European Union: Cartels and Leniency

Introduction

While the number of cartel cases ¹ and the total amount of fines imposed in relation to them significantly decreased over the last year to less than half of the €1.9 billion imposed in 2017, ² the European Commission (the Commission) is still as committed to its fight against cartels. This chapter will provide an insight into recent developments in the fight against cartels in the European Union, including:

• the determination of parental liability in cartel cases, in relation to both the public and private spheres of enforcement;
• relevant case law in relation to hybrid settlement proceedings in the last year;
• developments in appeals against disclosure and publication of documents by the Commission;
• the EU courts’ assessment of fines; and
• new tools to facilitate the use of leniency programmes.

Parental liability in cartel cases and implications for follow-on damages claims

Over the last year, questions relating to parental liability in both public and private enforcement and forum shopping in private damages claims were raised before the EU courts: the latter was in the form of a request for a preliminary ruling from a Hungarian Court.

First, as regards the private enforcement of competition law, the Court of Justice of the EU (CJEU) recently handed down an important preliminary ruling for private actions deriving from anticompetitive conduct in its judgment Skanska Industrial Solutions. ³ Following AG Wahl’s opinion, ⁴ the CJEU resolved the fundamental question of whether the principle of economic continuity applies to private enforcement of competition rules in the same way as public enforcement, finding that the determination of a parent company’s liability for follow-on damages is governed by EU law.

The Finnish Supreme Administrative Court fined three companies for their involvement in a cartel in the asphalt market in Finland. These three companies had each, during the infringement period, acquired one other cartel participant and continued their economic activity.

In the context of damages claims under Finnish law, only the legal entity that caused the damage is liable. The question arose whether, in determining the person responsible for payment of compensation in antitrust damages, the Finnish court should apply its national law or EU law.

The CJEU ruled that the concept of ‘undertaking’ is an autonomous concept of EU law, and cannot have a different scope with regard to the imposition of fines by the Commission as compared with actions for damages. Following the principle of economic continuity, the CJEU clarified that cartel damages cannot be avoided by the new owner of a company, which was involved in cartel conduct, through corporate restructuring. As a result, the liability of parent companies may be also presumed for damages cases if the undertakings belong to the same economic unit under the same conditions as the AkzoNobel test. ⁵

Separately, the outcome of another request for a preliminary ruling is expected in relation to forum shopping in damages claims. The request comes from a Hungarian Court, where, following the Commission Decision in the Trucks cartel, indirect purchasers of trucks claimed damages against one of the truck companies, DAF. The Hungarian logistics and freight-forwarding company, Tibor-Trans, argued that it suffered loss through the higher prices charged by the distributors (the so-called ‘pass on’ damages). However, DAF questioned whether Tibor-Trans, who are only an indirect purchaser of trucks (it entered into financial leasing arrangements with DAF rather than purchasing the trucks directly), had standing, despite none of the sanctioned conduct having taken place in Hungary. The Hungarian court is therefore asking whether it has jurisdiction if the anticompetitive behaviour took place outside Hungary and whether the fact that there is no contractual relationship between the parties is relevant. With damages litigation becoming the norm in numerous countries, the ruling will likely be informative on the issue of forum shopping in damages claims.

Second, as regards the public enforcement of competition law, the General Court of the EU (GC) has further developed well-established case law on parental liability, by holding institutional investors liable for the involvement of companies they own in cartel conduct (even where such investors have less than a 100 per cent shareholding). ⁶ Separately, the question of the method used when attributing parental liability was recently challenged on appeal to CJEU by Pirelli & C. SpA (Pirelli). ⁷

On 12 July 2018, the GC handed down 12 judgments relating to the Commission’s decision in the submarine power cables cartel. ⁸ The Commission imposed a fine on 11 producers of underground and submarine high voltage power cables for operating a cartel between 1999 and 2009. The ownership of one of the cartelists, Prysmian and Prysmian Cavi e Sistemi Energia (Prysmian), changed during the infringement period: Prysmian was first owned by Pirelli until 2005, and then by Goldman Sachs Group Inc. (Goldman Sachs).

In one of the judgments from July 2018, Goldman Sachs v Commission, the GC upheld the Commission’s decision to hold Goldman Sachs jointly and severally liable with its direct subsidiary Prysmian for its participation in the power cables cartel, despite Goldman Sachs’ claim that it was exclusively a financial investor.

The GC held that the Commission correctly applied the presumption of decisive influence originally set out in AkzoNobel ⁹ for companies with a 100 per cent shareholding in their subsidiaries, even if Goldman Sachs owned less than 100 per cent shareholding. The Commission was right to presume, based on Goldman Sachs’ economic, organisational and legal links with Prysmian, that Goldman Sachs was in a similar position to that of the sole owner and did in fact exert a decisive influence over Prysmian’s market conduct. ¹⁰ The GC confirmed that the AkzoNobel presumption could also apply to financial investors, such as investment banks like Goldman Sachs or private equity companies, if they hold more than a ‘pure financial investment’. Financial investors will have to demonstrate on a case-by-case basis that their investments in companies are purely financial and that they do not have voting rights or other means of exerting decisive influence over these subsidiaries.

In the same Power Cables application for annulment, the GC also rejected the legal challenge brought by another of Prysmian’s parent companies, Pirelli, which was held jointly and severally liable for Prysmian’s conduct and therefore fined in respect of a different infringement period than Goldman Sachs. However, while Goldman Sachs did not own 100 per cent of Prysmian’s shares, Pirelli did. In July 2018, the GC confirmed the Commission’s findings, dismissing Pirelli’s claims that the Commission had wrongly applied a presumption of decisive influence based on Pirelli’s 100 per cent ownership.

In September 2018, Pirelli brought an appeal to the CJEU, claiming, in its appeal, that the GC disregarded its arguments relating to alleged unequal treatment compared to Prysmian’s other parent company, Goldman Sachs. The Commission established Pirelli’s parental liability solely on the basis of the presumption of decisive influence and assumed that Pirelli exercised decisive influence not only over Prysmian’s commercial policies, but also over its specific anti-competitive behavior. According to Pirelli, the Commission should have applied the dual basis test, as it had done with Goldman Sachs: firstly by establishing the presumption of decisive influence; and secondly by demonstrating, based on economic, organisational and legal links with Prysmian, that Pirelli did in fact exercise decisive influence over Prysmian’s conduct. Pirelli argued that, by failing to do so, the Commission had breached the principle of equal treatment. We will soon learn whether the CJEU will accept Pirelli’s argument, but the Court is likely to consider that – given Pirelli’s 100 per cent shareholding in Prysmian – the Commission correctly established its parental liability based on the AkzoNobel presumption.

Staggered hybrid settlement procedures: the presumption of innocence for non-settling parties

When the Commission decides to reach out to the investigated parties offering them the possibility of settling the case, some of the investigated parties may choose to engage in settlement discussions while one or more of the others may decline to enter into such discussions (or opt out of the settlement procedure at a later stage). In that case, the Commission may decide to opt for a ‘hybrid’ procedure, following the standard adversarial procedure for parties that have decided not to settle, while following the settlement procedure in relation to those who wish to engage. However, a time lag may occur between the two procedures (settlement and adversarial). In particular, the Commission may adopt the settlement decisions before it issues its decisions in the adversarial procedure against the non-settling parties (ie, ‘staggered hybrid settlement cases’). Where this is the case, issues may arise relating to the impartiality of the Commission and the rights of defence for the non-settling parties, as in the ICAP and Pometon cases. ¹¹

Both cases have similar fact patterns but there are significant differences in the approach adopted by the court. In ICAP, the GC’s starting point was to remind the Commission that the right to the presumption of innocence is a fundamental right enshrined in the EU Treaties, which needs to be properly safeguarded, and suggested that the Commission would be wise to refrain from carrying out staggered hybrid settlement cases. In Pometon, by contrast, the GC found that there is no provision of EU law that obliges the Commission to issue the settlement decision together with that of the non-settling party and that the right to withdraw from settlement procedures does not confer it with an irrefutable presumption of innocence. ¹²

The issues of presumption of innocence and rights of defence in both the ICAP and Pometon cases arose from the fact that in the relevant cartel investigations (Yen Interest Rate Derivatives (YIRD) ¹³ and Steel-abrasives ¹⁴ respectively), the Commission adopted settlement decisions first, mentioning the non-settling parties (ie, ICAP and Pometon), before adopting a decision against ICAP and Pometon in the context of the adversarial procedure. This approach therefore raised the question whether, by the adoption of the settlement decision, the Commission had effectively already prejudged the outcome of the adversarial procedure.

Both Pometon and ICAP applied for an annulment of the Commission decision, and claimed that by referring to them in the description of the facts in the relevant settlement decisions, the Commission had breached the presumption of innocence and their rights of defence, and lacked impartiality. In both rulings, the GC confirmed the principle that in hybrid settlement cases, the Commission must take the necessary measures to ensure that the presumption of innocence of the non-settling party is safeguarded. However, there are significant differences in the way the GC dealt with this issue in each of the cases.

The GC judgment on ICAP’s application for annulment of the Commission’s YIRD decision in November 2017 held that the Commission had breached ICAP’s presumption of innocence, by mentioning it and its role as a facilitator in the 2013 settlement decision. The GC concluded that although the Commission had not included ‘as such a legal classification’ against ICAP, it clearly showed ‘its position on ICAP’s participation in the unlawful conduct’, ¹⁵ and that it ‘had already made a formal finding that ICAP had participated in six infringements of Article 101 TFEU’ when it adopted the settlement decision. ¹⁶ The GC reminded the Commission that the presumption of innocence is a fundamental right, which cannot be ‘distorted’ on the basis of ‘efficiency and rapidity of the settlement procedure’. ¹⁷ The GC went further and suggested that the Commission should consider issuing the decision for all cartel participants at the same time whenever there is a risk that the adoption of a staggered approach could compromise the non-settling parties’ presumption of innocence. ¹⁸ However, on the facts, the GC decided not to annul the Commission’s decision on these grounds.

By contrast, the way in which the GC analysed the issue of a possible breach of Pometon’s presumption of innocence differs significantly from that followed in ICAP. In 2016, the Commission fined Pometon for its participation in the Steel-abrasives cartel. Pometon was the only non-settling party. Pometon challenged the decision, arguing, amongst others, that the Commission had breached its presumption of innocence and lacked impartiality. However, the GC rejected Pometon’s claim. The GC considered that although the settlement decision, which mentioned Pometon, had been adopted before the decision in the adversarial procedure, it did not legally define the facts attributed to Pometon. On that basis, the GC held that the mere fact that the Commission had adopted this approach was insufficient in and of itself to conclude that, at the time of the issuance of the settlement decision, the Commission had already prejudged Pometon’s liability for the infringement. ¹⁹ In particular, the GC found that while the Commission must take all necessary precautions to avoid mentioning the non-settling party in the settlement decision, it is not prohibited from doing so if it takes all the necessary precautions to ensure that this does not affect the procedural guarantees of the non-settling party in the adversarial procedure. ²⁰ The GC then proceeded to review each of the references to Pometon in the settlement decision, taking into account the wider context of an investigation procedure. It found that the inclusion of references to Pometon in the settlement decision was inevitable and that those references were necessary to gain a complete and detailed description of the facts of the cartel under analysis. ²¹ Additionally, the GC held that the right of a company to opt out of the settlement process does not grant it irrefutable presumption of innocence ²² and there is no provision of EU law that obliges the Commission to issue the settlement decision together with that of the non-settling party. ²³

By finding that the Commission can mention the non-settling party in the settlement decision before it adopts a decision against that party within the context of the adversarial procedure, without breaching the latter’s presumption of innocence, the GC somehow shifts the burden of proof: the non-settling party has to demonstrate that the references to it in the settlement decisions are unjustified. Given that cartel cases are very fact based, including references to a non-settling party in a settlement decision, even if in its factual description, is liable to make it very difficult in practice for such party to defend itself properly from these facts and reverse any negative position the Commission may have adopted in the course of the adversarial procedure.

Developments in appeals against Commission disclosure and publication

Hybrid settlement cases have, in recent months, also raised issues around disclosure of settling parties’ documents, notably in Lantmännen and Lantmännen Agroetanol v Commission in the hybrid settlement bioethanol cartel probe, the outcome of which remains to be seen. ²⁴

Alcogroup (a non-settling party) requested, and was granted, access to documents exchanged between Lantmännen (a settling party) and the Commission during the settlement process. In the GC, Lantmännen’s application for an interim order to prevent the Commission from sharing such documents was rejected on the basis that it had not shown that the documents were confidential or could cause serious, irreparable harm to the company. The outcome of Lantmännen’s appeal of this judgment to the CJEU, filed on 18 April 2019, remains to be seen. Lantmännen’s concerns include fears that the information in the documents could be spread to third parties, increasing the risk of damages claims.

In another case this year concerning disclosure of the Commission decision itself, the CJEU rejected the applicants’ claims for interim orders preventing publication. ²⁵ On 21 March 2019, the CJEU rejected Crédit Agricole and JPMorgan Chase’s claims for an interim order to prevent the Commission from publishing a detailed public version of its decision in the Euribor cartel. In particular, the banks claimed, citing Pergan, ²⁶ that publication of the decision pending the outcome of their appeals would breach the presumption of innocence. The CJEU, however, confirmed the GC’s conclusion that the applicants’ situation was not comparable to that of the applicant in Pergan. ²⁷

It will be instructive to compare and contrast the reasoning in the two appeals when the outcome of the Lantmännen appeal emerges.

The importance of sufficiently justifying a fine and the application of the principle of proportionality

In 2018, the EU courts issued important judgments in Stührk Delikatessen, Infineon and Pometon in relation to fines. ²⁸ These judgments (i) stress the importance of carrying out a thorough assessment of the method to be applied when setting fines, the effective application of the principles of proportionality and equal treatment and the duty to state reasons; and (ii) in line with the criteria set out in previous cases, remind the Commission of the importance of justifying fine amounts in a detailed manner when applying paragraph 37 of the Fining Guidelines. ²⁹

In July 2018, the GC annulled the €1.1 million fine imposed on Stührk Delikatessen Import (Stührk) by the Commission ³⁰ for failure to sufficiently state reasons in applying paragraph 37 of the Fining Guidelines ³¹ and for breaching the principle of equal treatment. The main issue was the arbitrary adjustment of the fine in the Commission’s application of paragraph 37 of the Fining Guidelines.

The Commission applied the 10 per cent cap to all the cartel participants, which were monoproduct companies, and, to take account of the individual participation of each of the cartelists in the infringement, ³² applied different reduction rates by applying paragraph 37 of the Fining Guidelines (70 per cent to Stührk, and 75 per cent and 80 per cent to the other undertakings). The GC found that the Commission’s reasoning for applying such reduction rates, which were different for each company, was not clear – it had not justified its granting of a smaller reduction rate to Stührk. The GC found that it could not be established from the Commission decision whether the undertakings concerned were in comparable or distinct situations and whether the Commission granted them equal or different treatment; and that, contrary to what the Commission had argued, the undertakings concerned appeared to be in different situations. ³³ The lack of clarity in the Commission’s reasoning left the defendant unable to effectively challenge the decision on the basis of the principle of equal treatment, and put the GC in a position in which it could not review the correct application of this principle. ³⁴ The GC therefore concluded that the decision was vitiated by an insufficient statement of reasons and, on these grounds, annulled the Commission decision in relation to the fine. ³⁵

More recently, in March 2019, the GC reduced the €6.2 million fine imposed by the Commission on Pometon to almost €3.9 million. ³⁶

The Commission applied paragraph 37 of the Fining Guidelines based on Pometon’s individual participation in the infringement and granted Pometon an exceptional reduction, similar to the one granted to the other four undertakings concerned in the settlement decision, in order ‘to observe the principle of equal treatment’. ³⁷ The GC considered that the Commission did not sufficiently explain in its decision whether Pometon was in a similar or distinct situation to that of the other undertakings that had participated in the cartel, and that it was therefore not possible to establish whether the principle of equal treatment had been objectively applied. ³⁸ The GC concluded that the insufficient statement of reasons vitiated the Commission decision.

In Pometon, the GC went further and recalculated the fine. The GC exercised its power of unlimited jurisdiction ³⁹ and, based on the data provided by the Commission during the court proceedings, granted an exceptional reduction rate of 75 per cent of the basic amount of the fine. ⁴⁰

These cases oblige the Commission to justify fine amounts with a more detailed reasoning when applying paragraph 37 of the Fining Guidelines. Alleging ‘the particularities of a given case’ 41 is not sufficient. The Commission must specify its reasoning to allow both the undertakings and the court to understand the reasoning the Commission has followed. This is essential for the alleged participant in the cartel to best exercise its rights of defence, and for the GC to exercise its duty to review the legality of Commission decisions.

In another case, in September 2018, the CJEU quashed the GC’s previous judgment in the case Infineon v Commission ⁴² and referred it back to the GC. Infineon was fined €82.7 million by the Commission on September 2014 for its participation in the smart card chip cartel. ⁴³ On appeal, the GC upheld the Commission’s decision and dismissed all of Infineon’s pleas in law. ⁴⁴ However, the CJEU disagreed with the GC’s approach.

Before the CJEU, Infineon claimed that the GC had made a manifest error of assessment by analysing only five of the 11 contacts referred to by Infineon in its appeal, leading it to an insufficient statement of reasons in its assessment of the reduction of the fine granted by the Commission. ⁴⁵ The CJEU found that the GC had made an error of law since, even though it confirmed that Infineon only participated in five of the 11 contacts attributed in the Commission’s decision, it failed to adjust the fine proportionally to such small number of contacts. Nor did the GC set out the reasons as to why it did not conduct such a review. ⁴⁶ Finally, the CJEU returned the case to the GC for a reduction in the fine, taking into account ‘all the relevant circumstances’ and the proportionality of the fine. ⁴⁷

The need for the Commission to comply with the principles of proportionality and equal treatment when it sets fines is trite law. However, it will be interesting to review the judgments of the CJEU on the pending appeals in these matters in relation to the obligation to provide the fine methodology when the Commission applies paragraph 37.

Recent developments in leniency

While leniency applications before the European Commission continue dropping – from 46 applications in 2014, to only 18 in 2017 ⁴⁸ – the Commission has embarked on a mission to make leniency applications easier. Two years after the launch of the anonymous whistleblower tool, which allows individuals to anonymously inform the Commission of the existence of cartels and other infringements of competition law, the Commission has put in place an online tool to make it easier for companies to submit leniency applications.

On 19 March 2019, the Commission made the eLeniency tool available to those interested in applying for leniency. The goal is to facilitate the submission of leniency applications and oral corporate statements, which traditionally need to take place at the Commission premises. The eLeniency tool is not an exclusive tool for cartel proceedings; it can be used in any antitrust proceedings in which a company wishes to cooperate with the Commission. This tool will be secured to ensure the confidentiality of the communications with the Commission; and importantly, companies submitting documents through the eLeniency system will be protected by the same legal guarantees and protection as in the previous system, meaning that corporate statements will not be disclosed to civil claimants.

The situation is different at national level, where some national competition authorities (NCAs) are receiving more leniency applications, while at the same time seeing their enforcement powers boosted by the ECN+ directive. ⁴⁹

The ECN+ makes the ECN instruments legally binding on NCAs and introduces some improvements to guard against the legal uncertainties companies face that disincentivise them from applying for leniency. Member states are now obliged to put in place a marker system. ⁵⁰ Additionally, the ECN+ guarantees the confidentiality and non-disclosure of leniency applications by obliging NCAs to ensure that they cannot disclose the leniency statements submitted as part of a leniency application. ⁵¹ The ECN+ also ensures protection for individuals in administrative and civil proceedings as regards their participation in the cartel covered by the leniency application.

As regards potential sanctions in criminal procedures against individuals, ECN+ allows member states to either grant full immunity to individuals for their participation in the cartel or mitigate the sanction by balancing the public interest in prosecuting them with the level of cooperation with the NCA.

However, the ECN+ is far from the one-stop-shop system for Europe-wide leniency applications that companies were hoping for. Indeed, cases such as DHL ⁵² showed the great need for a harmonised leniency system. ⁵³ Now, under the ECN+ Directive leniency applicants who submit a full application to the Commission may submit summary applications to NCAs, if their application covers more than three member states. However, the summary application must still have the same scope in relation to the product, geography and duration as the full leniency application submitted to the Commission. ⁵⁴

It is unclear if the new tools launched by the Commission will result in an increase of leniency applications. What is certain, however, is that the new system established by the ECN+ will be a step forward in ensuring legal certainty for leniency applicants across the EU.

Notes