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Editorial

Protection of Lenients and access to file before the Czech Antitrust Office

October 2012 - EU & Competition. Legal Developments by Randa Havel Legal.

More articles by this firm.

by Kristýna Oberfalcerová, Attorney-at-Law, RANDA HAVEL LEGAL

On 23 February 2012 the Regional Court in Brno (the "Court") delivered its judgement on an action against the decision of the Czech Antitrust Office (the "Office") in the case of screen manufacturers cartel (the "Judgement"). Even though the parties can still appeal against the Judgement it only summarizes the current decision-making practice of the European Commission (the "Commission") and the Court of Justice of the European Union (the "Court of Justice"), so there is no reason why the ruling should change in the future. Moreover, the amendment of Act No. 143/2001 Coll., on Protection of Economic Competition (the "Act") which is currently discussed before the Parliament more or less confirms the conclusions of the Judgement regarding the access to the file and defines certain rules of the Leniency procedure (the "Amendment") before the Office.

Facts and the decision of the Office     

The screen manufacturers [4] were penalized by the Office for fixing  television colour-screen prices, price ranges and minimum prices reached through mutual contact and meetings, which constitutes - according to the decision of the Office - illegal price fixing agreement leading to distortion of competition on the Czech market (the "Decision").

Material facts bringing the issue into suspicion and giving the Office the grounds to initiate administrative proceedings were provided from Samsung's Leniency application and from a similar application of Chungwa.

The Office decided that the parties to the antitrust proceedings and other competitors concluded a horizontal cartel agreement, prohibited by section 3 par. 1 of Act No. 63/1991 Sb., the Protection of Economic Competition Act, as amended before 30 June 2001 (the "Former Act") and by section 3 par. 1 of the Act. The cartel aimed at long-term fixing of the colour-screen prices by agreeing on target prices, price ranges and respective prices for different clients and for different types of products, on a coordinated price increases and on minimum prices.

Even though the cartel continued existing even after Czech Republic's accession to the European Union, the Office only examined the period from mid 1998 to 30 April 2004, i.e. to the moment of the accession, due to the fact that the Commission conducted investigation in the case for a possible breach of article 81 of the Treaty establishing the European Community. [5]

All the plaintiffs proposed the decision in question to be annulled and returned back to the Office for further proceedings.  Their argumentation was based on breach of their procedural rights by a denial to access the part of the file containing the Leniency application and also on the fact that a decision of the Office cannot be based solely on representations and materials provided to the Office by the Lenients.

Refusal to grant access to the part of file containing the Leniency application    

The plaintiffs claimed that their procedural rights were breached and that they were deprived of the right to a due process by the Office's refusal to grant access to the information contained in the Leniency applications during the essential part of the proceedings before the Office. Moreover, even during the part of the proceedings in which the plaintiffs were allowed to access the Leniency applications, their rights were supposed to be restricted, since they were not permitted to make copies and also since they were only presented with the versions of the Leniency applications in which the business secret of the Lenients was marked as impossible to read.

The Court based its decision on the fact that the decision of the Office was solely based on the content of the Leniency applications, whilst some of the information in the applications was never made available to the plaintiffs because of its quality of business secret of the Lenients.

Following the above mentioned it was necessary to solve two essential questions: (i) is it possible to deny the access to the part of the file containing the Leniency application and materials related to it to the other participants of the proceedings until the delivery of the statement of objections; (ii) is it possible to consider the information contained in the Leniency application as Lenient's business secret?

Temporary refusal to grant access to the Leniency applications

The Court concluded that the plaintiffs were entitled to access the file according to section 38 of Act No. 500/2004 Sb., the Code of Administrative Procedure [6] (the "Code of Administrative Procedure"), suggesting at the same time these applications to be under a regime of "specific rules". At this point the Court refers to a decision of the Court of Justice in the "Pfleiderer" case [7], which - in the Court's opinion - implies the need to consider the obligation to grant access to the file on one hand and the interest of detecting behaviour distorting competition on the other hand. The Court clearly established that it bases its decision on the assumption that "...there cannot be any differences between the approach to the EU competition law on one hand and to the national competition law on the other hand", i.e. it is justified to use the judicial practice of the Court of Justice to construe the Czech national law.

Based on the practice of the Court of Justice the Court concluded that the participants to the proceedings have the right to access the file including the Leniency applications, but not in all the phases of the proceedings. To support this conclusion the Court introduces three arguments: (i) the necessity to ensure the most favourable approach towards the Lenients to make the Leniency programme more attractive; (ii) more transparent and "generally reasonable" solution consisting of clear rules applicable to the access to Leniency application is necessary to make the Office comportable; and (iii) the opinion of the general advocate in the Pfleiderer case places the importance of securing compliance with the competition legislation above the procedural rights of other participants to the proceedings, whilst the EU's interest in protection of the competition law is, identical to the national interest, which is why this accent cannot be ignored, i.e. the interest in protecting the competition justifies the temporary refusal to grant access to the part of the file containing the Leniency application, regardless of whether such an application contains business secret or not.

For these reasons the Court does not consider the temporary refusal to grant access to the file to be a breach of the Code of Administrative Procedure. In spite of this the denial of the right in question must be restricted and according to the Court cannot exceed the moment of delivery of the statement of objections. After delivering the statement of objections the denial of the access to the Leniency application can rely on exceptions according to section 38 par. 1 of the Code of Administrative Procedure, more precisely of section 21 c of the Act which includes specific provisions on accessing the file in proceedings before the Office.

The Amendment introduces the Leniency programmes into the Czech legal system and sets several rules related to the procedure, including the provisions on accessing the part of the file containing the Leniency application. Following the decision made in the Pfleiderer case it became according to the government necessary to set up the rules applicable to Lenients and protection of their rights. Such protection was reflected into two new paragraphs in section 21 c of the Act, i.e. paragraph 3, which provides that the Leniency application shall be kept outside the file until delivery of the statement of objections and paragraph 4, according to which even after the delivery of the statement of objections the access to the Leniency application will be restricted. The restriction lies in the fact that such application will only be accessible to the participants to the proceedings before the Office and to their representatives and also in the fact that no materials shall be copied. [8]

Even though the main part of the Judgement is based on the conclusions of the Pfleiderer judgement which concerned the access to the file granted to the clients of decorative paper producers that were sanctioned by the German Antitrust Office for cartel, i.e. persons claiming damages caused by the breach of the competition regulations who were not participants to the respective proceedings before the German Antitrust Office, the Court decided that there is no reason why the access to the Leniency application for the purposes of civil claims should differ from the rules governing the right to access the file for defence in proceedings before the Office. In this respect, the conclusion of the Judgement partially contradicts the Amendment, because the proposed section 21c paragraph 4 specifies that only a participant to the proceedings or its attorney are entitled to access the file after the statement of objections has been delivered. Under these circumstances, the access to the file is not granted to a third party who claims to be affected by the Office's decision. According to the government, the main purpose of this provision is to protect the Lenients and to encourage the undertakings to apply for the Leniency programme without concerns that a third party can access the materials and use them for instance for an action for damages caused by a possible cartel. The conclusions of the Pfleiderer decision should be actually fulfilled by the Office granting the documents related to the Leniency programme protected by technical means to the competent court should this court request it, in case of an action for damages caused by cartel filed against a competitor participating in the Leniency programme. It is then up to such court to determine the conditions under which the access to the Leniency documents is granted or denied, taking into account the interests protected by the EU law.

Assessment of the trade secret by the Office

After the Court dealt with the exclusion of the possibility to access the part of file containing the Leniency application until the moment of delivery of the statement of objections, the Court had to address the question of the content of the application and the question of Lenients' business secret. Until recently an unwritten rule governed such a conduct that the Office itself does not judge whether the facts marked by the participants as their business secret actually meet the criteria of business secret set out in section 17 of Act No. 513/1991 Sb., the Commercial Code [9] ("Commercial Code"). In the case of Leniency applications, however, the Court concluded in the Judgment, that facts marked by the Leniency applicant as their business secret can be excluded from the accessible part of the file after the statement of objections has been issued only if they actually meet all the criteria of business secret [10] set out by the Commercial Code.

In this case, the Court decided that the information marked in the Leniency application as business secret do not meet the definition of business secret, especially since the relation to the facts of trading, manufacturing or technical nature regarding the enterprise of the Leniency applicant could not be established. Although the Court judged that the plaintiffs should be able to access the information marked by the Lenients as their business secret that did not meet the requirements for business secret as defined by the Commercial Code, the Court came to the conclusion that procedural rights of the plaintiffs were not breached to such an extent as to question the legitimacy of the Office's decision as a whole.

As a result the Office is obliged to judge itself whether the information in question constitutes business secret or not, and according to such evaluation of the facts marked by the participants to the proceeding  as business secret, make it accessible to the other parties. The question is whether this conclusion applies only to business secrets contained in Leniency applications or in all filings made ​​by participants of the proceeding before the Office. In this case, there is no reason for the Office to distinguish between the Leniency application and other documents provided by the participants to the proceeding. It thus appears that in the future the Office itself will judge which facts marked by the participants to the proceeding as business secret meet the definition of business secret contained in the Commercial Code, and which do not.

Bearing in mind that particularly in cartel cases such facts will be provided especially to the competitors of the Lenients, the disclosure of certain information can cause damage to the participant to the proceeding who provided the required documents and who, in accordance with section 21c par. 2 of the Act, marked their business secret. Even though such participant to the proceeding will have the possibility to claim damages from the Office for damage caused by wrong evaluation of its business secret, in my opinion such possibility seems rather theoretical.

Representations of the Lenients as sole ground for the decision of the Office

The decision of the Office was based on two Leniency applications without being supported by any other evidence. According to the plaintiffs, the Office did not provide sufficient evidence proving that they have breached the Act, since the documents provided were not supported by any objective evidence, and the evidentiary value of those provided was highly questionable and did not prove beyond all doubt any breach of Competition Law rules.

According to the Court, the decision of the Office is indeed based solely on representations of the Lenients, but such practise in general cannot be ruled out. The Court makes a reference in this respect to the decision of the Court of Justice in the "JFE Engineering Corp [11]" case, in which the facts were established solely on the representations of one Lenient. If the Commission can decide on the grounds of representations of one participant to the proceeding, there is no reason why the Office could not decide on the basis of two Leniency applications, even if such applications are not supported by any other evidence. However, this conclusion shall not be applied generally and specific circumstances of each individual case have to be taken into consideration. The question which should be answered in every particular case is whether "the facts established in the respective case by complete Leniency applications are sufficient for conclusions made by the Office."

Concerning the plaintiffs' objections that the evidence is being submitted by a person with a private interest in the case, i.e. obtaining immunity from penalty or significantly mitigating its amount, the Court noted that the position of the lenients was far from being favourable, particularly because (i) without the Leniency application, the Court would lack of evidence and thus could conclude that a cartel agreement had been entered into and would not be able to impose fines, i.e. without the Leniency application, no fine could be imposed anyway; and (ii) up until now the problem of protection of the information provided to the Office by a Lenient has not been solved and therefore the Lenients risk being sued for damages in a private law litigation. Based on the abovementioned arguments, the Court rejected the plaintiffs' allegations that the Lenients' representations were made solely in their private interest.

In this respect the Court refers once more to the decision of the Court of Justice in the JFE Engineering Corp. case, under which "representation contrary to the interests of the one making it shall be considered as an especially credible piece of evidence."

The only appropriate criterion for assessing submitted pieces of evidence is their credibility, which depends on the origin, circumstances of its creation, person to whom it is intended and on the reasonable nature of its content. The Court emphases in this regard the fact that the documents were made in immediate connection with the facts of the case. It became evident from both of the applications how the cartel functioned and what was the degree of participation of all the participants and the Office considered both applications as mutually consistent sources.

According to the Court, under the abovementioned circumstances, there is no reason why the facts of the case could not be detected exclusively from the Leniency applications and related documents submitted by the Lenients since the facts in these applications and documents do not seemed to be questionable in any way.

Such conclusions suggest that the Office can decide whether the law has been breached and can impose fines solely on the grounds of the Leniency application, without the need to search for or carry out other evidence. This practise is undoubtedly very convenient for the Office and enables imposing fines even in cases, where the Office would otherwise not be able to prove any competition law breaches. On the other side a question arises whether this practise will not lead to transformation of the Leniency programme into an effective weapon in the competition struggle.

Regardless of the fact whether a competitor breached the law or not, it can be subject to a multi-million fine on the grounds of a single Leniency application. At the same time, the competitor's goodwill suffers and such undertaking would be seen in the eyes of consumers as the one who wanted the prices to rise and thus cause damage to consumers. Moreover, the amendment creates a new type of sanction consisting of interdiction of taking part in public contracts [12] for those who take part in a cartel the process of awarding a public contract (bid rigging), i.e. such undertaking shall be subscribed onto a "blacklist" administered by the Ministry for Regional Development. However, the Lenient who files such an application will have full immunity from fines and will be seen as a hero who helped to reveal practises that damage them in the eyes of consumers and suppliers. According to the Amendment, the Lenient can even avoid being subscribed to the blacklist, i.e. as opposed to his competitors, against whom the Leniency application is filed, the Lenient can still take part in public contracts. If such undertaking succeeds to vilify most of his competitors in this manner, the consequences of Leniency programme will be anti-competitive, because as a result the number of competitors on the market would diminish.

The Amendment also brings immunity from criminal sanctions for managers of competitors [13] who took part in cartel agreements, provided these managers actively participate in the Leniency programme by giving rise to or taking part in action of competitor within the Leniency programme, which will lead to a disclosure of a forbidden horizontal agreement or which will enable proving its existence [14].

Conclusion

A conclusion can be made that the Judgement and the Amendment constitute certain procedural and substantial rules which establish the so-called Leniency regime before the Office and the Czech courts. So far, this regime was not formally established in the Czech legal system and worked on the basis of an agreement with the Office, which meant that Lenients did not have any certainty with regards to the protection of their procedural rights and concerning the subsequent duty of the Office to mitigate the fine in exchange for disclosure of information having "added value" and constituting de facto confession of breach of the Act. Both in the Judgement and in the Amendment, an effort to protect the Lenient can be seen, as well as the effort to motivate competitors to apply for the Leniency programme [15]. This concern even prevailed over the concerns for third persons, who incurred damage as a result of the Lenient's action, because these persons, provided they were not parties to proceedings held before the Office, cannot access the file and thus cannot gather evidence necessary for their damage claim before Civil courts.

With respect to the Judgement and the conclusions regarding the possibility of the Office to base its decision on the representations of one Lenient only, the abovementioned protection and claimed impunity related to the Leniency programme can lead to its abuse and in extreme case even to the elimination of competition.

 


[1] judgment of Regional Court in Brno of 23.2.2012, number of 62 Afs 75/2010- 318

[2] This term includes both the Court of Justice of the European Union stricto sencu, and the Tribunal and the Civil Service Tribunal

[3] Chamber press 621/0, section n. ÂĽ; By time of preparing this topic the amendment was in Economic Committee of the Chamber of Deputies of the Czech Republic

[4] Koninklijke Philips Electronics NV, Panasonic Corporation, Toshiba Corporation, MT Picture Display Co., Ltd., Technicolor S.A.

[5] Currently, the similar Article 101 of the Treaty on the Functioning of the European Union.

[6] In this case, the court did not apply section 21c of the Act containing a special regulation for access to the file in proceedings before the Office, because that provision came into force after initiate the procedure.

[7] C-360/09

[8] Impossibility of making copies or extracts from documents contained in the application for Leniency does not follow directly from the proposed text of section 21c of the Act, however, the explanatory report mentions  this limitations and it is probably inferred from subsidiary  application of section 38 of the Act no. 500/204, Code of Administrative Procedure, under which the right to make copies and extracts does not apply to the administrative files containing confidential information or facts, to which the obligation of confidentiality recognized by law should apply.

[9] 513/1991 Coll. Commercial Code

[10] section 17 of Cmmercial Code : One of the rights appertaining to an enterprise involves business secrets. Business secrets include commercial, manufacturing and technological facts relating to the enterprise which have actual or potential material or immaterial value, are not readily available in the respective business circles, and are to be kept confidential upon the will of the entrepreneur. The entrepreneur shall provide for the adequate protection of his/her business secrets.

[11] Dated 8.7.2004, T-67/00, T-68/00, T-71/00, T-78/00

[12] The prohibition of performance of public contracts means a prohibition on a participation in the award procedure and prohibition to enter into contract on performance of small scale public contracts.

[13] § 248 of Penal Code The crime: Violation of Regulations on Rules of Competition can be committed only by a natural person, because Act No. 418/2011 The criminal liability of legal persons did not used in this case.

[14] Part Two of the explanatory report on the amendment, relating to the change of the Penal Code.

[15] The explanatory report on the amendment Part Two, Article III


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