www.blplaw.com

Cartels and competitor contactsChris Bryant

September 2015

www.blplaw.com

The basics

What this is not about….

What this is about….

Reminder of Article 101/Chapter I

• Article 101 TFEU and Chapter 1 Competition Act 1998 prohibit:

• agreements and concerted practices• between “undertakings’” or “associations of

undertakings”• which have as their object or effect• the prevention, restriction or distortion of competition• which affects trade between Member States (or within

the UK or part of the UK) • to an appreciable extent

• Cartels are the clearest example of a breach

What is a cartel?

• The European Commission’s definition:

“Cartels are agreements and/or concerted practices between two or more competitors aimed at coordinating their competitive behaviour on the market and/or influencing the relevant parameters of competition through practices such as:

• the fixing of purchase or selling prices or other trading

conditions, • the allocation of production or sales quotas, • the sharing of markets including bid-rigging, • restrictions of imports or exports • and/or anti-competitive actions against other competitors.

Such practices are among the most serious violations of Article [101].”

How do cartels operate?

• Usually no formal written agreement

• Usually highly secret meetings and communications to establish and continue the cartel

• Behaviour varies, but often includes:• Use of codenames, private email addresses and pay-as-you-go

mobile phones • Meetings in hotels – especially at airports• Meetings around legitimate industry events, such as conferences• Contacts passed on to successors through handover meetings

• Duration varies from weeks to decades

“These companies knew very well that what they were doing was illegal. This is why they acted cautiously and with great secrecy.”

Commissioner Almunia (2014)

www.blplaw.com

Sanctions for cartel behaviour

Overview of enforcement

• Top priority of antitrust enforcement agencies worldwide

• European Commission• Fines of up to 10% of world group turnover (not

profit)• Over €6 billion in fines imposed since 2011• 24 infringement decisions since 2010

• Criminal sanctions

• Success of immunity/leniency programmes

Fines in EU cartel cases

• GUESS THE BIGGEST FINE IN A CARTEL CASE IN THE EU?

• GUESS THE BIGGEST CARTEL FINE FOR ANY SINGLE COMPANY IN THE EU?

Fines in EU cartel cases

• Cathode ray tubes (2012): €1.47bn

• Car glass (2008): €1.18bn • Highest ever EU cartel fine on one company:

€715m on Saint Gobain

• Euro interest rate derivatives (2013): €1bn

• Automotive bearings (2014): €953m

• Lifts and escalators (2007): €832m

• Airfreight (2010): €799m

• Vitamins (2001): €790m

• Yen interest rate derivatives (2013/2015): €684m

• Gas insulated switchgear (2007/2012): €675m

Overview of EU fines imposed

Fines in cartel cases – UK

• Some big…• BA (fuel surcharges) – £58.5 million in 2012 - 100%

immunity for Virgin• Dairy producers and supermarkets: £49.5 million in

2011• RBS (loan pricing) £28.6 million in 2011 - 100%

immunity for Barclays

• Many smaller…• Care home medicines (2014) - £370,226• Access control alarms (2013) - £53,410• Competition law applies to very local agreements –

e.g. fines for agreeing to share bus routes in Leeds

Fines in cartel cases – other Member States

• France• Consumer goods (2014)

• €345 million – personal hygiene products

• €606 million – cleaning products

• 6 companies involved in both cartels

• Germany• Brewers (2014) – €106.5 million • Sausages (2014) – €338 million

• Greece• Poultry (2014) - €39.9 million

• Romania• Supermarkets and suppliers (2015) - €35 million

EU procedure for fixing fines

• 2006 Fining Guidelines• Basic amount: percentage of company’s value of sales

in the relevant market (up to 30%), depending on seriousness of infringement

• Multiplier applied based on duration of infringement • “Deterrence” amount added• Assessment of attenuating and aggravating

circumstances, including recidivism• Reduction under the Leniency Notice, if applicable• Settlement

• Fines possible even where a company has no EU presence or sales

Criminal sanctions and extradition

• Criminal liability arises in a number of EU Member States

• Some actively enforce:• Germany• Greece • Ireland• UK

• Some use their powers rarely (so far…):• Czech Republic• France

• In US: criminal sanctions, jail-time, and possible extradition of non-US citizens to the US for prosecution

UK - Cartel offence under Enterprise Act 2002

• Up to 5 years in prison and unlimited fine

• Some defences possible• No concealment from customers or authorities• Legal advice was sought

• Notification and publication exclusions

• Limited use so far• Prison sentences plus director disqualification for three

individuals involved in the marine hose cartel• Galvanised steel tank cartel trial in 2015

• Requirement of dishonesty removed in April 2014

• Disqualification of directors – up to 15 years• Actual knowledge irrelevant

www.blplaw.com

Procedure of a cartel investigation

How do investigations usually start?

• Complaints from customers or other industry players

• “Own-initiative” investigations by authority

• Whistleblowing• Leniency programmes – EU, UK and many others

• Immunity from fines for whistleblowers

• Reductions for all further leniency applicants

• Advantages for whistleblowers under Damages Directive

• Individual whistleblowers• Up to £100,000 reward from the CMA

• Individual immunity for employees (e.g. UK criminal regime)

What does a cartel investigation involve?

Time

AppealInfringement decisionFormal investigation

Statement of Objections

Preliminary investigation

Dawn raid

0 4 years+

Complaint or application for immunity

Leniency Settlement

Dawn raid – what is it?

• A regulatory inspection:• by inspectors from a regulator and possibly

police• at business and/or domestic premises• to inspect documents• possibly to interview individuals• to remove evidence relevant for an investigation

• Usually without prior notice

• Not usually at dawn!

Dawn raid – what can they search?

• Premises, land and means of transport of the company

• In certain circumstances, private homes and cars of directors and other members of staff

Dawn raid – what can they do?

• Depends on scope of warrant / authorisation

• Examine business records and company books, irrespective of storage medium

• Take copies of or extracts from such records and books (not originals)

• Image laptops and mobile phones (UK only)

• Conduct word searches of electronic documents

Dawn raid – what else can they do?

• Seal any business premises (normally overnight and for no more than 72 hours)

• Ask employees for explanations on facts or documents relating to the subject matter of the investigation

• Interview individuals, but only with their consent

Dawn raid – how far can they go?

• What authority do they have?• Authorisation – company not obliged to allow access • Decision – company must allow access

• Inspectors cannot use force

• Commission Revised guidelines on the conduct of dawn raids (2013)• Includes procedures for electronic documents

• Increased number of court challenges• Scope of inspection should be based on reasonable

grounds• Inspection must be limited – no “fishing expedition”

27

The cost of breaking a seal

• In a dawn raid at E.ON’s offices, the Commission sealed a room containing documents to be reviewed the following day

• How much was E.ON fined for breaking the seal?

The other cost of breaking a seal

• Trainee’s role?

Process of EU cartel investigation

• Complaint/immunity application (“whistleblower”)

• Dawn raid

• Document review

• Possible leniency application

• Information requests (Article 18 requests)

• Statement of Objections (“SO”)

• Oral hearing

• Decision

• Appeal

NB: UK procedure similar, but not so formalised

Leniency in the EU – the reductions

• Under the Commission’s 2006 Leniency Notice:• Full immunity may be available if first to provide evidence that:

• enables the Commission to carry out a “targeted inspection”; or • enables the Commission to find an infringement

• 30-50% reduction – if first to provide “significant added value”• 20-30% reduction – if next to provide “significant added value”• Subsequent applicants: up to 20% reduction for providing

“significant added value”

Leniency in the EU – the obligations

• All applicant companies must:• Provide all evidence available to them• Maintain continuous and complete co-

operation• Refrain from further participation• Not falsify, destroy or conceal evidence

• Coercers are not eligible for full immunity

Leniency in the UK

• Type A cases – guaranteed total immunity for 1st to come forward before investigation starts, if CMA does not already have sufficient information

• Type B cases – discretionary reduction up to 100% for 1st to come forward after investigation starts

• Type C cases – reduction of up to 50% may be available for companies that are not first to come forward (but do so before SO), or who do not satisfy criteria for full immunity

• Requirements of continuous co-operation, ending cartel and no coercion

• Use of “markers”

• Use of “no-action” letters

• “Leniency plus” - if provide information regarding a 2nd cartel, also get additional reduction for 1st cartel

• Detailed guidance published July 2013

EU settlement procedure• Introduced in June 2008

• Commission expects half of cases to follow settlement procedure

• Aims to resolve cases within two years (NB: Issue of hybrid cases)

• 10% reduction in fines• Where parties agree prior to SO on scope of behaviour• In addition to any reduction for leniency

• Notable points• Cases resolved more quickly• Shorter decisions• Appeals very rare

• “Early resolution agreements” used in UK

Parental liability

• Parent companies can be held responsible if they exercise “decisive influence” over subsidiaries• Presumption of “decisive influence” over 100%

subsidiaries• Presumption can be rebutted • Below 100%, various factors taken into account • Both parent companies in 50/50 JV may have

“decisive influence”

• Recent developments re: investments• Goldman Sachs / Prysmian (power cables)

www.blplaw.com Page 34 © Berwin Leighton Paisner

Legal professional privilege in the EU competition law context

• Written communications between a lawyer and client are considered confidential (or “privileged”) only in some circumstances

• Written advice from the legal department to a company employee is not privileged

• Communications between a company employee and outside counsel will be privileged if: • the correspondence was for the purpose of exercising

the company’s rights of defence; and• the external lawyer is qualified to practice in an EEA

jurisdiction

www.blplaw.com

Cartels and competitor contacts

Chris Bryant

September 2015