis for the fine. That is very clearly a critical theme of settlement discussions, which to a great deal is driven by the preceding discussion on scope. Although these topics would be addressed in one and the same meeting, the discussion should be well prepared by the party as well as the Commission’s staff.

The main topic to be addressed in the third meeting is that the Commission will explain the range of fine that it envisages imposing on the party as well as the main criteria used to establish that range.^[32] In this regard, the Commission’s general approach to fine calculation is set out in the Guidelines on Fines, and the party may also be entitled to reductions under the Leniency Notice and, if settlement talks conclude successfully, the Settlement Notice. The Commission must follow this framework and give explanations for any deviations.^[33] The final decision must set out clearly the methodology used to determine the fines imposed on each party,^[34] and it is equally important that the party is properly informed of the approach during the settlement discussions and has the opportunity to make its views known.^[35]

Settlement discussions address the three themes in sequence, and the Commission will avoid discussions on the amount of the fine until a common view on the scope of the infringement has been reached.^[36] The last point at which the party can decide to opt out of the settlement discussions is before it makes the settlement submission, which is formally binding on the firm.

Similarly, the staff do not have powers to bind the Commission in the determination of the fine. This, and the fact that the settlement discussions are part of the process to prepare a final settlement decision, explains why the discussion concerns a range of fines, rather than a specific value. In addition, the ranges of fines for other investigated enterprises are not disclosed to settlement candidates. If the party later makes a settlement submission, it is required to clearly state the maximum level of fine that it accepts.

Introducing settlement submissions

If the bilateral discussions are productive (i.e., the Commission and settlement candidate reach a common understanding on the scope of the potential objections and the estimated range of likely fines), the Commission invites the relevant settlement candidates to submit binding settlement submissions. However, such an invitation presupposes that the Commission is satisfied, on a preliminary basis, that a settlement would result in sufficient procedural efficiencies. The parties must then respond to the invitation within a set (but extendable) time limit of at least 15 working days.^[37]

Settlement submissions may be made orally or in writing.^[38] A submission should reflect the outcome of the bilateral settlement discussions and must contain the following five items:

• acknowledgment – in clear and unequivocal terms – of the firm’s liability for the infringement, which is summarily described as regards:
  • its object;
  • its implementation (if applicable); and
  • its main facts (and their legal qualification), including the firm’s role and the duration of its participation in the infringement;
• indication of the maximum amount of the fine the party expects the Commission to impose and that it would accept in the framework of a settlement procedure;
• confirmation by the party that it has been sufficiently informed of the objections the Commission envisages raising against it and that it has been given sufficient opportunity to make its views known to the Commission;
• confirmation by the party that, in view of the above, it does not envisage requesting access to the file or requesting to be heard again in an oral hearing, unless the Commission does not reflect its settlement submission in the SO and the decision; and
• agreement to receive the SO and the final decision in an agreed official language of the European Union.^[39]

Although these acknowledgments and confirmations constitute an expression of the party’s commitment to cooperate in the expeditious handling of the case, they are conditional upon the Commission meeting the settlement request, including the anticipated maximum amount of the fine. However, a party cannot unilaterally revoke a settlement submission unless the Commission fails to meet the settlement requests by adopting an SO that reflects the settlement submissions and, ultimately, a final decision.^[40]

A ‘settled’ SO and streamlined decision-making process

In the settlement procedure, the SO contains a summary of the Commission’s objections and is considerably less detailed than in the normal procedure. In essence, the objections raised with respect to a settlement candidate should reflect its settlement submission,^[41] which, in turn, is the result of the bilateral discussions. Accordingly, where this is the case, the parties are only expected to reply to it (within a set period of no less than two weeks) by simply confirming (in unequivocal terms) that the SO corresponds to the settlement submission and it therefore remains committed to following the settlement procedure. Thereafter, the final decision is adopted by the Commission, following consultation of the Advisory Committee with representatives of the Member States and the Hearing Officer.

Fines and other remedies

The main remedy in standard as well as settled cartel probation decisions is fines imposed on each of the parties found to have participated in the infringement of Article 101 TFEU. As noted, the fines are calculated pursuant to the Guidelines on Fines, and the amount that a party is ordered to pay may be reduced pursuant to the Leniency Notice. In addition, parties that have settled will be granted a ‘settlement reward’: after application of the Guidelines on Fines and the Leniency Notice, the fine will be reduced by another 10 per cent.^[42] This is a guaranteed level of discount for all settling parties, unlike in non-cartel cooperation procedures in which the level of the reward is not fixed and depends on an ad hoc assessment.

Although the Commission has powers to impose behavioural and structural remedies in all prohibition cases, decisions in standard or settled cartel cases typically include a simple order to the effect that the parties ‘shall immediately bring to an end the infringement . . . insofar as they have not already done so’ and ‘shall refrain from repeating any act or conduct [prohibited by the decision], and from any act or conduct having the same or equivalent object or effect’.

‘Hybrid’ process and abandonment of the settlement procedure

Not all investigated parties need to participate in a settlement procedure. In other words, it is possible for the Commission to proceed with a ‘hybrid process’ that is bifurcated into a ‘standard’ procedure for certain parties and a ‘settlement’ procedure in respect of settlement candidates.^[43] However, the Commission has explained that it will at least initially seek to apply the settlement procedure to all parties to a case with a view to realising procedural efficiencies.

A hybrid case can ensue when (1) not all parties accept an invitation to explore settlement; or (2) one or more settlement candidates opt out of the settlement process. In the first scenario, the Commission may consider that procedural efficiencies will not be achieved unless all parties are willing to settle. In the second scenario, the Commission could decide to continue exploring settlements with all remaining settlement candidates. In either scenario, the standard process will be followed for the parties that do not pursue settlement. In deciding whether to continue with a hybrid process, the Commission will take into account the number of parties opting out, the reasons and timing, and the effects that such decision will have in the still-settling candidates to continue through the settlement process.^[44]

In a hybrid case, the Commission will issue separate prohibition decisions addressed to the settling and non-settling parties. Those decisions will naturally be adopted after different procedural steps and, typically, the decisions will be ‘staggered’ such that the standard decision will be adopted some time after the settlement decision. Since the non-settling parties have not participated (at least not fully) in the settlement process, and yet have been found to have participated in the same infringement of Article 101 TFEU as the settling parties, important questions arise as to how the bifurcated processes are conducted and how the conduct of the non-settling firms is characterised in the settlement decision.

In appeals against decisions adopted under hybrid procedures, brought by non-settling parties, the EU courts have upheld the validity of the Commission’s staggered hybrid settlement practice. However, the courts have emphasised that, in such proceedings, the Commission must pay specific observance to the principles of equal treatment,^[45] presumption of innocence and objective impartiality.^[46]

The Commission’s objective with the introduction of the cartel settlement procedure is to achieve procedural efficiencies; that is, to ‘benefit from a quicker, more efficient procedure’.^[47] The Commission may thus decide to discontinue the settlement process altogether if it perceives a lack of progress or an impossibility to reach a common understanding regarding the existence and scope of the cartel.^[48] In such circumstances, the investigation will continue for all investigated parties under the standard cartel procedure.^[49]

Key considerations when exploring cartel settlements

In addition to the process aspects described above, there are several additional considerations that parties contemplating cartel settlements should bear in mind. These include, in particular, the following.

• The Commission leads the process: settlement is not a negotiation undertaken with a view to finding agreement on the least common denominator for liability or fines. The process is geared at efficiency and, overall, to increase the Commission’s enforcement activity. The Commission adamantly maintains that settlement is not a form of negotiation and, if the results do not align to the policy objectives of the process, it maintains the right to revert to the standard process.
• Settlement, not leniency: the Commission’s leniency policy is a fact-finding tool that awards parties reductions of fines in exchange for active cooperation (in particular) at the early stages of an investigation. Settlement is a tool to bring an investigation to an end in an expedient manner. Settling parties are rewarded with a fine reduction for facilitating such expediency.
• Explore a settlement genuinely: the settlement process places high demands on the Commission staff and parties exploring settlement, as well as their counsel. When all parties prepare well, and commit the time and resources that are required, a settlement will often be beneficial to both sides. That does not necessarily mean full acceptance of every nuance of assessment, but it does involve recognition that the settled resolution on balance is to be preferred over a standard resolution.
• The standard process as fall-back: in some cases, parties retain fundamental disagreements with, for instance, the role that the Commission and other parties ascribe to them in an investigation. It may be important to a party to retain maximum scope to seek an appeal against an adverse decision. There is no prospect of achieving alignment with the Commission on the basic premises of a settlement. This is understood and accepted by the Commission and by the courts: there is no obligation and no right for anyone to settle.
• Duration of proceedings: the settlement procedure will be shorter than a normal procedure by an average of one year. Parties may find it attractive to conclude resource-intensive Commission proceedings by way of the accelerated procedure. Parties that applied for immunity or leniency during the fact-finding stage of investigations, and thereby acknowledged key facts pertaining to their respective involvement, may find this a compelling argument. However, settlement involves unequivocal acknowledgment of legal liability, and a ‘quick’ settlement decision also means that the addressees of that decision can find themselves exposed to civil litigation sooner than had they opted for the standard process.
• Limited grounds of appeal: settling parties need to acknowledge liability and also that their fundamental procedural rights have been sufficiently respected in the truncated settlement process. While parties that settle do not give up their right to appeal to the EU’s General Court against a settled decision, the acknowledgements given in the settlement submissions do limit the grounds of appeal.^[50]
• Civil proceedings: decisions adopted following the cartel settlement procedure are relatively brief (often between 20 and 40 pages) and consequently include considerably less information compared with those adopted under the standard procedure.^[51] Consequently, settlement decisions contain less detail that might be useful to plaintiffs in follow-on civil proceedings before EU Member State courts. However, the decisions confirm that the settling parties unequivocally acknowledged liability for the infringement described in the decision.
• Criminal proceedings: EU law does not confer criminal enforcement powers on the Commission. Moreover, EU competition law is directed at ‘undertakings’, rather than individuals, which, for instance, means that liability to pay fines imposed by a Commission decision falls upon the parties to which those decisions are addressed. Cartel settlement proceedings may nevertheless affect the position of individuals against whom criminal proceedings have been (or may be) taken in EU Member States. Before acknowledging corporate liability under EU competition law, a settlement candidate should consider carefully what impact the acknowledgment may have on any criminal proceedings.

Notes