European Union: Cartels and Leniency

The past year has seen the gradual transposition of the EU Damages Directive¹ by member states. In addition, recent court judgments have shown the potential for settlement decisions to be annulled by the courts and discussed the relationship between the European Commission's ordinary and settlement procedures and the agreement of a fine in ‘hybrid' cases. This chapter addresses each of these topics in turn, together with a review of:

• recent legislative and procedural proposals as regards leniency and whistleblowing;
• case law findings on the Commission's investigatory tools in the North Sea shrimps case,² and on the value of leniency evidence in the Repsol case;³
• the recent Container Shipping commitment decision⁴ and its impact on future commitment procedures; and
• the potential impact of algorithms on the operation and prevalence of cartels.

Implementing the Damages Directive: the status so far

The Damages Directive was enacted in November 2014, with the purpose of harmonising follow-on actions across EU member states while at the same time maintaining incentives for undertakings to make leniency applications in cartel investigations and settle cartel cases. Its implementation, originally set with a deadline of 27 December 2016, will have a significant influence on companies' engagement with the Commission and the application of competition law in the future.

Only Denmark, Finland, Hungary, Luxembourg, Sweden and (partially) Latvia met the implementation deadline. The Commission subsequently sent letters of formal notice on 24 January 2017 to the member states that had not communicated intended full transposition by 18 January 2017. By mid-June 2017, 20 member states⁵ had communicated their full transposition of the Directive to the Commission,⁶ with the Commission expecting similar communications in the coming months.⁷ The Commission has also recently issued a ‘reasoned opinion' to seven member states,⁸ expressing concern over the Directive's lack of transposition and giving a two-month deadline for responses on how such issue is to be addressed. In any case, divergences between the damages regimes of member states post-implementation may arise, despite the intention for harmonisation: the UK, for example, intends to apply the provisions to breaches of EU and UK competition law, whereas the Netherlands intends to adopt separate regimes.

Although EU follow-on damages actions have been predominantly brought in the UK, the Netherlands and Germany, other national competition authorities (NCAs) expect the implementation of the Damages Directive to have a direct impact on the number of claims in their jurisdictions. In addition, the Directive's introduction of rights to disclosure of evidence is novel for most EU member states, yet it remains key for confidential information to be protected from widespread disclosure during proceedings. The preparation of non-confidential versions of Commission documents for these purposes imposes a significant burden on all parties: the Commission therefore continued to increase its use of limited disclosure to ‘confidentiality rings' in 2016.⁹

Under article 12(1) of the Damages Directive, overcharges as a result of antitrust infringements may be passed down the supply chain and harm indirect purchasers. Member states will therefore need, under article 12(2), to quantify the actual loss suffered at each level of the supply chain, in order to avoid overcompensation. Guidelines on such quantification are yet to be prepared by the Commission:¹⁰ however, an October 2016 study requested by the Commission aims to help national judges with the assessment of economic evidence regarding the plausibility of damages claims, and the quantification of the effects of passing-on and the total harm suffered by a claimant.¹¹ Such issues will become important in future follow-on competition claims in the EU, given that more claims may arise as a result of the Directive.

Key court rulings on settlement

The Commission is increasingly using the settlement procedure in its fight against cartels, with a total of 24 settlement decisions issued by July 2017. Proceedings before the EU courts in relation to the settlement procedure have led to two important rulings this year.

In Printeos,¹² the General Court annulled a settlement decision for the first time. Printeos, an envelope producer fined for its participation in a cartel, argued that the settlement decision was vitiated by the Commission's failure to state reasons and its breach of the principle of equal treatment, as it had failed to properly explain why it applied different fine discounts to each settling participant when their involvement was comparable. The Commission had departed from its fining methodology under point 37 of its fining guidelines:¹³ since most of the settling parties were mono-product companies, meaning the fines would have otherwise reached the legal cap of 10%, the Commission discounted the basic amount of the fines to varying extents.¹⁴ The General Court nonetheless confirmed the duty to state reasons and explained that ‘the weighting and assessment of the various factors taken into account in determining the amount of the fines'¹⁵ is an essential procedural requirement, equally applicable when fines are imposed under the settlement procedure. It emphasised that such reasons must be all the more specific when the Commission departs from its general fining methodology under point 37, and found that the Commission did not explain with sufficient clarity and precision the difference in the reductions applied. Following this, on 16 June 2017 the Commission confirmed its readoption of a settlement decision against Printeos, remedying the procedural errors identified by the General Court (most likely as regards the reasoning behind the fine calculation, as opposed to the amount of the fine itself)¹⁶ and imposing the same fine of approximately €4.7 million.

The Printeos judgment illustrates the possibility of appealing a settlement decision, indicating likely success where such appeal relates to the fine imposed and/or to a party's rights of defence (though in cases involving the latter, the Commission may simply choose to remedy the relevant procedural defect(s) and re-adopt the annulled settlement decision). In the Euribor case, for example, Société Générale challenged its fine before the General Court, but later withdrew its application given the Commission's modification of the fine before the General Court decided the case.¹⁷ The judgment could therefore have far-reaching implications, incentivising settling parties to challenge settlement decisions as to the fine level, potentially undermining the intended procedural efficiencies of the settlement process.

The second key ruling on the issue of settlement is the 12 January 2017 judgment of the European Court of Justice (CJEU) in the Timab case, on the interplay between the settlement procedure and the ordinary procedure in ‘hybrid' cases.¹⁸

The case stems from a 2010 Commission decision fining six animal feed phosphates producers for their participation in a market-sharing and price-fixing cartel, between 1969 and 2004. All producers settled with the Commission, except for Timab and its parent company, who withdrew from settlement and became subject to the ordinary infringement procedure. Timab was later fined approximately €60 million, and lodged an action for annulment before the General Court, arguing that the fine was far beyond the range of fines indicated during settlement discussions (€41 million to 44 million) and reflected a penalty for its withdrawal.

The CJEU upheld the General Court's reasoning, confirming that Timab's procedural rights had not been violated. It clarified the distinction between the settlement and ordinary procedures: the notification of a range of fines is specific to settlements,
while the Commission is only bound by its statement of objections in the ordinary procedure that gives no fine range indication. Timab could therefore not have had any legitimate expectation that the range of fines presented during the settlement procedure would be maintained in the ordinary procedure. The Commission was also deemed entitled to review the fine under the ordinary procedure by taking into account new information provided by Timab, which, following its withdrawal from settlement, had successfully disputed its participation in the cartel between 1978 and 1993. As a consequence, certain fine reductions originally imposed to reward Timab's cooperation with the Commission during that period were reversed.

By contrast, the Mushrooms case indicates potential for greater flexibility in selecting fines for non-settling parties in hybrid cases. In that case, Riberebro withdrew from the settlement procedure in April 2014 following the Commission's rejection of its inability to pay (ITP) claim raised in response to the indicated fine ranges. As the only remaining party subject to the ordinary procedure, a statement of objections was issued to Riberebro in May 2015: its response did not challenge the substantive facts or legal assessment presented by the Commission, but asserted ITP. An infringement decision was then adopted in April 2016, imposing a fine of €5.194 million and rejecting the ITP claim, such rejection then being challenged in an application before the General Court submitted in June 2016. This challenge was, however, withdrawn in January 2017, following a reported out-of-court settlement with the Commission as regards the amount of the fine, making this a rare case where it has been publicly noted that the Commission has settled with a previous settling party outside both the Commission settlement procedure and the court review.

Therefore, while the Timab ruling clarifies that companies withdrawing from the settlement procedure should not rely on fining indications presented during settlement talks, given the Commission's considerable margin of discretion under the ordinary procedure (particularly where new evidence is put forward), the Mushrooms case proposes the use of out-of-court settlements to reach an agreed fine in hybrid cases. Pending appeals before the General Court brought by Pometon and ICAP following their opting out of settlement in the Steel Abrasives and YIRD cases respectively¹⁹ show that hybrid cases are likely to be the source of further litigation.

Leniency: new legislative and procedural proposals

There have been two recent legislative and procedural changes to leniency.

First, on 16 March 2017, the Commission launched a new online tool for individuals to anonymously disclose secret cartels and other anticompetitive practices. The tool is dedicated to individuals and uses an encrypted messaging system run by an external intermediary. It allows for individuals to provide information to the Commission and ask for a reply, and for the Commission to seek further details and clarifications. The tool is a new way of improving the Commission's methods for cartel detection and deterrence and allowing for more spontaneous and complete information to be provided,²⁰ applying in addition to the existing leniency and non-anonymous whistleblower programmes.²¹

However, there may be some limitations to the tool's effectiveness: the system allows only for the communication of text and not files, limiting the level of disclosure. It remains to be seen whether the tool will be successful, and whether it will complement or conflict with the Commission's existing programmes.

Second, the Commission proposed a new directive²² on 22 March 2017 to empower NCAs and ensure they have the appropriate competition enforcement tools. The proposal follows a public consultation launched by the Commission in November 2015, to which responses voiced a broad support for greater NCA harmonisation. One proposal includes the harmonisation of leniency systems, in order to increase the overall incentive for companies to report participation in a cartel. This would: allow NCAs to ensure that companies can benefit from leniency in the same way across the EU, by translating core principles of the ECN Model Leniency Programme²³ into national law; improve legal certainty for companies; and remedy disparities in leniency programmes across Europe that often discourage companies from reporting. It could also help to avoid the difficulty that comes with differences in size, budget, enforcement tools, sanctioning powers and independence of different NCAs.

Member states gathered in May 2017 to review the proposed Directive, where no major objections were put forward. A further meeting was held in June 2017 showing diverging views on the level of government flexibility for implementing the necessary systems, with other national regulators noting the potential lack of specificity of the proposed Directive. Additional meetings were held in early July 2017, and a further debate is scheduled for October 2017 ahead of a vote on the draft proposal by the EU Parliament's economic committee in December 2017. The Commission aims to implement the Directive in full by the end of 2019.

Evidence gathering: North Sea shrimps and secret recordings

In the North Sea shrimps case, the General Court confirmed that secret recordings of telephone conversations obtained in the context of unannounced inspections at the premises of a leniency applicant could be used as evidence in cartel cases, irrespective of their legality.²⁴

The recordings were particularly valuable to the Commission's case, concerning discussions between two competitors on sensitive commercial and pricing information. The General Court first noted the prevailing principle of ‘the unfettered evaluation of evidence',²⁵ and how the only relevant criterion to assess the probative value of evidence is its credibility. It then confirmed that the credibility of the recordings was not disputed and that the applicant's fundamental rights had been respected: recordings were collected lawfully during a dawn raid, were not made by the Commission or another authority but by a private party, and were not the only proof on which the Commission had relied to find an infringement. The Commission was therefore fully entitled to rely on evidence it had lawfully obtained, even if made in violation of someone's right to private life as the applicant had argued.

Repsol: when are facts previously ‘unknown'?

In the Repsol judgment of June 2016,²⁶ the CJEU rejected the requirement for an element of knowledge in assessing the added value of a leniency applicant's contribution. Repsol argued that the Commission should have granted them partial immunity for bringing certain elements to light, even though the Commission had already been provided with statements to this effect. Repsol claimed that the furnishing of ‘facts previously unknown' under point 23(b) of the 2002 Leniency Notice²⁷ included a cognitive element, requiring that the relevant facts be both in a document in the Commission's possession, and be known by the Commission. By contrast, the CJEU adopted a restrictive interpretation, concluding that added value was to be considered objectively in relation to the evidence already in the Commission's possession, with no consideration of a cognitive element since ‘the Commission's possession of evidence amounts to knowledge of its content, regardless of whether that evidence was actually examined and analysed by its services'.²⁸

Container Shipping: the changing face of commitment decisions?

In July 2016 legally binding commitments given by container liner shipping companies were adopted by the Commission.²⁹ These commitments aimed to address the Commission's concerns that the shippers' public announcements of future general rate increases of freight services amounted to a concerted practice by allowing companies to signal future pricing intentions to one another, making the information communicated useful to competitors, but not to customers, since the announcements:

• did not contain the full price of the service after the increase;
• were not binding upon the carriers; and
• were made too far in advance of the implementation date of the increase to be of use to customers.

The Commission did not, however, find evidence of collusion despite conducting dawn raids, and based its allegations on the purely unilateral nature of the conduct.

The Commission relied on its 2011 Horizontal Guidelines to form its theory of harm,³⁰ referring to paragraph 63 which clarifies that public announcements may amount to an infringement of article 101 where they ‘could prove to be a strategy for reaching a common understanding about the terms of coordination.' As the decision was adopted under article 9 of Regulation 1/2003,³¹ the Commission was not required to conclude on the existence of an infringement, and did not find an infringement or any evidence of collusion. The Commission nonetheless expressed concerns that the aim of such announcements was to allow shippers to coordinate pricing behaviour and therefore could be harmful to competition. The Commission was able to put forward such allegations based on an expansive interpretation of the ‘by object' category³² under article 9. It is important to note that the lack of judicial scrutiny of article 9 commitment decisions has brought some criticism of the potential stretching of theories of harm by the Commission, which would require more substantive justifications in a prohibition decision and under court scrutiny.

Algorithms and the potential for ‘more effective cartels'

The Commission's May 2017 report on the e-commerce sector inquiry found that two-thirds of retailers use ‘automatic software programmes' to track their competitors' prices and adjust their own prices automatically.³³ Commissioner Vestager's speech on the topic in March 2017³⁴ highlighted how, in future, ‘automated systems could lead to more effective cartels':³⁵ the ability of algorithms to gather perfect information of competitors' actions and to react instantaneously may lead to tacit collusion, even in markets not typically prone to cartelist behaviour. A June 2017 report prepared by the Commission also emphasises the possibility of algorithms encouraging both vertical restrictions, such as encouraging the effectiveness of resale price maintenance, and horizontal restrictions, such as the monitoring of agreed prices.³⁶ This report, among others, was later discussed in the OECD roundtable on algorithms and collusion held between 21 and 23 June 2017. Here, the OECD expressed concerns that algorithms may have the ability to both facilitate collusion and make certain markets more prone to collusion, proposing certain changes as a result (including clarifying the concept of ‘agreement' in competition law to capture algorithm-related activity, enhancing enforcement practices and using specific regulatory intervention techniques). Though the Commission agreed with the general concerns noted by the OECD, it was not entirely supportive of the OECD's more specific suggestions, instead supporting a further study of algorithms to build its internal knowledge first.

In light of such concerns, Commissioner Vestager has proposed that businesses ensure EU competition law compliance is hardwired into their systems, and that they remain liable if such systems breach such laws, regardless of their level of awareness. In any case, the Commission does not yet appear to be too concerned by these developments:³⁷ not all pricing algorithms are anticompetitive but are, for example, increasingly used by customers to compare providers' offers. It remains to be seen whether the Commission and NCAs need to adjust their regimes in order to keep up with the emerging anticompetitive issues raised by rapid technological advances.

Notes

1. Directive 2014/104/EU of the European Parliament and of the Council of 26 November 2014 on certain rules governing actions for damages under national law for infringements of the competition law provisions of the member states and of the European Union (the Damages Directive).
2. Case T-54/14, Goldfish and others v Commission, Judgment of 8 September 2016, EU:T:2016:455.
3. Case C-617/13 P, Repsol Lubricantes y Especialidades and others v Commission, Judgment of 9 June 2016, EU:C:2016:416.
4. Case AT.39850 Container Shipping, Decision of 7 July 2016, C(2016) 4215 final.
5. The 20 member states are: Austria, Belgium, Denmark, Estonia, Finland, France, Germany, Hungary, Ireland, Italy, Lithuania, Luxembourg, the Netherlands, Poland, Romania, Slovakia, Slovenia, Spain, Sweden and the UK.
6. Spain issued an urgent Royal Decree-Law on 26 May 2017 to this effect.
7. See the Commission's update page on the Directive, available at: http://ec.europa.eu/competition/antitrust/actionsdamages/directive_en.html.
8. The seven member states are: Bulgaria, Cyprus, the Czech Republic, Greece, Latvia, Malta and Portugal.
9. See Commission notice on Best Practices for the Conduct of Proceedings Concerning articles 101 and 102 TFEU, O.J. C 308, 20.10.2011, p. 6, paragraph 96. See also an April 2017 speech by Johannes Laitenberger, available at: http://ec.europa.eu/competition/speeches/text/sp2017_07_en.pdf.
10.  Article 16 of the Damages Directive.
11. Study on the Passing-on of Overcharges, Final report (2016), available at: http://ec.europa.eu/competition/publications/reports/KD0216916ENN.pdf.
12. Case T-95/15, Printeos and others v Commission, Judgment of 13 December 2016, EU:T:2016:722.
13.  Guidelines on the method of setting fines imposed pursuant to article 23(2)(a) of Regulation No 1/2003, O.J. C 210, 01.09.2006, p. 2; point 37 provides that ‘the particularities of a given case may justify departing from such methodology'.
14.  Applying mono-product discounts will likely be difficult for the Commission to enforce going forward, in light of the recent Pilkington ruling where the CJEU appears to have ruled out the possibility of applying such reductions: see Case C-101/15 P, Pilkington Group and others v Commission, Judgment of 7 September 2016, EU:C:2016:631, paragraph 66.
15.  Case T-95/15, Printeos and others v Commission, Judgment of 13 December 2016, EU:T:2016:722, paragraph 47.
16. The full public version of the re-adopted decision is not yet available.
17.  The relevant Commission Press Release of 4 December 2013 is available at: http://europa.eu/rapid/press-release_IP-13-1208_en.htm.
18.  Case C-411/15 P, Timab Industries and CFPR v Commission, Judgment of 12 January 2017, EU:C:2017:11.
19.  Case T-433/16, Pometon v Commission, pending and Case T-180/15, ICAP and others v Commission, pending.
20.  See a June 2017 interview with Johannes Laitenberger, available at: https://www.americanbar.org/content/dam/aba/publishing/antitrust_source/jun17_laitenberger_intrvw_6_9f.authcheckdam.pdf.
21.  See Commissioner Vestager's speech of 16 March 2017, available at: https://ec.europa.eu/commission/commissioners/2014-2019/vestager/announcements/bundeskartellamt-18th-conference-competition-berlin-16-march-2017_en.
22. Proposal for a directive of the European Parliament and of the Council to empower the competition authorities of the member states to be more effective enforcers and to ensure the proper functioning of the internal market, COM/2017/142 final, available at: http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52017PC0142&from=EN.
23. ECN, Model Leniency Programme as revised in November 2012, available at: http://ec.europa.eu/competition/ecn/mlp_revised_2012_en.pdf.
24. Case T-54/14, Goldfish and others v Commission, Judgment of 8 September 2016, EU:T:2016:455.
25. Case T-54/14, Goldfish and others v Commission, Judgment of 8 September 2016, EU:T:2016:455, paragraph 42.
26. Case C-617/13 P, Repsol Lubricantes y Especialidades and others v Commission, Judgment of 6 June 2016, EU:C:2016:416.
27. Commission notice on immunity from fines and reduction of fines in cartel cases, O.J. C 45, 19.02.2002, pp. 3-5.
28. Case C-617/13 P, Repsol Lubricantes y Especialidades and others v Commission, Judgment of 6 June 2016 EU:C:2016:416, paragraph 72.
29. Case AT.39850 Container Shipping, Decision of 7 July 2016, C(2016) 4215 final, p. 17.
30. Guidelines on the applicability of article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, O.J. C 11, 14.1.2011, pp. 1-72.
31. Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in articles 81 and 82 of the Treaty, O.J. L 1, 04.01.2003, pp. 1-25
32. Case C-67/13 P Groupement des cartes bancaires (CB) v Commission, Judgment of 11 September 2014, EU:C:2014:2204.
33. See the Final Report on the e-commerce sector inquiry, adopted by the Commission on 10 May 2017, p. 5 paragraph 13, available at: http://ec.europa.eu/competition/antitrust/sector_inquiry_final_report_en.pdf.
34.  See Commissioner Vestager's speech of 16 March 2017, available at: https://ec.europa.eu/commission/commissioners/2014-2019/vestager/announcements/bundeskartellamt-18th-conference-competition-berlin-16-march-2017_en.
35.  See under the section entitled ‘Using automated systems to implement cartels and resale price maintenance' in Commissioner Vestager's speech, link above.
36.  See the report dated 14 June 2017 and entitled ‘Algorithms and Collusion - Note from the European Union' submitted to the Organisation for Economic Co-operation and Development, available at: www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=DAF/COMP/WD(2017)12&docLanguage=En.
37. See under the section entitled ‘Conclusion' in Commissioner Vestager's speech, link above.