This article considers two current challenges to the European Commission (Commission)’s cartel enforcement – fi rst, EU leniency trends and second, multiple recent court annulments of Commission fi nes. In particular, although leniency policies play a fundamental role in detecting and deterring cartel activity, the effectiveness of the EU regime has increasingly been called into question. Separately, the Commission has seen a number of its fi nes relating to cartel violations annulled due to a lack of suffi cient reasons. Together, these trends suggest the Commission may receive less co-operation from alleged cartelists and a greater willingness to challenge infringement decisions, particularly the level of fi nes imposed.
In order to re-activate the Commission’s cartel enforcement, the Commission must be pro-active in addressing leniency concerns and ensure it provides suffi cient reasoning when calculating its cartel fi nes.
EC leniency trends – is there a decline?
A decay in leniency applications to the Commission has been the focus of lively debate for a number of years. In particular, the introduction of the EU Damages Directive and the practical challenges of coordinating multi-jurisdictional leniency processes have been found to increasingly disincentivise parties from applying for leniency. The statistics of Commission leniency applications as pictured by private reports shed some light into the apparent decrease in the number of leniency applications in recent years – “from 46 in 2014, to 32 in 2015, to 24 in 2016, and to 18 in 2017” and 17 in 2018.1
At first glance, these numbers and trends demonstrate a marked fall in the number of leniency applications, which could be driven by two causes – fi rst, the increasing number of private damages actions and, to a lesser extent, the often multi-jurisdictional nature of cartel investigations.
Increasing private damages actions
The introduction of the Damages Directive has opened the door for customers, purchasers or other parties affected by cartels to claim both direct and indirect losses incurred as a result. The increasing prevalence of such claims across multiple jurisdictions in the EU has had an arguably “chilling” effect on leniency applications in two main ways:
- Financial exposure – the fi nancial exposure posed by private damages actions can far outweigh any reduction or potential immunity from a fi ne granted by the Commission through the leniency process. Banks against which there is a Commission decision in the Forex cartels, for example, are facing in the UK alone two opt-out collective actions (of which only one is likely to proceed) and a further damages claim brought by around 350 investors.2 Pending the UK courts’ confi rmation of the scope of such claims, the damages potentially payable by the banks could run into the millions or even billions – no doubt a fi gure that would have otherwise signifi cantly undermined the cost/benefi t analysis of the banks’ choice to apply for leniency in the fi rst place.
- Publicity and disclosure – while the Damages Directive offers some protections to leniency applicants by protecting leniency statements (as well as settlement submissions) from disclosure, the underlying content of such statements remains at risk of such disclosure through: (i) the public version of the Commission’s infringement decision (which often includes quotations or other content from leniency statements); or (ii) the issuance of detailed disclosure orders against defendants in national proceedings. However, the Commission’s recent adoption of guidance on the protection of confi dential information by national courts in private damages actions may at least give leniency applicants some comfort that, even if disclosed to some extent, the confi dential information underpinning their leniency statements will be protected from unnecessarily broad disclosure.3
Multi-jurisdictional nature of cartel investigations
The multi-jurisdictional nature of cartel activity typically means that alleged cartelists are exposed to liability across several jurisdictions. The absence of a “one-stop shop” for leniency applications and an increasing number of converging national leniency programmes often means alleged cartelists must apply for leniency in multiple jurisdictions worldwide in order to benefi t from reduced fi nes. The increased legal costs and administrative burden involved in such concurrent applications may be a disincentive to fi le for leniency and could even expose parties to investigations in other jurisdictions.
For a number of years, most national competition authorities (NCAs) have based their national leniency programmes on the ECN Model Leniency Programme (the ECN Model), which had the purpose of “ensur[ing] that potential leniency applicants are not discouraged from applying as a result of the discrepancies between the existing leniency programmes within the ECN”. Despite this, the ECN Model failed to address a number of issues that typically arise in a non-harmonised system of parallel competences – this was demonstrated clearly by the Court of Justice (ECJ)’s preliminary ruling in DHL .
In that case, DHL had received full immunity from the Commission as a subsidiary of Deutsche Post in the March 2012 Freight Forwarding cartel. In parallel to its leniency application to the Commission, DHL had made a summary application for leniency to the Italian Competition Authority (ICA), in line with the ECN Model. Whilst DHL claimed that it should have been granted a marker based on the date and time of its application to the ICA, the ICA considered that DHL’s summary application did not include information regarding road freight forwarding services. As a result, the ICA granted a marker to another applicant that had provided such information, eventually giving this applicant full immunity and DHL only a 50 per cent fi ne reduction.
DHL brought a claim against the ICA in the Italian courts arguing that its summary application should have been considered in conjunction with its Commission leniency application, and that it should have been granted a marker in the Italian leniency process having been the fi rst party to approach the ICA. However, this claim was rejected by the ECJ in a preliminary ruling – specifi cally, the ECJ held that: (i) the ECN Model is not binding on NCAs; and (ii) there was “no legal link” between an immunity application to the Commission and a summary application to an NCA, so as to require such NCA to assess the summary application in light of the Commission application.
The now fi nalised ECN+ Directive (for which the transposition deadline is 4 February 2021) goes some way to addressing the issues raised in DHL , by seeking to harmonise leniency applicant protections and strengthen NCAs’ enforcement powers. Although the Directive falls short of a “one-stop shop”, it nonetheless introduces some notable improvements on the ECN Model which may allow for a harmonisation of leniency applications across the EU in future (and in turn potentially encourage more leniency applications). This includes obligations on member states to ensure NCAs: (i) allow parties to apply for markers in leniency applications; (ii) accept summary applications from applicants who have also applied to the Commission for leniency, with such applications becoming full applications from their original date of fi ling in the event that the Commission decides not to pursue the investigation; and (iii) protect current and former directors of applicants for immunity from individual civil or criminal sanction (provided such individuals actively co-operate with the investigation).
The future of leniency
Despite these challenges, the traditional incentives for leniency still apply – the possibility for immunity or signifi cant fi ne reductions and a mitigation of reputational damage. Leniency programmes may therefore remain a key feature of the antitrust enforcement landscape in future. However, although all parties received leniency-based fi ne reductions in the Commission’s last three cartel decisions,4 the Commission reported in April 2020 that “over 25 per cent of [its] currently open cartel investigations have started ex offi cio”.5 This alone may evidence the long reported decay in leniency applications.
Therefore, antitrust enforcers should not be complacent as to the appeal of leniency programmes – former directorgeneral of DG COMP Johannes Laitenberger, for instance, suggested that the link between private damages actions and reduced leniency applications is “purely speculative”.6 The reality of the situation and statistics outlined above speak for themselves – antitrust enforcers should at least be concerned by the changing perception of leniency and how this may infl uence companies’ decisions on whether or not to apply for leniency in future.
The Commission and NCAs must be pro-active in addressing these issues by continuing to ensure harmonisation of leniency programmes across the ECN even after the transposition of the ECN+ Directive, as well as developing other investigative tools. The CMA has already taken certain steps on the latter, introducing new measures to make it easier to report cartels and incentivise whistleblowing (including fi nancial rewards of up to £100,000).7 Active market screening may also be a way for competition authorities to ensure detection of a broader range of cartel activity.
In a recent string of judgments from the EU Courts, various fi nes imposed by the Commission in cartel cases have been annulled in full due to the Commission providing an insuffi cient level of reasoning on the calculation of such fi nes in its decisions. From the General Court (GC)’s judgment in ICAP in November 2017, later upheld by the ECJ on appeal in July 2019, this trend has been reaffi rmed in subsequent cases.
Obligation to provide suffi cient reasons – ordinary versus discretionary fi ne calculations
In its judgment in ICAP , the ECJ confi rmed that the methodology of the Commission’s fi ne calculation must “be disclosed to the interested parties, so that they can be put in a position to make their views known on the factors on which the Commission intends to based its decision”. In particular, the Commission was found not to have given suffi cient information to allow ICAP to understand the justifi cation for the fi ne calculation methodology favoured by the Commission, nor for the court to be able to verify such justifi cation. The GC’s annulment of the fi ne imposed on ICAP in full was therefore upheld.
In this particular case, ICAP was a “facilitator” rather than a direct cartel participant and the Commission had departed from its traditional fi ning calculation mechanism in accordance with paragraph 37 of the Fine Guidelines. Similarly, in its March 2019 judgment in the Pometon case, the GC also found the Commission to have failed to provide suffi cient reasoning for the fi ne calculation in another instance where it had applied its discretion under paragraph 37 of the Fine Guidelines, specifi cally because it had failed to explain the different rate of percentage reductions applied to each of the participants. As a result, the GC increased the percentage reduction factor applied by the Commission to Pometon’s fi ne on account of mitigating circumstances from 60 to 75 per cent (which resulted in a reduction of Pometon’s fi ne of approximately 40 per cent). Advocate General Hogan’s Opinion in Pometon’s subsequent appeal to the ECJ proposed further reducing the fi ne by increasing the percentage reduction factor to 83 per cent.
The courts’ emphasis on the Commission’s obligation to provide suffi cient reasoning in its fi ne calculation is also applicable to other cases where the Commission applies its ordinary fi ne calculation procedure. Such fi nding was affi rmed by the GC in its September 2019 HSBC judgment, where the Commission had indeed adopted such “ordinary” procedure. HSBC specifi cally took issue with the Commission’s use of a “proxy” for the value of sales that would ordinarily be used as a starting point for the fi ne calculation – in that case, the nature of the cartelised “product” at issue (namely, euro interest rate derivatives or “EIRDs”) was such that no “sales” were generated in the usual sense that could form the basis of a value of sales starting point. As a result, the Commission chose to use cash fl ows received by HSBC from its portfolio of EIRDs, applying a percentage reduction factor to such fi gure to account for the specifi c characteristics of the EIRD market (eg netting).
As well as reiterating the Commission’s general obligation to state reasons when explaining its fi ne calculation (namely, the obligation to provide reasoning as to the amount of the fi ne and the method of its calculation, by indicating the factors enabling it to determine the gravity and duration of the infringement), the GC held that although the use of cash fl ows as a proxy for the value of sales in this case was not “inherently incorrect”, the percentage reduction factor selected would have a substantial impact on such proxy amount. The Commission therefore had to provide suffi cient reasoning for its selection of such factor – on the facts, it had failed to do so by dedicating only fi ve recitals of its decision explaining this factor. Whether or not the Commission succeeds in challenging this fi nding in its appeal of the GC’s judgment before the ECJ remains to be seen.
Settlement fi nes – not immune from challenge
Whilst both the fi ne calculation and substantive infringement-fi nding aspects of Commission cartel decisions are frequently challenged by addressees in EU Court proceedings, the inherently co-operative nature of settlement proceedings mean fi ne challenges in such contexts are rare. Challenges of substantive infringement fi ndings are also in practice pre-empted by the settlement process, given that settling parties are required to acknowledge their liability for the infringement in their settlement submissions. By contrast, settling parties do not similarly “agree” to the specifi c fi ne imposed by the Commission, but instead receive a prospective fi ne range towards the end of the settlement procedure. In practice, therefore, the fi ne imposed is often the only aspect of a settlement decision that is challenged by settling parties.
Such challenges have occurred in a small number of previous settlement cases, including the EIRD case where one of the settling banks, Société Générale, sought to appeal the Commission’s fi ne calculation before the courts. However, such appeal was withdrawn after the Commission issued an amended settlement decision reducing Société Générale’s fi ne to just over half the original fi ne amount imposed (from €445 million to €227 million). In its press release reporting the amendment, the Commission attributed such reduction to a new calculation of Société Générale’s value of sales.
Just recently in September 2020, Clariant, a settling party in the Ethylene purchasing cartel, appealed “certain aspects” of its €155.8 million fi ne which it claimed was disproportionate. Such action could potentially be resolved with a similar approach as in EIRD – ie the Commission could adopt an amendment decision updating Clariant’s fi ne and avoid any more publicised discussion of its settlement fi ne calculation mechanism (which may otherwise discourage cartelists from making use of the Commission’s settlement procedure). Alternatively, any substantive progress in this appeal could signal a continued challenge of Commission fi nes in all procedures, even those where fi ne parameters are set through the settlement process.
The Commission has a number of issues to remain aware of in its cartel enforcement agenda going forward
The string of recent judgments annulling Commission fi nes due to a lack of suffi cient reasoning, often in full, will no doubt put the Commission on notice as to the level of detailed explanation that is required when explaining its fi ne calculation methodology in cartel decisions. This trend may also encourage more fi rms to challenge the Commission’s fi nes, even if imposed within the arguably more structured parameters of a settlement procedure. What is clear is that in all cases, the Commission will need to pay particular attention to its fi ne calculation reasoning if it wishes to avoid future annulments.
The decay in leniency applications may mean the Commission has less and less recourse to rely on the leniency procedure in future – the increasingly large fi nancial exposure through private damages actions may lead to a continued decay of leniency applications. Companies may start to consider that the cost of making one or more often burdensome leniency applications heavily outweighs any potential benefi t in fi ne immunity or reduction, and may instead begin to move towards taking their chances and challenging Commission cartel allegations in full. Either way, the Commission may have to start looking to move away from the more traditional modes of defendant co-operation it has so heavily relied on in its cartel enforcement practices in recent years.