Germany: Addressing the Power Dynamic

In summary

The German Federal Cartel Office (FCO) continues to be an active, sophisticated and efficient enforcement authority. Fines rose to €848 million overall in 2019, and in 2020 the FCO imposed overall fines of €358 million. Against the continued steep rise in private follow-on cartel damages claims, the number of leniency applications and dawn raids has declined. Most cartel cases are settled rather than appealed as the FCO and undertakings both aim to avoid lengthy and burdensome oral hearings in court. Undertakings may also fear their fine could be substantially increased by the Appeals Court. In an important development for the balance of power in settlement negotiations, three Appeals Court judgments have been annulled by the Federal Court of Justice. Two of the Appeals Court judgments had increased the FCO’s fine considerably. The amendment of the Act against Restraints of Competition adopted in January 2021 has changed various features of the cartel procedure.

Discussion points

• Trends in cartel enforcement in respect of the FCO, leniency and settlements
• Appeals Court proceedings and impact on undertakings’ willingness to settle or appeal
• Damages claim against the FCO for alleged discrimination in the leniency procedure
• Impact of pending changes to procedural law in antitrust cases

Referenced in this article

• Confectionery cartel proceedings
• Liquid gas cartel proceedings
• Rossmann case
• Beer cartel proceedings
• Sausage gap
• 10th amendment to the Act against Restraints of Competition

Germany’s Federal Cartel Office (FCO) is a very active, efficient and sophisticated enforcement authority. It has proactively picked up various matters and, not infrequently, has been a front­ runner in Europe with its enforcement. It operates in a legal setting where substantive and procedural laws are reviewed and amended regularly. There have been four fundamental reforms of the Act against Restraints of Competition (GWB) since 2005.^[1]

Because antitrust fines can only be based on substantive law that was in force at the time the competition law infringement was committed, most of the cases pending before or decided by German courts and the FCO nowadays are still dealing with former versions of the GWB; therefore, to understand the enforcement trends and precedents of the reporting period, some background information is essential. We then touch on numbers and trends in fining decisions issued by the FCO and leniency applications. We highlight the most relevant cartel fines cases that have gone to appeal and report on a damages claim against the FCO for allegedly having triggered leniency applications in a discriminatory way, the state of the famous sausage gap and the first judgment of a civil court on the liability of board members for the company’s cost incurred for paying the cartel fine.

Finally, the German parliament passed the long-awaited 10th amendment to the GWB (referred to as the GWB Digitalisation Act) in January 2021.^[2] We, therefore, also touch on what to expect in cartel procedure in the coming years.

Background: particularities of German cartel enforcement procedure

German cartel enforcement – be it enforcement of article 101 of the Treaty on the Functioning of the European Union or the German equivalent in section 1 of the GWB – follows the procedural rules of criminal enforcement. Other than the European Commission, the FCO needs to address (and may fine) at least one individual in a leading position who has either been participating in the cartel activity or has (negligently or intentionally) not fulfilled supervision obligations (instruction, organisation and control), thereby facilitating an infringement committed by an individual acting for or on behalf of the undertaking.

No fine can be imposed if the individual’s cartel conduct cannot be identified. In practice, the FCO fines between one and three individuals from senior management as well as the undertaking (provided that their involvement can be proven).

If a company files for leniency, it usually includes those individuals who have acted for the company, thereby extending the leniency benefits to them. Any individual can, in principle, blow the whistle and request leniency just for himself or herself, although this rarely happens.

If the cartel activity concerns tenders, individuals involved are subject to criminal sanctions according to the Criminal Code, instead of just an administrative fine. In those types of cases, a leniency application will not relieve the individuals of pending criminal sanctions.

Individuals’ contributions to the cooperation are likely to be taken into account, however, when determining the criminal sanction for the individual concerned. If an individual is to be criminally prosecuted, the FCO will go after the undertaking, and the criminal prosecution services will target the individual; both authorities can work in parallel or consecutively. A recent example is the technical building services cartel, in which the FCO ended its proceedings by imposing fines on undertakings while the criminal proceedings pursued by the prosecution service in parallel against the individuals had not yet been concluded.

Only since June 2005 has the FCO had the power to impose sanctions of up to 10 per cent of the overall group turnover. Prior to that, it could impose sanctions above €1 million against under­takings only, if it could prove a ‘cartel surcharge’. In practice, this has mostly induced the FCO not to sanction cartel conduct before 2005 to avoid the (massive) burden of proving the cartel surcharge. That topic is, nowadays, only relevant for private enforcement, where it is key.

Infringement decisions of the FCO can only be contested in front of the Higher Regional Court of Düsseldorf’s specialist cartel senates (the Appeals Court). Unlike the EU courts, the Appeals Court will not merely review whether the fining decision was justified and whether the FCO has stayed within the scope of its discretion; the Appeals Court must apply the standard of criminal proceedings and, therefore, must establish every single fact in a public hearing, including full witness hearings.

Cartel appeal trials are, therefore, quite burdensome on all parties; they usually take between 20 and 50 days in court – in extreme cases, they can take up more than 100 hearing days^[3] (former examples include 136 days in the liquid gas cartel).^[4] This procedural situation combined with the possibility of the Appeals Court to increase the fine (reformation in peius) has been a strong incentive for undertakings to settle rather than to take the case to court or to withdraw the appeal.

A prominent example is the beer cartel, in which the FCO had fined six undertakings a combined total of €336 million. Two undertakings appealed. One of them, Radeberger brewery, withdrew its appeal against a €154 million fine the day before the hearing was scheduled for fear that its fine could soar to €1 billion, should its appeal not succeed.^[5]

In the following sections, we highlight some of the cases and exceptions to that rule. The examples explain how those cases have affected the balance of power between undertakings and the FCO when negotiating settlements and deciding whether to appeal the case.

Proceedings and fines at FCO level: number crunching

While the number of behavioural proceedings appears to have remained more or less stable in the past few years,^[6] the number of typical hardcore proceedings in which dawn raids have been executed and the number of leniency applications, have dropped.

The overall fines amounted to a total of €358 million in 2020 involving five cartel cases and 19 undertakings. That more fines were imposed on individuals than on undertakings was a new development in 2020. The further drop in dawn raids seen, however, has been significantly influenced by the covid-19 pandemic:

The names of individuals fined and the amounts of the fines imposed on them are not published by the FCO. Hence, specific up-to-date data from the reporting period is not available. However, from the FCO’s statistics, it can be established that between 2008 and 2015, the FCO fined 328 individuals an overall amount of €24.3 million, with the individual fines ranging from €500 to €800.000.^[8]

Among the cases closed in 2019, the largest overall fine by far (€646 million) was imposed on steel manufacturers for cartelising the production of quarto plates.^[9] Fines imposed in 2020 include those on wholesalers of plant protection products for anticompetitive coordination of price lists, discounts and individual prices (€154.6 million)^[10] and on aluminium forging companies (€175 million) – among them, five undertakings and 10 responsible individuals – for engaging in prohibited agreements and concerted practices.^[11] Smaller fines have been imposed, among others, on numbers plate suppliers for anticompetitive practices in the sale of number plates (€8 million).^[12]

Like many other antitrust authorities, the FCO offers a settlement bonus of 10 per cent. The vast majority of cases – virtually all that do not go on appeal – will, therefore, be ended by way of settlement.

Owing to various factors, undertakings perceive not settling as a risky option – in particular given that the Appeals Court has significantly increased the fines in a number of cases. Furthermore, a settlement decision is relatively short compared to an ordinary fining decision and may, therefore, provide less information for cartel damages claimants; hence, an undertaking will endeavour to appeal (and not settle) only if it considers there to be a substantial chance that it could escape the fine altogether (eg, because the statute of limitation has lapsed).

Owing to the burden of the appeals procedure with a large number of oral hearing days, the FCO, in turn, has a strong incentive to settle so it can spend its resources on pursuing cartels rather than on defending its decisions in lengthy proceedings.

While an appeal may result in higher fines, if the Appeals Court finds the undertakings to be guilty, more recent procedural history has shown that the Appeals Court also sides with the applicants on substance in some cases.

Leniency: flattening the curve?

For two decades, the FCO has employed a leniency programme (inaugurated in 2000 and over­hauled in 2006). Private practitioners have frequently criticised the somewhat opaque practice that differs from case to case, depending on which unit within the FCO deals with the case, while also praising the flexibility of the FCO.

In specific cases, the impression may arise that leniency applications received after dawn raids (ie, of applicants ranked 2 et seq) may still lead to comparatively high reductions. This has triggered the speculation that the FCO may have deliberately wanted to discourage perpetrators from seeking refuge to the Appeals Court and instead enter into a settlement, thereby closing the case at that level. This type of speculation may or may not have grounds; however, undertakings that have simply done their best to reduce their fine will certainly not complain, and the FCO legitimately has no interest in having its resources tied up by many days in court.

In some respects, the reform of the law will lead to a higher degree of legal certainty for leniency applicants by incorporating the cornerstones of the leniency programme – including the possibility of placing a marker (section 81m of the GWB) – into the law, thereby making it binding for the Appeals Court as well.

It seems that the dust stirred up by the European Court of Justice’s Pfleiderer decision has settled, at least in Germany. Since 2011, when the judgment was passed, the number of leniency applications to the FCO had been increasing steadily over the years, peaking in 2015 (76 applications); however, since then, it has been constantly decreasing: 59 in 2016; 37 in 2017; 21 in 2018; 16 in 2019 and 13 in 2020.

The further drop in 2020 should not be overemphasised; it may well have been driven by the covid-19 pandemic, during which companies may have focused on other issues (and less on internal investigations and compliance measures, which typically lead to a disclosure of misconduct and subsequent leniency applications).

However, there is surely an overall nexus to the reverse trend of rapidly increasing numbers of (successful) private damages claims. Those were sparked by legal amendments some years ago, one being the rule that in a damages action, a civil court may not question whether a company participated in an antitrust infringement if the FCO has held so.

While the FCO will not pass on leniency applications and accompanying material to third parties seeking to pursue damages claims against cartelists, it will hand out the infringement decisions. The decisions may be relatively short (with often only a couple of pages on the infringement itself) if an undertaking enters into a settlement with the FCO. If not a settlement, the decisions are much longer and contain much more information on the infringement itself; however, whether that is helpful to quantify damages, for example, is a different matter.

The number of applications to the FCO to hand out infringement decisions has risen significantly over the past few years. While Parliament has laid the legal basis for damaged parties to claim information from cartelists, leaving access to the FCO’s files only as a last resort, in 2017 it had been a matter of dispute whether this new rule applies only to damages actions that are based on infringements that occurred after 27 December 2016. The 10th amendment to the GWB has now clarified that this rule shall also apply to infringements committed before that date.

Despite those developments, still more than half of all cartel proceedings are triggered by information from leniency applicants.

Appeal of fine decisions: no risk, no fun?

During the past few years, some fine decisions issued by the FCO have been appealed to the Appeals Court. The Appeals Court has – after conducting its own proceedings – substantially increased the overall fines in various cases.

Famous decisions that have led to significantly higher fines than those imposed by the FCO include liquid gas and wallpaper (overall increase to more than 130 per cent of the initial fines),^[13] confectionary products (overall increase to 150 per cent)^[14] and Rossmann (600 per cent).^[15] This reformatio in peius is compliant with German constitutional law and stems from the specific German procedural system, according to which the Appeals Court assesses all facts of the case from scratch and decides on a possible fine completely independently of the fine imposed by the FCO.

Nevertheless, those decisions of the Appeals Court increasing the fines to such an extent have been widely (and harshly) criticised by the industry and private practice as they have been perceived to hinder de facto companies in appealing against the FCO’s fine decisions (and at an earlier stage urge them into settlement agreements with the authority or to withdraw the appeal).

Moreover, whereas the FCO has issued (self­-binding) guidelines for the setting of fines, the Appeals Court is not bound by them and only has to take into account that fines cannot exceed 10 per cent of the company’s group global turnover. Criticism has been voiced to the effect that appealing a fine decision would bring a systemic change of the calculation^[16] of the fine and, therefore, automatically lead to an increase of it.

A new provision introduced by the 10th amendment to the GWB now specifies that – as in EU law – the gravity and duration of the infringement must be taken into account when determining the amount of the fine. Furthermore, other factors can be taken into account, such as the effects of the infringement and compliance efforts pre- and post-infringement.

The provisions still leave wide discretion for the courts. Moreover, the FCO has declared that its fining guidelines remain in force with regard to the amendments, thereby leaving open the question of what those may mean in practice. Substantial uncertainties remain.

In any case, the Appeals Court has also significantly reduced or even cancelled fines (eg, for lapse of time). Some of those decisions may not have received the same attention as those raising the fines.^[17] However, there have recently been some important decisions supporting the fined undertakings’ points of view, which have been perceived as a slight counter trend. The decisions show that the Appeals Court and, on further appeal, the Federal Court of Justice (FCJ) take a close look at fine decisions and that appealing can be helpful if the fined companies have substantive arguments apart from the calculation of the fine. Those developments show that appeals to cartel proceedings in Germany are alive and kicking.

Whereas the Appeals Court substantially increased most of the fines imposed by the FCO in the confectionary proceedings,^[18] the FCJ overruled the Appeals Court and remanded the proceedings to a different senate of the Appeals Court in June 2019. The FCJ held, in particular, that the Appeals Court did not sufficiently consider the defending statements of the appealing companies but, in contrast, too uncritically followed statements of crown witnesses.^[19]

The case is of specific interest to all industries and receives major attention as it concerns the limits of a lawful information exchange (in particular in meetings of industry associations), which has significant importance beyond the confectionary industry. In this case, the FCO had followed a very broad concept of the ban on cartels, which reflects paradigmatically the authority’s increased vigorous competition law enforcement over the past few years. The case is still pending.

Similarly, the FCJ quashed the Appeals Court’s judgment in the Rossmann case on the basis of a purely procedural flaw within the appeals procedure. The decision underlines the relevance of the German courts applying criminal procedural rules, which are not to be taken lightly when deciding on cartel fines.

The case was remanded to a different senate of the Appeals Court,^[20] which would have needed to fully try the case from scratch, including hearing all witnesses again. Rossmann, however, decided not to appear in court, so the Appeals Court, in 2020, dismissed the appeal, which meant that the original fine (€5.25 million) remained in force. By this means, Rossmann avoided the risk of a new increase by the Appeals Court.^[21]

Although the FCO was overruled by the Appeals Court with regard to the beer cartel, the FCJ – upon appeal of the FCO – in turn overruled the Appeals Court and sent the case back to another senate of the Appeals Court. This is one of the rare cases in which the undertaking concerned (Carlsberg) firmly held that it had not participated in the cartel at all, although a couple of leniency applicants had settled on the basis that Carlsberg had been involved in their admitted wrongdoing.

After 20 days of oral hearings, the prosecutor requested that the fine be raised from €65 million to €250 million; the Appeals Court, however, cancelled the fine. The Appeals Court was of the opinion that it was, if at all, only proven that Carlsberg had participated in a mere information exchange that had not resulted in an agreement and had, therefore, ended with the exchange of the information. Considering the statute of limitations, the Appeals Court ruled that this could no longer be prosecuted.

The FCJ ruled that based on the decision of the Appeals Court, it could not be securely determined that the absolute statute of limitations (10 years) has lapsed. It stated that a concerted practice does not need to have resulted in a specific agreement. An information exchange in itself does not suffice to find an infringement; rather the infringement also requires certain factual coordinated behaviour on the market based on that information exchange as a second element in a concerted practice.

The FCJ found the Appeals Court’s findings flawed in that there had been no consequential market behaviour. The Appeals Court should have taken into consideration the factual (albeit rebuttable) presumption that, according to FCJ and ECJ jurisprudence, undertakings are likely to take into account such sensitive information in their market behaviour.^[22]

While market behaviour is, on the one hand, the necessary prerequisite for an illegal concerted practice, the concerted practice, on the other hand, does not end as long as the market conduct continues. The FCJ concluded that the infringement still continues as long as the product for which the market behaviour has been influenced is still on the market.^[23]

Some weeks later, the FCJ confirmed its legal position on prescription in a decision concerning bidding cartels. According to the FCJ, the limitation period does not start from the conclusion of the contract but only from the complete execution of the contract (ie, when the final invoice is issued).^[24] The latter decision is interesting as it runs counter to an ECJ judgment issued shortly thereafter: the ECJ concludes that the end of a bid-rigging cartel is usually defined by the date of concluding the contract between the company that won a bid and the entity that invited the tender.^[25]

In respect of the liquid gas cartel, the cartelists had agreed not to actively solicit customers and not to make (attractive) offers to other cartelists’ current liquid gas customers. Because the cartel took place before 2005, the legal framework in force before 2005 applies for a large part of the sanction; hence, the fine of €180 million imposed by the FCO had to be largely based on a cartel surcharge and could not rely on the group turnover. On that basis, the Appeals Court imposed an increased fine of €244 million on the six undertakings concerned.^[26]

On further appeal, the FCJ confirmed that the six undertakings had formed an illegal cartel, but considered the Appeals Court’s fine calculation based on the cartel surcharge to be faulty.^[27] It annulled the judgment and sent the case back to be tried before a different senate at the Appeals Court. The senate of the Appeals Court imposed a significantly reduced fine of €40 million on seven undertakings concerned after only six days of oral hearings in which the undertakings had signalled that they would accept fines in that amount.^[28]

The Appeals Court argued that it did not find the prosecutor’s renewed calculation of the even higher than the original €244 million cartel overcharge presented by the FCO convincing. Other reasons for the price differences could not be excluded and, in any case, the overcharge would be very difficult to assess after the proceedings had lasted that long.^[29] One of the cartelist’s proceedings had been separated and completely closed without a fine in May 2020. There, the FCJ had completely annulled the Appeals Court judgment based on procedural flaws (not hearing a witness).^[30]

Action for damages against FCO for triggering leniency applications

In March 2020, a cartelist filed an action against the FCO to a civil court seeking damages amounting to €73 million. The claimant, who had been fined by the FCO in 2020 for anticompetitive agreements, asserts that the FCO tipped off other cartelists, thereby placing them in a better position to apply for leniency.

The matter started at the end of 2014, when the FCO received an anonymous complaint. At the beginning of 2015, an FCO official contacted three companies by phone, two of which filed for leni­ency within 24 hours. The official later stated that he called the three companies because he knew them from a merger case he had been dealing with. He did not call any other company involved in the cartel. The first applicant received immunity from fines, and the fine of the second company was substantially reduced because of its leniency application.

Following a dawn raid in March 2015, most of the other cartelists also filed for leniency. Nearly all of them, including the claimant, admitted having violated antitrust law and agreed to a settlement. The claimant bases its damages claim (approximately equal to the €70 million fine already paid and other costs) on the accusation that the FCO gave preferential treatment to the three companies and, therefore, violated the Constitution.

In December 2020, the Regional Court of Bonn dismissed the claim. It reasoned that the principles of criminal procedure as well as the principle of equality had not been violated by the FCO’s selective tip-off. According to the Court, a participant in a cartel cannot claim mitigation based on the sparing of another perpetrator (principle of ‘no equality in unjust treatment’). Another argument the Court made was that the FCO’s leniency programme does not contain any specific instructions for action or self-commitment with regard to the FCO’s investigative work.^[31] The claimants did not appeal.^[32]

Sausage gap closed

The infamous German sausage gap seems to have closed as a result of amendments to the law in June 2017, which introduced a parental liability corresponding to the European role model.

The sausage gap derives its name from a case in which the FCO prosecuted a cartel of sausage manufacturers but was not able to enforce fines of approximately €238 million owing to internal restructurings of some of the cartelists. The gap resulted from the fact that the FCO was entitled to impose a fine not on groups of companies but only on the legal person who, by acts of its employees, had committed the infringement – similar to the principle of criminal law that one family member cannot be imprisoned for a crime committed by another member of the family.

As a consequence, several groups of companies were able to avoid liability by making the infringing legal entity disappear while shifting the assets to another group company; if the family member who committed the crime dies, the prosecutor will stop the prosecution, and the court will not ask the deceased, or the deceased’s family, to serve the sentence. The restructuring was not as simple as it sounds (eg, it was not possible to go free by shifting the assets to another subsidiary, which basically continued exactly the same economic activity of the company that had been involved in the cartel), but in several cases – such as the sausage cartel – it worked.

In 2013, the legislator narrowed the gap but still left a loophole. Now, the liability for fines has been extended to the economic unit to which the infringing company belongs (ie, to the group of companies). This has been the legal situation in EU law all along.

It can thus be stated that, at least for infringements committed after 2017, the sausage gap has closed. Battles that are fought now are circulating around pre-­2017 infringements, with proceedings against various companies being presently terminated by the FCO for ‘reasons of discretion’ (or the fines being unenforceable).

One of those old and as yet unsettled cases is pending with the European Commission. When – after three years of pursuing the case – the FCO detected that several metal packaging manufacturers subject to the proceedings undertook internal restructuring, it found ‘increasing evidence that the cartel was not limited to Germany but also concerned other EU Member States’. It referred the investigation to the Commission, which does not need to be concerned about the sausage gap, which does not apply under EU law. One undertaking’s challenge of the Commission’s decision to initiate the infringement proceedings was rejected by the European Court of Justice at the beginning of 2020.^[33] Thus, the investigation is still pending with the Commission.

D&O’s delight: managers need not compensate companies’ fines, yet damages?

For the first time, a German civil court decided on the question of whether members of the board are liable to the company for fines and lawyers’ fees incurred by the company as a consequence of the company’s antitrust law violation. The Regional Court of Saarbrücken held that a company that had been fined by the European Commission could not hold its (former) board members liable for the costs incurred for paying the fine and legal representation.^[34] The claim failed because it was time-barred, which was awkward as previously another German court had dismissed the company’s action against its lawyers for wrongful advice on the grounds that the company’s claims against the same board members were not time-barred.

In an obiter dictum, the Court expressly stated that board members are not liable to the company for cartel fines imposed on companies by the European Commission. This opinion will most probably be challenged, if not on appeal in this case then in another case. The judgments make no statement on costs incurred by the company owing to the settlement of cartel-related damages claims.

Reform of the GWB and the effects on cartel proceedings passed

In January 2021, the German parliament passed the long-awaited 10th amendment to the GWB. In addition to implementing the ECN+ Directive (EU) 2019/1 (which entails, among other things, an expansion of the procedural rights of antitrust authorities), the reform brought major changes for the digital economy and new provisions regarding fines, damage claims and merger control. It provides, among other things, for the following important changes affecting cartel procedure and, overall, provides the FCO with more powers than it has at present:

• codification of some cornerstones of fine calculations as binding for the FCO and the Appeals Court, which aim, albeit unlikely, to completely remove the different approaches in setting fines;
• codification of cornerstones of the leniency programme, making it binding for the Appeals Court as well;
• specific rules for fines on associations and the possibility to have them eventually enforced against an association’s members;
• additional investigative powers for the FCO (aligning with EU law, such as the obligation for companies to proactively produce documents and provide information during dawn raids), while still not granting full legal privilege for attorneys’ correspondence;
• extending the statute of absolute limitation to the detriment of undertakings under investigation: the absolute statute of limitations for prosecution under German law in general remains ten years; however, it is extended for the duration during which legal proceedings are pending before the courts, which means that the absolute statute of limitations for prosecution can no longer be invoked during ongoing court proceedings; and
• the enshrinement of some sort of compliance defence, making it possible to reduce fines owing to compliance measures carried out before or after the infringement: the measures required depend on the individual case and, in particular, on the type, size and organisation of the company, the number of employees, the regulations to be observed and the risk of their violation. In the case of small and medium-sized enterprises with a low risk of infringement, a few simple measures may be sufficient;^[35] however, it remains to be seen the extent to which the FCO acknowledges companies’ compliance measures when setting fines.

Notes