CARTEL INTEL Cartel crackdown continues and intensifies
In this issue
04 European Union 08France
10Germany 12Italy
14 South Africa 16Spain
18 United Kingdom
"Dawn raids will continue to remain a crucial fact-finding tool ... there is definitely more to come". A stark warning from Maria Jaspers, director of cartels at the European Commission, issued at a conference in April amid a concerted wave of dawn raids by antitrust authorities across Europe.
Our first bulletin of 2022 is published as the crackdown on cartels persists and escalates. As set out opposite, the first three months of 2022 have witnessed raids in Belgium, Greece, Norway, Romania, Poland, Spain and Switzerland. As we go to press, dawn raids have been announced in the Austrian waste-management sector.
In this bulletin our German office reports on raids earlier in the year relating to cable manufacturing. Our Brussels office provides an update on coordinated raids in the automotive, conducted in parallel by the European Commission and UK Competition and Markets Authority. This marks the first instance of such coordination since Brexit. This, surely, is a sign
of things to come. After a prolonged pause due to COVID, the determination of both authorities to prosecute new cartel cases is plain to see.
As well as working through a backlog of cases, the nature of dawn raid inspections appears to be changing. Senior officials within the European Commission have now confirmed that a recent dawn raid at the domestic premises of an employee of a company suspected of cartel participation. This marks the first reported instance of such a domestic search in almost a decade, although it is far from surprising. Altered working practices adopted during COVID, have provided additional impetus to inspect domestic premises and search personal devices, including smartphones and home laptops.1
As welcome counterpoints to the risks of ever more intrusive investigations, our Paris office reports on a landmark court judgment extending the benefit of legal privilege, in specified circumstances, to advice issued by in-house counsel. Our colleagues in
South Africa summarise a key judicial decision clarifying the steps a firm can take to effectively distance itself from a cartel. In Italy, the need for an antitrust authority to act expediently to investigate cartels is underlined, with a substantial fine annulled due to unreasonable procedural delay.
Concluding with procedural matters, it is against the dynamic backdrop described above and in this bulletin that the European Commission announced on 31 March its intention to review Regulation 1/2003, the legal instrument setting out its antitrust enforcement procedures. These include its investigatory and fining powers in a cartel context. With a view to remaining at the very forefront of global enforcement, in the coming months the European Commission will launch a consultation with stakeholders to identify areas for improvement and reform.
As ever, we will monitor this and all other key developments across the EMEA and provide timely updates.
1. For further and more detailed insights into this topic listen to our podcast series, CRTea, with episode 2 addressing the emerging trends in cartel enforcement in the post-COVID era.
02 HERBERT SMITH FREEHILLS
2022: CARTEL CRACKDOWN CONTINUES AND INTENSIFIES
Competition authorities persist with an exceptional number of unannounced dawn raid inspections following a hiatus in enforcement due to Covid. Since June 2021, when the European Commission resumed its inspections, raids have been reported across a broad spectrum of sectors and jurisdictions. This crackdown shows no sign of abating: in the first three months of 2022 raids have been reported in Belgium, Germany, Greece, Norway, Poland, Spain, Romania and Switzerland. The European Commission (in coordination with the UK Competition and Markets Authority) also recently launched a new investigation into the automotive sector.
CHECKLIST +MITIGATION
i.Review and update dawn raid procedures, ensure these remain compatible with rapidly evolving enforcement practices
ii.Conduct dawn raid training for key personnel; preparedness is key iii.Review safeguards and policies to protect legally privileged documents and
personal data iv.Prevention is the best medicine: ensure competition law compliance across
the business
2022
2021
HERBERT SMITH FREEHILLS
03
JUN JUL AUG SEP OCT
NOV DEC JAN FEB MAR
SPAIN
Raids in database
marketing sector.
EUROPEAN COMMISSION
GREECE Raids in wholesale and
Raid on clothing
retail markets for tools.
manufacturer in Germany.
NORWAY Raids relating to
pharmaceutical
supplies.
FRANCE
POLAND
Pharmacy dispensary data Raids in document
supply investigated through archiving sector.
series of raids.
GREECE Raids of bidders for natural
gas network construction
contracts.
SLOVENIA Suppliers of professional
driver training courses
investigated.
RUSSIA
Three major manufacturers
Raids at suppliers of
of reinforced steel, raided.
computer electronics and IT
consulting services.
POLAND Raids in pork
purchasing market.
HUNGARY Timber industry
subject to raids.
ROMANIA Raids in book distribution
sector.
GREECE Raids in IT systems market
and supply of supermarket
products.
EUROPEAN COMMISSION
Series of international raids
against wood pulp
manufacturers.
FRANCE Food retail sector probed.
SPAIN & PORTUGAL GREECE
Coordinated raids
Raids in sunflower,
relating to procurement
cotton and maize
of military equipment.
seeds supply.
EUROPEAN COMMISSION
Unnamed company
in defence sector
investigated.
POLAND Hospital IT supply
investigated.
SPAIN Raids in waste treatment
and recycling markets.
NETHERLANDS Food processing sector
(raids conducted with assistance from "a colleague authority abroad").
GERMANY
Raid among power cable
manufacturers.
SWITZERLAND Raids investigating bid
rigging among road
maintenance companies.
ROMANIA Raids to explore "no poach"
agreements relating to skilled
motor vehicle workers.
POLAND Radio advertising market
subject to raids.
NORWAY Raids to investigate
information exchanges in construction services sector.
GREECE Food wholesale and retail
markets subject
to raids.
EUROPEAN
SPAIN
GREECE
BELGIUM
COMMISSION
Raids to investigate bid
Inspections in construction Raids in bovine
Coordinated raids by the
rigging in relation in relation and medical products
meat sector.
Commission and UK's CMA to security and surveillance sectors.
in automotive sector.
contracts.
04 SECTION TITLE
HERBERT SMITH FREEHILLS
HERBERT SMITH FREEHILLS
EU 05
European Union
European Commission and UK CMA launch coordinated dawn raids in the automotive sector
On 15 March, the European Commission ("Commission") conducted a series of unannounced inspections at the premises of companies and associations active in the automotive sector in several EU Member States.2 The Commission also sent out formal requests for information to various entities in this sector.
The Commission acted in close coordination with the Competition and Markets Authority ("CMA"), which launched a parallel investigation in the UK on the same day.3
The Commission and CMA have concerns that the targeted entities may have engaged in anti-competitive collusion in relation to their arrangements for the recycling of old or written-off cars and vans, known as end-of-life vehicles.
The Commission and CMA did not name the entities concerned, but Toyota, Renault and Opel have publicly confirmed that they were among the companies inspected by the Commission. The European Automobile Manufacturers' Association ("ACEA"), which represents 16 European car manufacturers, has also acknowledged that its Brussels office was raided by the Commission.
The launch of these investigations is interesting in several respects.
First, this enforcement action provides further evidence that the Commission and other competition authorities around Europe are resuming their dawn raid activities in earnest. These activities had been severely curtailed during the Covid-19 pandemic, leading to an enforcement back-log. As the pandemic fades away, numerous dawn raids have been launched across Europe in the last six months and this trend is expected to continue for the foreseeable future.4
Second, this case represents the first reported example of the Commission and CMA coordinating their dawn raid activities since Brexit, when the Commission ceased to have competition enforcement powers in the UK. We expect that the case will provide a blueprint for similar EU-UK coordination in future pan-European cartel cases.
Third, the subject-matter of the investigation demonstrates the increased concern of competition authorities to promote environmental sustainability through competitive markets. End-of-life vehicles are categorised as waste and must be disposed of in a sustainable way. The current case follows the Commission's decision in July last year to impose fines totalling EUR 875 million on several car manufacturers which had breached EU antitrust rules by colluding in relation to the development of exhaust gas cleaning technologies for diesel cars.5
Bidding consortia: new draft guidance from the Commission
In March, the Commission published for consultation its draft revised Guidelines on the application of Article 101 TFEU to horizontal cooperation agreements ("draft Guidelines").6 The draft includes a new section on bidding consortia, clarifying the conditions under which independent firms may group together to submit joint competitive tenders without infringing EU competition law. This is guidance is important since the dividing line between legitimate cooperation among bidders and the serious cartel offence of bid rigging can be unclear and the consequences businesses may face if they misjudge this issue may be severe.
The draft Guidelines also expand on the existing Horizontal Guidelines and address novel issues such as use of algorithms and cooperation in the context of sustainability agreements. We have provided a separate, detailed update summarising the Commission's position on sustainability agreements (available here).
Background
Joint bidding by a bidding consortium refers to a situation where two or more parties cooperate to submit a combined bid in a public or private procurement process. If the tender is successful, contract performance will be divided between the consortium members.
Cooperation in bidding can be realized either through a consortium, where all partners participate jointly in the tender process, normally through a newly created legal entity (bid vehicle), or through subcontracting, where one party bids as a prime contractor and, if successful, entrusts performance of parts of the contract to one or more subcontractors. From a competition law perspective, subcontracting and consortia both constitute forms of joint bidding.
Bidding consortia will infringe Article 101 (1) TFEU if they constitute collusive agreements or concerted practices which have the object or effect of restricting competition.
New guidance on bidding consortia
In the new section on bidding consortia, the Commission starts by clarifying the distinction between bidding consortia and bid rigging. The latter refers to illegal (and usually secret) agreements between firms, with the aim of distorting competition in contract award procedures. Bid rigging is considered to be one of the most serious restrictions of competition by object. It may take various forms, such as rival bidders fixing the content of their tenders (especially the price) in order to influence the outcome of the procedure, refraining from submitting a tender, or allocating bidding efforts based on geography.
The draft Guidelines confirm that a joint bidding consortium does not restrict competition if it allows its participants to take on projects that they would not be able to undertake individually.
2. Commission press release available here 3. CMA press release available here 4. See our blog post and podcast on this subject. 5. Covered in a previous issue of Cartel Intel here and in our podcast here. 6. Available here
06 EU
HERBERT SMITH FREEHILLS
It then addresses the issue of when firms should be considered objectively unable to bid independently, by referring to two possibilities:
A bidding consortium will not restrict competition when the firms involved provide different services that are complementary for the purposes of participation in the tender.
A restriction of competition will also not arise when the firms involved, although all active in the same markets, cannot carry out the contract individually, for example due to the size of the contract or its complexity.
The Commission clarifies that the mere theoretical possibility of each party carrying out the contractual activity alone does not automatically make the parties competitors. A realistic assessment must be conducted on a case-by-case basis, considering whether a firm would be capable of completing the contract on its own, taking into account its size, abilities and future capacity. If it cannot be excluded that the parties could each compete individually in the tender, the bidding consortium may restrict competition by object or by effect under Article 101(1) TFEU.
Where the bidding consortium may restrict competition, the next step is to assess whether such a consortium may benefit from an exemption under Article 101(3) TFEU. The Article 101(3) criteria can generally be fulfilled if the bidding consortium allows the parties to submit an offer that is more competitive than the offers they would have submitted individually (in terms of prices and/or quality) and if the benefits for consumers and the contracting entity outweigh the restrictions of competition. Crucially, any efficiencies must be passed on to consumers; if they only benefit the parties to the bidding consortium, Article 101(3) would not apply.
Comments
The draft Guidelines provide welcome clarification for firms wishing to pool their respective expertise and capabilities in a tender process. Bidding consortia can enhance the EU economy by promoting cooperation between bidders of differing size or capabilities. For example, a bidder with substantial financial resources that lacks the required industry expertise may benefit from joining forces with a smaller firm that already operates in the relevant industry.
Although the guidance may encourage the increased use of bidding consortia in future, participants should still proceed cautiously, given the severe penalties that may be imposed on any form of bid rigging.
Consortium bidders and their advisors need to carefully assess their role in the bidding process and any potential risks of restricting competition. These risks could be mitigated through advance planning and a careful assessment under the Article 101(3) exemption criteria.
The Commission's period of consultation on the revised draft Guidelines will expire on 26 April 2022. The new Guidelines will enter into force on 1 January 2023.
A hypothetical example
The revised draft Guidelines illustrate the above principles by giving the following hypothetical example:
Companies A and B are competing providers of specialist medical products to hospitals. They have decided to enter into a consortium agreement in order to submit joint bids in a series of national health tenders in an EU member state. The award criteria are based on price/quality, with additional points for offers including a range of additional optional products. Both companies have previously competed individually in one of these tenders but lost out due to their lack of additional products. There are usually at least two other participants in such tenders.
As both companies are able to compete individually, the agreement is caught by Article 101(1) TFEU and needs to be assessed under Article 101(3) TFEU. Based on their previous experiences it would seem that the joint tender will be more competitive than their individual attempts, in particular in terms of added value through the extra optional products. The consortium appears to be objectively necessary for A and B to submit a more competitive offer and the resulting efficiencies should benefit the contracting entity and ultimately consumers. Competition in the tenders is not eliminated as there are at least two other competitors who are also participating. Therefore, the agreement appears to benefit from an Article 101(3) TFEU exemption.
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EU 07
08 FRANCE
France
HERBERT SMITH FREEHILLS
HERBERT SMITH FREEHILLS
FRANCE
09
French Supreme Court extends the scope of legal privilege to certain communications with in-house counsel
On 26 January 2022, the French Supreme Court ("FSC") issued an unexpected decision regarding the scope of legal privilege in the context of a dawn raid conducted by the French Competition Authority ("FCA").7
Over the past decade, the FSC has issued a number of rulings circumscribing the FCA's investigatory powers in relation to legally privileged documents and has generally adopted a strict approach.
In two decisions in late 2020 and early 2021,8 the FSC reminded the FCA that legal privilege concerns documents and correspondence exchanged with an external counsel in relation to the client's rights of defence in any litigation matter (and not only in a competition law matter). Conversely, the FSC has always denied protection for documents produced by in-house counsel. In its ruling of 26 January, however, the FSC decided to extend, to
some extent, the scope of French legal privilege to in-house communications.
Applicable law and procedure
Under French law, Article 66-5 of the law dated 31 December 1971 provides that:
"In all areas, whether in the area of counsel or defence, written advice sent by lawyers to their clients or intended for them, correspondence between clients and their lawyers [...], notes from meetings, and generally all the documents in the case file, are covered by professional secrecy."
As a consequence, administrative and judicial authorities are prohibited from seizing, requesting or using such documents.
During a competition dawn raid, FCA inspectors usually seize copies of entire hard-drives or e-mail boxes which may contain legally privileged documents. In order to ensure compliance with the above provision, the FCA has introduced a specific procedure:
At the request of the parties, evidence potentially containing legally privileged
documents will be put in a sealed envelope ("scell ferm provisoire"), which the FCA will not open.
The FCA then gives the companies a set period (generally two weeks) to identify any legally privileged documents.
A meeting is then organised among the companies, their counsel and the FCA, during which the FCA will review the documents identified by the company and remove any documents which it agrees are covered by legal privilege.
In case of disagreement, the company may challenge the legality of the dawn raid, on the ground of breach of legal privilege, before the competent Court of Appeal. The ruling of that court may in turn be challenged before the FSC.
Factual and procedural background
In 2013, the FCA carried out dawn raids at the premises of several companies active in the household appliances sector. A third party in the same market, which had not been raided, asked its external counsel to conduct an internal investigation and document review to assess any potential
7. Cass. Crim, January 26th, 2022, n17-97.359 8. French Supreme Court, Criminal Chamber, 25 November 2020, n19-84.304; French Supreme Court, Criminal Chamber, 20 January 2021 n1984.292.
competition law risks. The external counsel summarised its findings, including a selection of potentially problematic internal emails, in a memo.
In 2014, the FCA carried out new dawn raids, now targeting this company, and seized the outside counsel's memo and attachments, as well as in-house counsel's internal correspondence following up on the results of the internal investigation.
Following an appeal by the company before the Paris Court of Appeal on the ground of a breach of legal privilege, the Court of Appeal annulled the seizure of these documents in 2017.
The FSC ruling: in concreto versus in personam analysis
The FCA challenged the Court of Appeal ruling before the FSC. The FCA argued in particular that French legal privilege provides for an "in personam" regime, based on the status of the sender or recipient: ie, it only applies to correspondence exchanged with an outside counsel registered at a French bar, and not to companies' internal correspondence, regardless of the document's content.
The FSC did not endorse the FCA's interpretation. The FSC upheld the position
of the Paris Court of Appeal, considering that both the external counsel's memo, including its attachments (ie, internal emails of the company), and other internal emails from in-house counsel, were legally privileged. It held in particular that the Court of Appeal was right to consider, after examining the documents in concreto, that:
certain documents, although not sent by or to outside counsel, did refer to the defence strategy established by the external law firm (in particular, the opportunity to apply for leniency);
some other internal documents referred to the alleged anti-competitive practices that the FCA were looking to establish during the 2013 dawn raids and aimed to assess the practices of the company with a view to bringing them into line with competition law and to preparing the company's defence in case of a future potential investigation.
For both categories of internal correspondence, the FSC ruled that their "main purpose" ("l'objet essentiel") was the advice provided by outside counsel in connection with the preparation of the company's defence, ie, legally privileged information. Therefore, these documents should also be considered as legally privileged correspondence, and the FSC
considered that their seizure by the FCA during the 2014 dawn raids was rightfully rendered null and void by the Court of Appeal.
A significant development
This landmark decision by the FSC can be considered a significant development in the protection of the rights of companies and has been particularly welcomed by both in-house and external counsel.
Indeed, this decision extends the scope of legal privilege to internal correspondence, in particular in-house counsel's comments or recommendations, where this implements external counsel advice in connection with a defence strategy.
However, the practical enforcement of the FSC's new position may prove difficult, because the rather vague concept of "main purpose" of the document used by the FSC leaves room for interpretation. In addition, the FSC still limits legal privilege to correspondence in connection with the rights of the defence: legal privilege would therefore not cover advice delivered purely as a preventive measure.
10 GERMANY
HERBERT SMITH FREEHILLS
Germany
The Federal Cartel Office (FCO) remains vigilant on cartels and its President comments on the merits of pre-violation compliance measures
The FCO promised at its end-of-year press conference in December 20219 that it would enhance its cartel enforcement activities in 2022. The FCO has so far kept this promise.
New dawn raids
In early 2022 the FCO conducted dawn raids in the cable manufacturing sector. One of the companies concerned announced on the day of the raids that the FCO suspected that cable manufacturers may have coordinated the calculation of industry-standard metal surcharges in Germany10.
Raw material surcharges are used in many industries. Essentially, they apply in addition to the individually negotiated prices for a product, to allow for short-term changes in the metal/raw material procurement costs to be passed on directly to customers.
Surcharges often play a role in cartel cases. In 2019, for example, the FCO fined steel manufacturers EUR 646m for exchanging information and agreeing certain price supplements and surcharges (inter alia, for alloy) for quarto plates in Germany11. Another prominent example is the EU Commission's Airfreight decision12, in which it fined air cargo carriers for information exchanges regarding a fuel surcharge, a security surcharge and the commission payable on surcharges.
Given that the use of surcharges is often an industry standard, it might well be that the individuals in charge do not handle surcharges with the same care vis--vis their competitors as they treat individually negotiated prices. The FCO's cable sector dawn raid is an important reminder for compliance officers to keep surcharges on their radar.
Fines for manufacturers of transition structures for road bridges
In January the FCO fined manufacturers of transition structures for road bridges a total of EUR 7.3 million for a quota cartel.13 According to the detailed case report, the two major suppliers of transition structures for road bridges in Germany engaged in a textbook example of a quota cartel:.
The companies had agreed to fix their market shares in the form of quotas and thus divide the market among themselves.
Compliance with the quotas was monitored by the companies' respective sales staff, who also intervened in case of significant deviations.
Significant future orders were divided among the companies in order to comply with the agreed quota.
In order to implement the cartel, the parties also agreed upon a uniform formula for calculating prices.
Given that most buyers of transition structures (ie, owners of bridges) come from the state sector, the conduct could also constitute formal bid-rigging, which is a criminal offence in Germany. Hence, the public prosecutor's office was involved in the investigation and jointly searched companies and private residences with the FCO. The cartel investigation closed with the companies concerned being fined, but criminal proceedings against individuals are still pending.
The investigation itself was prompted by tip-offs from third parties in the market and not by a leniency application by one of the cartel participants. The companies then cooperated with the FCO and also entered into a settlement agreement, which substantially reduced their fines.
9. See our summary in the previous edition of Cartel Intel. 10.See here (only available in German). 11. FCO, Press Release of 12 December 2019. 12.EU Commission Decision of 17 March 2017, AT.39258 Airfreight. 13.FCO, Press Release of 10 February 2022 (only available in German).
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SECTGIOERNMTAITNLYE
11
FCO President casts doubt on usefulness of new compliance defence
Under the FCO's new guidelines on setting fines of October 202114 cartelists can potentially receive a discount on their fine if they can show they had an "effective" compliance procedure in place when the violation happened ("compliance defence"). So far the FCO has been rather reluctant to accept a compliance defence in cartel cases. The reform of the Act against Restraints of Competition (ARC) in 2021, however, introduced the concept of compliance measures as a mitigating factor.15
At a recent online conference, FCO President Mundt reiterated that the compliance defence is now available under German law. However, he queried how often it would prove possible for undertakings to rely on such a defence.16 The FCO President thereby cast some doubt as to whether the compliance defence will be a reliable tool for undertakings which have violated antitrust rules.
In its new guidelines the FCO states that a discount on the fine presupposes that the compliance measure has been effective. Generally, a compliance measure will be deemed effective if it leads to the uncovering of the infringement and its subsequent reporting to the FCO. However, in such cases, the undertaking will most likely already benefit from its leniency application and the additional benefit of a compliance defence should not be decisive.
Conversely (although not explicitly spelled out by the FCO in its new guidelines), the compliance measure will most likely not be viewed as effective if the infringement is uncovered only after the FCO has inspected the undertaking. However, the effectiveness of a compliance measure is not precluded if the only reason that the measure has not led to detection and reporting is that the persons responsible for the infringement acted for their own personal benefit, disregarding the compliance code and deliberately misleading their superiors.
Furthermore, the guidelines state that it is not possible to take account of pre-offence compliance where a person responsible for the management of an undertaking was involved in the infringement. This last exception might make it difficult for undertakings to rely on the compliance defence in practice. The guidelines do not spell out clearly what exactly the "involvement" of management means and who exactly belongs to "management". In light of President Mundt's rather sceptical recent comment, it appears reasonable to assume that the FCO will interpret the exception of management involvement rather broadly thereby limiting the scope of the compliance defence.
14.For more details see our summary here. 15.s. 81d(1)No. 4 and 5 ARC 16.Sanctions: EU, France, Germany, What's New? Concurrences, online, 14 February 2022.
12 ITALY
Russia Italy
The Supreme Administrative Court annuls EUR 678 million fines imposed on the captive banks of car manufacturers
The Italian Supreme Administrative Court has annulled the huge fines imposed by the Italian Competition Authority ("ICA") on the captive banks17 of nine automotive groups18 and two trade associations19 for violation of Article 101 TFEU. This Court upheld the ruling of the lower court that the ICA had taken an unreasonably long period (around three years) to launch its investigation after receiving a leniency application.
Background
By decision No. 27497 of 20 December 2018 (as amended by decision No. 27498 of 16 January 2019), which followed a leniency application filed by Daimler AG20 on 3 March 2014, the ICA imposed fines totalling around Euro 678 million upon nine captive banks and two trade associations for having entered into an anticompetitive agreement in breach of Article 101 TFEU aimed at distorting, through financing, the competitive dynamics of the automotive market. In particular, according to the ICA, the agreement concerned the exchange of commercially sensitive information relating to both current and estimated sale volumes and prices.
The TAR decisions
Through 15 decisions published on 24 November 2020, the Regional Administrative Court of Lazio ("TAR Lazio") upheld the appeals lodged by the captive banks and the trade associations for annulment of the ICA's decision. The TAR Lazio ruled that the ICA's decision was unlawful on both procedural and substantive grounds.
In terms of procedure, the delay in starting the proceedings (which occurred about three years after the submission of the relevant leniency application) was considered incompatible with the general principle of efficiency and sound administration. Indeed, following well-established case-law, the TAR Lazio held that the ICA violated the parties' right to a reasonable duration of the proceedings, by delaying the launch of the proceedings for three years.
In the Court's opinion, the ICA refrained from starting the proceedings due to the fact that a parallel leniency application was pending before the European Commission, although all necessary information had already been provided in the context of the leniency application received by the ICA.
Moreover, the TAR Lazio stated that the ICA failed to investigate in-depth whether the information exchanged was relevant to competition in the market and, therefore, capable of distorting competition.
In addition, in terms of substance, the TAR Lazio held that the ICA's decision was illogical due to the inconsistency between the investigation scope focusing on the automotive financing sector and the final decision where the reasoning was transposed to the sales of automobiles through financing.
The Supreme Administrative Court decisions
By a set of judgments rendered on 2 February 2022, the Supreme Administrative Court dismissed the appeal lodged by the ICA against the TAR Lazio decisions, definitively annulling the ICA's fines.
17. A captive bank is a wholly-owned subsidiary of a group of companies whose purpose is to provide banking services to the group and those with whom the bank deals.
18.Namely, Banque PSA Finance SA, Banca PSA Italia S.p.A., BMW Bank GmbH (severally liable with BMW AG), FCA Bank S.p.A., FCE Bank Plc. (severally liable with Ford Motor Company), General Motors Financial Italia S.p.A. (severally liable General Motor Company), RCI Banque SA (severally liable con Renault SA), Toyota Financial Services Plc. (severally liable with Toyota Motor Corporation), and Volkswagen Bank GmbH (severally liable with Volkswagen AG).
19.Namely, Assilea (the Italian Leasing Association) and Assofin ~(the Italian Association of Consumer Credit and Real Estate).
20.Daimler AG and its subsidiary Mercedes Benz Financial Services Italia S.p.A. were not fined, since Daimler filed the leniency application.
HERBERT SMITH FREEHILLS
HERBERT SMITH FREEHILLS
ITALY
13
In particular, the Supreme Administrative Court upheld the TAR Lazio's conclusions for the following reasons:
although Italian laws do not set out a maximum duration for the investigative phase of the ICA's proceedings, it is not reasonable for this phase to extend for an unjustifiably long period, since such behaviour is in breach of the principle of efficiency and sound administration. From a general standpoint, Italian case-law allows the ICA, if the case is particularly complex, to start the investigation a few months later than the leniency application but certainly not years later;
the ICA unreasonably prolonged the pre-investigation phase without any objective reason.
Comments
The Supreme Administrative Court upheld a general principle already consolidated in other areas of law, according to which proceedings carried out by public authorities, including independent regulatory or competition authorities, cannot be unreasonably prolonged.
However, it is worth noting that in the case at issue the Court focused more on the duration of the pre-investigation phase rather than on the investigation phase, stating that the ICA should not only carry out the investigation in a reasonable period of time but should also decide whether or not to open a formal investigation within a reasonable period.
Given the procedural issue above, the Court did not focus on the nature of the information exchanged between the parties, nor on whether or not it was commercially sensitive, nor on the inconsistency between the initial investigation scope and the final decision of the ICA.
14 SOUTH AFRICA
HERBERT SMITH FREEHILLS
South Africa
The Competition Appeal Court clarifies that it is not always incumbent on a firm to distance itself from a cartel
On 10 February 2022, the Competition Appeal Court ('CAC') handed down a judgement21 overturning a finding made by the Competition Tribunal ('Tribunal') that Cross Fire Management (Pty) Ltd ('Cross Fire') was a party to an overarching understanding, arrangement or agreement in contravention of the prohibitions on cartel conduct in the Competition Act and continued to be a party until the initiation and referral of the complaint by the Commission to the Tribunal.
While Cross Fire did not dispute being party to the prohibited conduct, it denied participating in any collusion after mid-2009. The date on which Cross Fire ceased to be a party to the cartel is important as, at the time that the complaint was referred to the Tribunal, a complaint in respect of a prohibited practice could not be initiated by the Commission more than three years after the practice had ceased. The Commission referred its complaint against Cross Fire and others in March 2015.
The CAC's decision has clarified the law on the obligation imposed on a firm to distance itself from cartel conduct, noting that the same test cannot be applied to all types of collusive behaviour.
The duty to speak out in price-fixing cases
In the case of MacNeil,22 the CAC held that passive participation in cartel conduct, without public distancing, is sufficient in certain circumstances to convey consensus. Such participation creates a belief in the minds of the other participants that the passive participant has subscribed to the arrangement and intends to comply with it. The CAC noted that under certain circumstances, South African law imposes on a person a duty to speak out, and failure to do so where a duty exists may
amount to an objective manifestation of consent, regardless of the subjective intention of the party.
The question whether a duty to speak out exists in particular circumstances is ultimately a question of policy and fairness. If a firm's representative attends a meeting of competitors knowing that collusive activity will be discussed, or if he/she finds such activity being discussed after arrival, in general, the representative would be under an obligation to distance him/herself from the proposals being discussed, either by leaving the meeting or by stating that he/she wants no part of them: ie a "firm repudiation".
The determination of whether the passive attendee's conduct is such that it creates a reasonable impression in the minds of the other participants that he/she assents to such proposals is ultimately a question of fact. The CAC acknowledged that there may be circumstances where silence cannot reasonably be shown to have been understood as assent.
In the case of Omnico,23 the CAC held that once the Commission has adduced sufficient evidence of cartel conduct, it is incumbent on the firm to put forward rebuttal evidence to establish that its participation was without any anticompetitive intention. The CAC found that, on the facts of the case, there was undisputed evidence of a failure by Omnico to overtly disagree or distance itself from a discussion during a meeting of wholesalers about raising prices. Consequently, Omnico had not met the necessary standard of proof, being consistent, clear and convincing that it had ceased to participate in the cartel.
The CAC also stated that silence within a specialised context can never equal non participation and that, consistent with European competition jurisprudence, there is a duty to speak out or to report to authorities or publically distance oneself from any uncompetitive behaviour.
The duty to speak out in bid-rigging cases
The CAC in Cross Fire noted that distancing is not an independent legal requirement that exists for its own sake, but it is a duty imposed on a firm where its passivity or silence might cause other cartel members
21.Cross Fire Management (Pty) Ltd v Competition Commission Case no.: 192/CAC/Feb21. 22.MacNeil Agencies (Pty) Ltd v Competition Commission Case no.: 121/CAC/Jul12. 23.Omnico (Pty) Ltd v Competition Commission Case no.:142/CAC/June16.
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Conclusion
The CAC's decision in Cross Fire provides useful guidance on the application of the requirement for a firm to publically distance itself from cartel conduct. The Commission and the Tribunal seemed to be under the misapprehension that the law always requires a clear and unambiguous communication by a firm to its competitors for a firm to meet its obligation to distance itself from a cartel. The CAC has now made clear that the applicability of the obligation is fact-specific and ultimately depends on whether silence perpetuates competitive harm on the basis that it causes other cartel members to implement or continue with their collusive deal.
to implement or continue with their collusive deal on the assumption that the passive or silent firm has acquiesced in or is continuing to abide by the arrangement.
With respect to bid-rigging specifically, the CAC held that the requirement for a firm to distance itself from cartel conduct cannot be divorced from the purpose that distancing is intended to serve, nor can it simply be transposed to a bid-rigging cartel without regard to the differences between bid-rigging and price-fixing. In a bid-rigging cartel, the harmful understanding is that the parties will rig future tenders the understanding does not itself cause harm,
rather it creates an enabling environment within which actual harm can be brought about by the rigging of particular tenders. A particular tender is only brought within the scope of the collusive understanding by communication between cartel members.
Therefore, where the firm's stance about the illicit understanding is not relevant to any ongoing harm that occurs, silence or inactivity should not in itself preclude the firm from raising the defence that its prohibited conduct ceased when it stopped performing collusive acts. On the facts of the case, the CAC found that there was no evidence that Cross Fire's supposed failure
to communicate its internal decision to cease participating in collusive tendering to other cartel members was responsible for the perpetuation of any competitive harm.
Cross Fire's participation was therefore found by the CAC to have ceased more than three years prior to the initiation of the complaint by the Commission.
16 SPAIN
HERBERT SMITH FREEHILLS
Spain
CNMC decision annulled for failing to consider whether competitors had an objective need to set up temporary consortia when bidding for public contracts
The Audiencia Nacional (the Spanish National Court, or "NC") has recently delivered three judgments24 (the "Judgments") in which it annulled the decision of the National Markets and Competition Commission (the Comisin Nacional de los Mercados y la Competencia, or "CNMC") in case S/0519/14 INFRAESTRUCTURAS FERROVIARIAS ("the Decision"). The NC considered that the CNMC had not properly established the absence of an objective need for the parties to set up a temporary consortium (known as Uniones Temporales de Empresas or "UTEs") in order to take part in public tenders.
The CNMC concluded in its Decision that JEZ, Talleres Alegra and two other companies had, by setting up UTEs, entered into price-fixing agreements and exchanged commercially sensitive information over a period of 15 years in the context of public tenders for the supply of railway turnouts. These tenders were launched by ADIF, the Spanish public entity responsible for the management of railway infrastructure ("ADIF").
Specifically, the CNMC pointed out that the sanctioned entities had set up UTEs for the purpose of simulating the existence of competition among them when taking part in public tenders launched by ADIF for the supply of railway turnouts, when in fact they had previously agreed to share the contracts equally among themselves once those contracts had been awarded.
The objective need for creating UTEs
The NC clarifies in these three rulings that the CNMC ought to have analysed whether the companies objectively needed to create the UTEs to be able to take part in the public tenders. In particular, the NC points out that the CNMC should have assessed whether creating a UTE was a necessary mechanism for the sanctioned companies to be able to take part in the tenders and whether it
would otherwise have been impossible for them to bid alone and that, therefore, it would only have been possible for each company to take part in the tender with any chance of success alongside the other members of the UTE.
The NC also clarifies that merely participating in a tender through a UTE cannot, in itself, be considered as a means of hiding collusive practices. The CNMC must undertake a more detailed and in-depth analysis of the relationships among the companies involved to be able to determine the existence of anticompetitive conduct.
The NC goes on to highlight that, in those cases where creating a UTE is deemed to be necessary, far from limiting or harming competition, setting up the temporary relationship actually increases competition.
Lack of evidence submitted by the CNMC
The NC also found in this case that the CNMC did not provide any grounded evidence to prove that setting up a UTE was unnecessary. Specifically, in order to justify
that establishing a UTE was unlawful in this case, the Decision contended that the companies had sufficient capacity to compete among themselves by submitting individual bids in view of their turnover in the market concerned during the period under investigation.
In the opinion of the NC, the mere reference to economic solvency does not mean that each of the companies involved had sufficient technical capacity to undertake each of these complex contracts alone. The NC stressed that ADIF chose mixed technology for the construction of high-speed rail infrastructure whose patents were owned by foreign companies, and that none of the sanctioned companies had the patent licenses to be able to perform any of the contracts on their own.
The NC concludes that the CNMC's Decision was based on categorical statements and that it sanctioned the companies without properly analysing the circumstances, particularities, competitors involved, technological needs, or how licenses for the development of the infrastructure were distributed In the NC's
24.Judgments of the Contentious Administrative Chamber of the NC, in Case 5847/2021, dated 27 December 2021, in Case 399/2022, dated 28 January 2022; and in Case 402/2022, dated 28 January 2022.
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opinion, these factors did offer a reasonable objective justification for using a UTE.
Additionally, the NC found that the CNMC ought to have made a greater effort to explain why the information exchanged in the context of the UTEs exceeded what was essential in this kind of contractual collaboration; how contract prices were altered (which was not something that was detected or denounced by ADIF or the other bidders); or how the market was restricted.
Finally, the NC also points out that the fact that ADIF specifically required the sanctioned companies to participate in tenders through UTEs was something that should have been considered as evidence of an objective need to set up a temporary consortium in order to take part.
In light of all the above considerations, the NC ultimately upheld the appeal and annulled the Decision.
Conclusions
When assessing whether bidding consortia agreements in public tenders give rise to a competition infringement, the CNMC must undertake an in-depth analysis of the objective need for setting up a UTE.
Additionally, the CNMC needs to submit reasoned evidence to support the lack of objective need for creating UTEs. In particular, a mere reference to economic solvency based on turnover data does not suffice to justify a finding that there was no objective need for their creation. The CNMC should also assess whether the technical capacity of each of the member
companies is sufficient to enable them to undertake the tender individually.
Finally, the fact that the public entity that launched the public tenders specifically required the companies to participate through UTEs is a factor that the CNMC needs to assess as proof of an objective need to set up a UTE.
Overall, the Judgments represent a setback for the CNMC in its ongoing drive to prosecute suspected bid rigging in public procurement procedures in Spain.
18 UK
United Kingdom
UK Payment Systems Regulator issues 33m fine for market-sharing cartels
In its first ever infringement decision, the UK Payment Systems Regulator ("PSR") imposed fines on five companies for two market-sharing cartels in the pre-paid cards market in Great Britain.25
The PSR decision
The two market sharing cartels related to pre-paid cards used by UK public authorities to distribute welfare payments.
The PSR found that the first cartel took place between 2012 and 2018 in the context of the National Prepaid Cards Network a network of public sector bodies interested in pre-paid cards and Mastercard "programme managers" (the "NPC Network").
The NPC Network was sponsored, and solely funded by, Mastercard (save for a brief period in 2016). The PSR found that Mastercard, allpay Limited, Advanced Payment Solutions Limited ("APS"), Prepaid Financial Services Limited ("PFS") and Sulion Limited arranged for allpay, APS and PFS not to poach one another's customers. The PSR also found that the parties colluded to "exclusively allocate [...] potential new public sector customer contacts obtained from [NPC] Network promotional events".26
The second cartel involved a discrete arrangement between APS and PFS not to target one another's public sector customers when those customers' contracts were up for renewal.
Each of the parties entered into settlement arrangements with the PSR and as a result
the PSR applied reductions to the parties' fines: allpay, PFS and Mastercard received a 20% penalty discount for settling prior to the PSR issuing its Statement of Objections, while APS and Sulion each received 10% reductions as a result of settling after the Statement of Objections was issued.
PFS also approached the CMA to apply for leniency under the CMA's leniency policy in February 2018, after the start of the PSR's investigation in October 2017, and was successful in obtaining a further reduction.
Following reductions for settlement and (in the case of PFS) leniency, the PSR imposed the following fines on each of the parties: (i) Mastercard: 31.6m (ii) PFS: 916,746; (iii) allpay: 28,553; (iv) APS: 755,419; and (v) Sulion: 572.27
Concurrent regulators in the UK
The PSR is one of a number of sector-specific regulators in the UK which are empowered to enforce competition law (so-called 'concurrent regulators') in addition to the UK's main competition authority, the CMA. As noted above, this decision represents the first infringement finding of the PSR since it was granted jurisdiction to enforce competition law in relation to payment systems almost 10 years ago.28
The PSR decision follows other concurrent regulators, such as Ofgem, the Financial Conduct Authority ("FCA") and the Civil Aviation Authority ("CAA"), which have jurisdiction over the energy sector, financial sector and aviation sector, respectively. Each of these regulators has recently used its competition investigatory powers for the first time with the CAA29 and Ofgem30
25.A non-confidential version of the PSR's Decision was published on the PSR website on 5 April 2022.
26.See the PSR press release, available here.
27.The Sulion fine was reduced by the PSR to ensure that the level of fine did not exceed the statutory maximum of 10% of its worldwide group turnover.
28.Pursuant to the concurrency provisions of the Financial Services (Banking Reform) Act 2013. Note that the PSR is not able to enforce the UK's criminal cartel offence.
29.See: Access to car parking facilities at East Midlands International Airport, CAA decision of 2017 available here.
30.See: Decision to impose financial penalties on Economy Energy, E (Gas and Electricity) and Dyball Associates, Ofgem decision of 2019 available here.
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both issuing fines for cartel conduct (and the FCA31 issuing penalties for an information-sharing arrangement). The Office of Rail and Road ("ORR") is also currently consulting on commitments in relation to suspected competition law infringements.32
Key takeaways The PSR's decision forms part of a broader trend of the UK's concurrent regulators exercising their competition enforcement powers. It is an important signal to companies that operate in sectors subject to oversight by such regulators that they will not hesitate to investigate and prosecute suspected infringements of competition law.
Managing enforcement risk therefore involves being cognisant of the relevant concurrent regulator's competition guidelines and procedures, as well as those of the CMA.
A key aspect of the UK's concurrent regime is that leniency applications are managed via a "single queue system", whereby leniency applicants must approach the CMA not the concurrent regulatory to obtain leniency. As noted above, PFS applied for leniency following the initiation of the PSR's investigation and successfully obtained a penalty reduction: the level of reduction for leniency has not yet been published.
Importantly, under the CMA leniency regime, making a successful leniency application prior to the initiation of a competition investigation (so called 'Type A' applicants) affords guaranteed corporate immunity from financial penalties, blanket immunity from criminal prosecution and guaranteed protection from director disqualification orders. Obtaining Type A immunity requires applicants to be 'first in the queue' before an investigation starts: in regulated sectors, this includes investigations by concurrent regulators and not just CMA investigations.
31.See: Anti-competitive conduct in the asset management sector: FCA decision of 2019 available here.
32.See: the ORR's Railway Assessment Centre Forum commitments investigation, available here.
Key Contacts
Daniel Vowden Partner, Brussels T +32 2 518 1851 [email protected]
Adrian Brown Consultant, Brussels T +32 4 7788 4001 [email protected]
Marie Louvet Counsel, France T +33 1 53 57 70 75 [email protected]
Sergio Sorinas Partner, Paris T +33 1 53 57 76 77 [email protected]
Florian Huerkamp Counsel, Germany T +49 211 975 59063 [email protected]
Marcel Nuys Partner, Dusseldorf T +49 211 975 59065 [email protected]
Francesca Morra Partner, Milan +39 02 3602 1412 [email protected]
Jean Meijer Partner, Johannesburg +27 10 500 2642 [email protected]
Henar Gonzalez Partner, Madrid T +34 91 423 4016 [email protected]
Stephen Wisking Partner, London T +44 20 7466 2825 [email protected]
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