EU: Cartels

Article 101(1) of the Treaty on the Functioning of the European Union (TFEU) codifies the general prohibition of anti-competitive agreements, and applies within the internal market. The Agreement on the European Economic Area (EEA) has expanded the EU’s internal market into the EEA. The EEA consists of the 27 EU member states and Iceland, Liechtenstein and Norway (Switzerland is not a party to the agreement). Therefore, a prohibition similar to Article 101(1) TFEU as enshrined in Article 53(1) of the EEA Agreement is also relevant. If an anti-competitive agreement affects the European internal market, the prohibitions of Article 101(1) TFEU and Article 53(1) EEA Agreement can apply at the same time.

Exemptions are possible under Articles 101(3) TFEU and 53(3) EEA Agreement so long as the agreement: (i) contributes to improving the production or distribution of goods or to promoting technical or economic progress, (ii) while allowing consumers a fair share of the resulting benefit, (iii) the restrictions do not go further than needed to attain those objectives, and (iv) sufficient competition for the products or services in question remains in the market. These general criteria have been incorporated into several block exemption regulations which apply to specific categories of agreements (a block), such as: (i) joint R&D between competitors; (ii) specialisation agreements; (iii) distribution agreements between undertakings at different levels of the production chain (vertical block exemption regulation); and (iv) licensing agreements for the transfer of technology.

In addition to these general exemptions, certain sector-specific exemptions apply, such as for: (i) transport (liner shipping consortia; air lines for joint planning and coordination); (ii) the agri-food sector (exemptions for joint sales by producer organisations and for sustainability agreements); and (iii) motor vehicles (containing rules on distribution, repair and spare parts).

The prohibitions of Articles 101(1) TFEU and 53(1) EEA Agreement distinguish between two types of anti-competitive agreements: those with a restriction of competition by object, and those which have it by effect. By-object restrictions include, for example, price-fixing agreements between competitors or market-sharing agreements. The effects on the market of by-object restrictions are irrelevant. Even when parties to a by-object agreement compete despite their agreement leading to their agreement not having an effect on the market, their agreement will still fall afoul of Article 101(1) TFEU and parties can be held liable. Also, when competitors exchange competitively sensitive information (for example, on future price increases), it is assumed that competition has been restricted. This can only be rebutted by the party (that received the information), which must show that it expressly indicated to the competitor (that provided the information) that it would not use the information and no longer wanted to receive such information, as it was considered illegal (a “noisy withdrawal”).

Even though EU law respects the principle of territoriality, not all facts establishing the existence of a cartel must occur within the EU/EEA for Articles 101 TFEU and 53 EEA Agreement to apply. There are two situations where the prohibition applies even if the conduct occurred outside the EU/EEA. First, when an anti-competitive agreement is concluded outside the EU/EEA but implemented within – for instance, by selling to customers established within the EU/EEA. Second, when immediate, substantial and foreseeable effects (qualified effects) of the anti-competitive behaviour can be located within the EU/EEA.

The European Commission and the national competition authorities of the EU member states are competent to investigate possible infringement of Article 101(1) TFEU. If both the Commission and the national competition authorities are investigating the same anti-competitive behaviour on the same market, the Commission’s investigation takes precedence. The European Commission and the EFTA Surveillance Authority enforce Article 53 EEA Agreement. In a situation where only trade between the non-EU member states of the EEA (Iceland, Liechtenstein and Norway) is affected, the EFTA Surveillance Authority is exclusively competent. In all other cases, the Commission usually is competent to enforce Article 53 EEA Agreement (there is an additional case-allocation rule based on the origin of the turnover of the undertakings concerned).

Additionally, EU and EEA member state judges can investigate cartels during court proceedings, either on the basis of damages claims or in a contractual dispute where one of the parties seeks to void the contract for infringement of Articles 101(1) TFEU and/or 53(1) EEA Agreement.

An investigation may be initiated by the European Commission, the EFTA Surveillance authority or the national competition authorities ex officio (on the basis of their own market intelligence). It may also be initiated based on a complaint from a market participant or by one of the offenders filing a leniency application. Often, the first external indication of an investigation taking place is the unannounced visit by the Commission on the premises of the suspected undertaking. During these “dawn raids”, inspections, searches and interviews take place and copies of hardcopy and digital files are made. This is typically followed by several written requests for information (RFI). Lists of questions related to information found during the dawn raid are then sent to the suspected undertaking. The competition authority sends the suspected undertaking a statement of objections (SO) if it believes that Article 101(1) TFEU/Article 53(1) EEA Agreement has been breached. The SO contains only facts alleged by the authority, is not a legal characterisation of the alleged conduct, and does not contain information on a possible fine. The undertaking may then defend itself by submitting a written defence and at an oral hearing. In most cases, the SO is followed by a decision which sets a fine on the cartel offenders. The period within which the investigative powers conferred on the Commission can be exercised are limited to five years after the day on which the infringement of Article 101(1) TFEU/Article 53(1) EEA Agreement stopped. This time bar can be interrupted at nearly any key step in the proceedings, as mentioned above. The limitation period of each member state’s investigative powers (of the competition authorities) are not harmonised at the EU level and may differ per member state.

The key investigative powers differ among various bodies. For the European Commission, these powers are codified in Regulation 1/2003. In terms of the competition authorities of the member states, the powers are codified in their national legislation (which is not harmonised at the EU level). Finally, the EFTA Surveillance Authority’s powers are rooted in Protocol 4 to the Agreement between the EFTA States on the Establishment of a Surveillance Authority, and the Court of Justice.

The authorities may make an unannounced visit to the premises of the suspected undertaking. During these visits, they have the power to conduct searches, and make copies of hardcopy and digital files that they consider relevant (they have no right to retain original documents). They also have the power to interview employees and directors while on the premises. Requests for information (RFI) are also a key investigative instrument and are often used after the copied documents are analysed.

Although companies and their representatives, employees and directors are under a duty to cooperate and answer any interviews questions and RFIs, they also have the right to remain silent as a way to protect themselves from self-incrimination. Nevertheless, they are under the obligation to give information about facts or documents relating to the inspection’s purpose and subject matter.

Legal privilege falls under the rubric of the EU’s rights to defence and a fair trial. As such, these are recognised by both the European Commission and the laws of each of the member states. On the other hand, how these rights are exercised may differ among member states, and also at the EU level. The Commission does, however, recognise the legal privilege of documents exchanged between external counsel and employees of the undertaking being investigated. However, the Commission does not bestow legal privilege on documents exchanged between the suspected undertaking’s in-house counsel and its employees. This may differ at the member state level.

Rules on leniency and immunity are not harmonised within the EU, differing from one member state to another, and at the EU level. There is also no one-stop-shop system for making a leniency application in connection with a breach of Articles 101(1) TFEU and 53(1) EEA Agreement. Leniency applications have to be made to all competition authorities of the jurisdictions which might be covered by the anti-competitive behaviour. This means that if an undertaking wants to admit that cartel activity took place within the European internal market, multiple leniency applications have to be made to the European Commission and to the national competition authorities of each of affected EU member states. To alleviate the burden of submitting applications, the European competition authorities – united in the European Competition Network (ECN) – have developed the ECN Model Leniency Programme. This programme allows the possibility of submitting summary applications to national competition authorities when a “regular” application has already been made to the European Commission – even though a national competition authority may still want a full application at a later stage.

Suspected undertakings can be granted full immunity by the Commission if several conditions are met. The applicant must: (i) provide a corporate statement detailing its participation in an alleged cartel; (ii) provide all contemporaneous, incriminating evidence that supports its statement; (iii) be the first to submit this for the relevant cartel; (iv) end its involvement in the alleged cartel immediately after submitting the application; and (v) cooperate fully and expeditiously (for example, by promptly providing new evidence) after submitting its application and throughout the whole process. The Commission will not grant full immunity if it already has enough information on the alleged cartel to carry out an inspection (as long as it had – to begin with – sufficient grounds for suspecting an infringement of Articles 101 TFEU/53(1)EEA Agreement). Applying for full immunity once the Commission has started its inspection is not possible. Undertakings that coerced others to join or remain in a cartel or which destroyed, falsified or concealed evidence of the alleged cartel can also not benefit from any immunity.

Any formal leniency applications are verified by the Commission. If the conditions are met, the Commission will conditionally grant immunity during the ongoing administrative process. Only in the final decision at the end of the administrative process will the Commission decide whether all conditions for immunity have been met.

Once the first undertaking applies for leniency, any other undertaking providing evidence of significant added value (in addition to what the Commission already possesses) is eligible for a reduction of the fine, but cannot be granted? full immunity. The second undertaking that applies for leniency will be granted a reduction of the fine by 30-50%; the third, a reduction by 20-30%; and the fourth (and any subsequent applicant), a reduction of up to 20%.

The order in which undertakings apply for leniency determines the amount of the reduction of the fine, so undertakings are encouraged to be swift. On the other hand, leniency applicants have to gather evidence, which is often time consuming. The tension between these two factors has led to a “marker”. Once an undertaking decides to apply for leniency, it can file a condensed application with the Commission, while beginning the evidence-gathering process. When the Commission grants the marker to the applicant, the spot is reserved for that undertaking in the order that the leniency application was received. Consequently, an undertaking granted first place by a marker, but which submits all of its evidence after the second leniency applicant submits all evidence with its full leniency application (the latter becoming, in effect, the first to submit a complete application), remains the first leniency applicant and is entitled to full immunity (provided that all conditions are met). The Commission may grant such a marker if the applicant provides the Commission with the following information:

• name and address;
• parties to the alleged cartel;
• affected product(s) and territories;
• estimated duration of the alleged cartel; and
• nature of the alleged cartel conduct.

In addition, the applicant has to indicate if it has made any leniency applications to other authorities in relation to the same alleged cartel (in the past or future). Finally, it must justify why it is requesting a marker instead of immediately submitting a full application.

After making the leniency request and throughout the administrative proceedings, the leniency applicant must continuously, fully and genuinely cooperate with the Commission by providing accurate and complete information that is not misleading. It also cannot destroy, falsify or conceal relevant information or evidence. In practice, this means that an applicant must promptly; (i) answer any forthcoming questions from the Commission, and make its employees and directors available for interviews, and (ii) provide new evidence and information as the applicant becomes aware of it. Until the Commission sends its SO, the applicants are under a confidentiality obligation to not disclose the application or its content (unless otherwise agreed with the Commission).

At the EU level, the Commission can only impose an administrative fine on the legal or natural persons who form part of the undertaking in breach of Article 101 TFEU. Natural persons in their capacity as employees and directors cannot be fined by the Commission. There are also no criminal sanctions available at the EU level. Since the sanctions regime is not harmonised, the sanctions regime for breaching Article 101 TFEU might differ when member states’ national competition authorities find an infringement of Article 101 TFEU. In some member states, employees and directors can be fined in person or even prosecuted. Whether leniency and immunity is available for them differs per member state.

No, at the EU level, the Commission’s leniency notice does not provide for additional immunity for leniency applicants who “confess” to being part of a cartel in other unrelated markets as well. Since leniency is not harmonised – and with the lack of a one-stop-shop leniency application – this could differ in each member state. There are some member states which have an “amnesty plus” programme in place.

Yes, parties can settle their case with the European Commission. As part of the this settlement decision, the Commission will impose a fine. No court approval is required, since the settlement decision replaces the “regular” fining decision and marks the end of the administrative process. It can also be appealed by third parties. Not all parties to a cartel have to settle. There are also hybrid processes where some cartel members can settle and others follow the “regular” path. A settlement in hybrid processes. In general a settlement will lead to a 10% reduction of the fine (which can be on top of the fine reduction granted on the basis of leniency).

The settlement process consist of the following steps: (i) settlement discussions; (ii) a settlement submission; (iii) a statement of objections and reply; and (iv) a settlement decision. A settlement process may be initiated up to the moment when the Commission issues a SO against the parties concerned. Where efficient, the Commission itself explores the parties’ potential interest in settlement discussions. If there is an interest in settling, bilateral discussions are started. The Commission starts such discussions by disclosing its objections, evidence and range of a possible fine. Where, during the discussions, a common understanding is reached on the infringement and the fine, the party involved must make a formal request. In a settlement submission, the party must state its acknowledgement of the infringement and indicate the maximum amount it would settle for (in terms of the fine). Once this is done, the Commission issues a statement of objections. If that statement reflects the party’s settlement submission, the party can inform the Commission that they remain committed to following the settlement process, and the Commission will adopt a decision which reflects the settlement.

One of the pros for entering into a settlement is that the process is expedited. Second, discussing the scope of the infringement is one of the pros as well, also with the prospect of possible follow-on damage claims. Although the 10% reduction seems attractive, the amount of both the fine and a reduction are unclear at the outset. Although parties do not give up their right of appeal, the grounds for appeal may become very limited once a settling party acknowledges an infringement.

The European Commission, the EFTA Surveillance Authority and the member states’ national competition authorities work closely together in the European Competition Network (ECN), where they exchange information and allocate cases to the most appropriate authority. When the European Commission makes unannounced inspections, it is accompanied by the member states’ competition authorities of where the visit takes place.

In addition to intra-EU cooperation, the European Union has concluded agreements on antitrust enforcement cooperation with many third countries, such as Brazil, Canada, China, Japan, Korea and the US. Such cooperation has many forms, including: notifying one another about investigation; possible coordination; enforcement assistance; the exchange of information (while respecting confidentiality obligations). Post-Brexit, the EU and the UK are also working on an EU-UK competition cooperation agreement.

The European Commission can only impose an administrative fine on the entities or individuals that form the undertaking breaching Article 101 TFEU. The fine should be a deterrent, yet proportionate to the infringement.

Since the sanctions regime is not harmonised, the sanctions differ both in nature (administrative or criminal) and scale when national competition authorities of the member states enforce an infringement of Article 101 TFEU.

For the European Commission, the starting point for calculating the fine is the turnover that the undertaking has realised with its cartel activities. This consists of the value of the sales of the products/services affected by the cartel, and the affected turnover. More specifically, the Commission will take into account the affected turnover an undertaking realised during the last full business year of its participation in the cartel. This is multiplied by the number of years of the participation in the cartel. The basic amount of the fine is then calculated by taking a percentage of the affected turnover (which on average ranges from 15 to 25%) by a maximum of 30%.

The fine will be increased if aggravating circumstances exist; for example, if the undertaking: instigated or led the cartel; is a repeat offender (leading to a doubling of the fine); refuses to cooperate and obstructs the investigation. Conversely, a fine can be reduced if there are mitigating circumstances, including if the undertaking: had a substantially limited involvement in the cartel; effectively cooperated with the Commission beyond its legal obligation to do so and outside the scope of a leniency application.

The amount of the fine is capped at 10% of the undertaking’s total worldwide turnover for the business year preceding the Commission’s decision.

The European Commission does not automatically impose a fine on the parent company. Any infringement is always made by an “undertaking”. However, an undertaking is an economic entity upon which no liability can be imposed; that can only be imposed on legal entities or individuals. Therefore, if the Commission wants to impose a fine, it identifies the entities or individuals that own the undertaking. In that exercise, the Commission generally identifies both the subsidiary and its parent company as being liable for the fine. Often, it was the subsidiary’s employees who executed the cartel activity. There is a rebuttable presumption that a parent company owning 100% of a company’s shares exercises decisive influence over its subsidiary and, therefore, that it is jointly and severally liable, along with its infringing subsidiary.

It is only possible to bring an action for damages before a national court of an EU member state; it is not possible at the EU level. The rules concerning these damages claims have been harmonised to a very limited extent, and the process differs per member state. Damages directive 2014/104/EU harmonises only certain rules relating to, for example: the limitation periods for bringing a claim; the evidentiary value of a competition authority’s decision; and the disclosure of evidence and rules concerning a passing-on defence. The rules concerning class actions are not harmonised and differ per member state.

Since the rules concerning the type of damages are not harmonised, damages differ per member state. Damages directive 2014/104/EU contains a provision on the quantification of harm, but it is not very specific. It introduces the rebuttable presumption that a cartel causes harm. It also establishes a burden/standard of proof for claimants that is so high, that exercising the right to damages becomes practically impossible or excessively difficult. How this is implemented in the various member states differs. There is, however, soft law issued by the European Commission, consisting of guidelines and a practical guide on the quantification of harm. While national courts are not bound by this soft law, they do use it in practice.

In general, damages are quantified by comparing the real prices customers paid to cartel members, with the hypothetical prices those customers would have paid to their suppliers if no infringement had taken place (the counterfactual scenario). A thorough economic analysis of relevant pricing data is used to make this quantification.

An action to annul a decision of the European Commission can be initiated at the General Court of the EU. The grounds for appeal vary considerably: a total negation of the infringement, or reproaching the Commission for not having met the standard of proof to prove the existence of an infringement. But the appeal may also be focused on limiting the scope of the infringement (either the scope of the products/services involved or the length of the period of the infringement); declaring a breach of fundamental rights (rights of defence, double jeopardy, etc.); correcting wrongful calculation of aspects of the fine; or arguing against parental liability.

An action for annulment must be filed at the registry of the General Court of the EU within two months and ten days of the publication of the European Commission’s decision. In principle, this should be done using e-Curia, the online platform where the appellant’s representative must be registered. The Commission must submit a defence within two months. A second exchange of arguments is possible (reply and rejoinder) unless the General Court considers that unnecessary. After an oral hearing, the General Court will render its judgment.

The European Commission and member states have recently focused on purchase cartels. For example, the Commission fined ethylene purchasers after a settlement. Ethylene is used to produce various products, such as PVC. The undertakings acknowledged that they coordinated their negotiation strategies to obtain lower purchase prices. The fines were calculated on the basis of the value of the purchases (instead of the turnover of the sales). Since purchase prices were probably lowered by the collusion, the Commission used its discretionary power to increase the fine by 10%, considered to be enough of a deterrent. All participants applied for leniency and benefited from a 20%, 30%, 45% and 100% reduction in fines. In addition, they benefited from another 10% reduction because of the settlement. Despite these reductions, an amount of EUR 260 million in total was still due by three of the four undertakings involved.

• Due to Covid-19 measures, the Commission did not make any unannounced visits in 2020. In 2021, it accelerated its pace by carrying out four inspections. With employees increasingly working from home, dawn raids will in future investigation also take place at home offices.
• With private enforcement picking up, applications for leniency have been decreasing over the last few years.
• The Commission and the member states’ national competition authorities prioritised enforcement of purchase cartels.
• The Commission is open to coordinating its dawn raids and investigations. Recently, along with the UK’s Competition and Markets Authority (CMA), it coordinated unannounced inspections at the premises of companies and associations active in the automotive sector. The Commission and the CMA also launched coordinated investigations into possible anticompetitive conduct by Google and Meta in online display advertising.
• The official settlement process is only available for cartels between competitors. There is no official process for settling infringements of Article 101 TFEU by undertakings which are at a different level of the supply chain (vertical agreements). Nevertheless, over the past few years, the Commission has developed an informal practice of settling those cases by granting even a higher reduction of fines by up to 40%. Officially, the Commission follows the regular process and considers the reductions as mitigating circumstances (for cooperation beyond what’s legally obligated).

2022 will see the expiration of several block exemption regulations that apply to specific categories of agreements. The block exemption regulation concerning distribution agreements between undertakings at different levels of the production chain (vertical block exemption regulation) is expected to be replaced by a new regulation as of 1 June 2022. The two block exemption regulations regarding joint R&D between competitors and specialisation agreements will expire by 31 December 2022 and are expected to be replaced as well. These block exemptions have always been accompanied by soft law in the form of practical guidance by the European Commission in both its vertical and horizontal guidelines. New versions of these guidelines are also expected to be issued together with the relevant block exemption regulations. Notably, in the draft revised horizontal guidelines, the Commission devotes a chapter to the competition law assessment of sustainability agreements. Finally, in the coming months the Commission is going to launch an evaluation of Regulation 1/2003, the central plank of the EU’s antitrust enforcement framework.