- The "truck manufacturer cartel"
On July 19, 2016, the European Commission imposed record fines totaling EUR 2.93 billion against leading truck manufacturers MAN, Volvo/Reno, Daimler, Iveco, and DAF for unlawful price fixing. The fine proceedings against VW subsidiary Scania, which unlike the aforementioned companies did not enter into a settlement agreement with the Commission, are still pending. As a principal witness, no fines were imposed against MAN. In addition to the fines, the manufacturers participating in the cartel may now face enormous claims for damages.
- Cartel agreement and organization
The Commission's investigation revealed that the manufacturers had agreed list prices across the entire European Economic Area for medium (weight 6 to 16 tons) and heavy (over 16 tons) trucks from 1997 to 2011. In addition, they coordinated the time schedule for introducing new environmental technologies and the passing on of the associated cost to customers. According to reports yet to be confirmed, list prices, which are the basis for purchase and lease pricing in the industry, are said to have been up to 20% above actual market prices.
According to the Commission's press release, the agreements were made mostly by phone at senior manager level or at trade shows or other events during the first seven years. From 2004 onwards, the cartel was organized via the truck producers' German subsidiaries, by exchanging information electronically. The evidence discovered in extensive searches seems to have confirmed the cartel almost in all details.
- Application under the leniency notice by MAN
The proceedings were triggered by an application under the leniency notice by one of the cartel participants: a voluntary disclosure by MAN. As far as is known, the cartel violation was uncovered at MAN during an internal audit. It is surprising that the cartel was able to operate under the radar of the truck manufacturers’ compliance departments for years.
According to the guidelines of the Commission and the German Federal Cartel Office, the primary key witness, thus the person or entity that initially notifies the competition authority of the cartel, is granted full immunity with respect to fines. For this purpose, the witness must file a leniency notice with the competition authority in which the cartel must be presented in detail and documented accordingly. Only if the witness discloses all known violations and facts, no fines will be imposed.
The other participants in the cartel may subsequently also submit requests for reduction of the fines. Depending on the chronological order of the receipt of such requests, the competition authority will then grant percentage discounts. It depends on the dates of submission of evidence and the added value how high those discounts actually turn out to be. In most cases, reductions will be between 40% and 50% of the fine for the first cartel participant after the leniency applicant to admit the allegations and to cooperate fully with the Commission, while the second participant can then expect to obtain reductions of between 20% and 40%. After a search of the antitrust authorities, it is therefore extremely important to check at an early stage what evidence the competition authority has discovered and to decide how the company will behave strategically, thus whether it admits the facts and will be cooperating or whether it wants to defend against the allegations.
In the "truck manufacturer cartel," the Commission waived the entire fines of principal witness MAN of about EUR 1.2 billion. The fines were reduced for Volvo/Renault (40%), Daimler (30%), and Iveco (10%).
- Proceedings concluded by settlement agreement
Volvo/Renault, Daimler, Iveco, and DAF concluded settlement agreements with the Commission to terminate the proceedings, so that the antitrust violations against these companies have been legally established. Only Scania has failed to enter into a settlement agreement with the Commission and denies a majority of the allegations.
It is in the competition authority's sole discretion as to whether anti-trust proceedings may be ended by a settlement agreement. Both the Commission and the Federal Cartel Office regularly make use of this instrument, though. In the settlement agreement, companies acknowledge the allegations of the competition authority and in return receive a further 10% reduction of the fines imposed. Businesses are not entitled to conclude settlement agreements. These settlement agreements allow the Commission to finalize time-consuming antitrust proceedings, which, when going through all instances, may last between seven and twelve years, quickly and to obtain an enforceable title against the companies. The companies concerned are saving the cost of legal counsel and are protected against further media coverage that may damage their reputation.
Generally, however, the Commission ends antitrust cases by settlement agreements only under two conditions: First of all, the settlement agreement is only entered into before cartel participants have received the Commission's complaints in writing (complaint notification). Secondly, all participants must agree to the settlement. The Commission made an exception, however, in the "truck manufacturer cartel" and departed from these two principles. The settlement agreements were only entered into after service of the complaint notifications, and VW subsidiary Scania, as the only company, did not agree to a settlement agreement. It is unknown why the Commission deviated from its usual procedure. It is presumed that the Commission wanted to avoid applying its guidelines on fines in the present case since the fines guidelines contain an abstract calculation formula and procedure by which the Commission determines the specific fines. The fine calculations are, in particular, governed by how the offense is implemented (sales revenue with the goods covered by the cartel), the gravity of the infringement, and the duration of the cartel. The Commission has a degree of discretion in many of these points, but it is bound to the self-imposed calculation method when formally setting the fines by resolution. In a settlement agreement, this is not the case.
By law, the Commission may impose a maximum fine of 10% of the annual worldwide revenue of the entire group (taking into account all goods). The Commission therefore possibly faced the problem that the cartel arrangements, in comparison with other cartels, may not have involved the most serious violations. On the other hand, the arrangements extended to the entire European Economic Area, lasted fourteen years, and the trucks that were the subject of the cartel are high-priced goods. These circumstances and the calculation method of the fine guidelines would probably have led to all cartel members automatically incurring the maximum fine. The Commission may have tried to avoid this since the calculation method of the fine guideline is controversial for this very reason.
By applying different multiplications, the Commission regularly arrives at amounts that far exceed the statutory limit. If this is the case, the Commission then has to "cap" its "calculated" fines at the statutory limit. The calculation method applied by the Commission has been harshly criticized in recent years because it often leads to imposing statutory maximum fines, irrespective of how grave the violation has been. Based on a decision of the Federal Court of Justice, the Federal Cartel Office abandoned this form of calculating fines and published new guidelines on fines in 2013. These guidelines provide for a different calculation method, so that the statutory limit of 10% only applies to cartels that have committed the most serious violations of competition law. It remains to be seen whether the Commission will continue to adhere to its present guidelines on fines in the future.
- Claims for damages and right of recourse against former executive board members
According to German and European antitrust law, anyone who has incurred damage by the cartel is entitled to claims for damages. Such claims are entirely independent from the fines imposed, even, albeit in limited manner, against the principal witness. The outstanding claims for damages are likely to exceed the fines imposed by a multiple. According to information yet to be confirmed, industry insiders estimate the damage caused by the cartel worldwide to range between EUR 50 billion and EUR 90 billion.
The companies participating in the cartel that are liable for damages will need to check whether they in turn may demand recourse from those individuals (for example, former board members) who made the arrangements. Even though labor courts have denied a right of recourse of the cartel participants against the acting individuals (general managers) in similar cases with respect to the fines imposed (Düsseldorf State Labor Court, January 20, 2015 - 16 Sa 459/14), a decision by the Federal Court of Justice on this issue is still outstanding. In addition, former board members and general managers of the cartel participants could be liable to the infringing companies for claims for damages by customers. These issues have, however, no effect on the claims of the customers that incurred damage because of the cartel.
For almost 14 years, customers of manufacturers have paid excessive prices for purchased or leased trucks. Buyers and lessees that incurred damage can now assert claims for damages against the companies because of the established antitrust violation (see: Truck manufacturer cartel: Buyers and lessees may claim damages). Otherwise, the billions of profits generated by the cartel will remain with the manufacturers. The case against the truck manufacturers proves once again the possible economic consequences for a company, if it has no functioning compliance system in order to prevent or detect possible antitrust violations at an early stage.