Canada: A Survey Of International Anti-Cartel Enforcement: April 2006-November 2006

At the risk of sounding like a broken record (broken CD?), developments in the period covered by this article (April 2006 – November 2006) continue to demonstrate the priority placed by competition authorities internationally on anti-cartel enforcement.

To illustrate, here is a sampling of just some of the jurisdictions in which cartel investigations have been launched and/or cartel penalties announced since April 2006: Australia – alluvial garnet and wood preservative chemicals; European Commission – acrylic glass, copper fittings, bitumen and bleaching chemicals; France – taxis; Germany – pharmaceuticals; Hungary – IT systems; Indonesia – cement; Italy – jet fuel and antiseptic/disinfectant products; Mexico – railroads; Netherlands – construction industry, cable, horticultural services and prefabricated concrete products; New Zealand – wood preservative chemicals and airlines; Poland – cement; Portugal – salt; Spain – food retailers and film distribution; Taiwan – textbook publishing; Turkey – electric utilities, cigarettes, pharmaceuticals and concrete blocks; U.K. – double glazing and roofing contractors.¹

As is evident, the last several months have witnessed a wide variety of jurisdictions taking enforcement action across an even broader range of products. In the article below, we summarize some of the key highlights from this period, including several important policy initiatives. These are (1) changes in fines and means of enforcement; (2) certain court challenges; (3) leniency programs; and (4) the repeal of certain exemptions.

The European Commission adopted new Guidelines for setting fines in cartel and other competition cases on June 28, 2006 (the "Guidelines") (the Guidelines were formally published on September 1, 2006).² The new Guidelines replace fining guidelines that had been in force since 1998.

As stated by Neelie Kroes, European Commissioner for Competition Policy, the goal of the new Guidelines is to "increase deterrence and ensure greater predictability".³ The new Guidelines set out to accomplish these objectives by incorporating three principal changes, all of which are likely to result in substantially higher fines for cartel participants:

• New Methodology to Calculate Fines: Under the Commission's previous guidelines, fines were based on a lump sum amount determined according to the gravity of the infringement, which was then increased by 10% for each year of participation in the cartel. Pursuant to the new Guidelines, the starting point for calculating fines will be a percentage of the turnover of each cartel participant in the relevant product market during the last business year the company participated in the cartel. This basic amount could be set as high as 30% of the relevant turnover (and in the case of "hard core" cartel conduct, such as price fixing and market allocation, will likely be fixed at or near the 30% end of the range). The basic fine will then be multiplied by the number of years that the company participated in the cartel in order to reflect fully the duration of the infringement.
• "Entry Fee": The new Guidelines introduce the concept of an additional surcharge that may be imposed on companies simply for participating in a cartel. This "entry fee" will range between 15-25% of the yearly sales originally established as the basic amount of the fine.
• Repeat Offenders: Recidivists will receive harsher treatment under the new Guidelines. The Commission's previous practice had been to increase the fines levied on repeat offenders by 50%. Repeat offenders will now face increases to their fines of up to 100% for each infringement previously established. Moreover, the Commission will take into account not only its own infringement decisions but those of Member States' competition authorities as well.

The new Guidelines expressly provide that the Commission may depart from its general methodology for setting fines if needed "to achieve deterrence" in a particular case. That said, the overall ceiling on possible fines – 10% of a company's group worldwide turnover in the preceding year – will remain.

Although the new Guidelines are not binding on national competition authorities in Europe, these authorities have started to employ the Guidelines as a template for their own purposes. For example, the German Federal Cartel Office published fining guidelines for the first time in September 2006. These guidelines are modelled after the new Commission Guidelines and are also expected to significantly increase fines for cartel offences in that country. ⁴

On October 19, 2006, Australia's Trade Practices Legislation Amendment Act (No 1) 2005 (the "Amending Act") was finally passed by the Federal Parliament, over a year and a half after it was originally introduced as a proposed Bill. ⁵ Once given Royal Assent and proclaimed into force, the Amending Act will – among other changes to Australia's Trade Practices Act 1974 ("TPA") – increase the maximum penalty for competition violations to the greater of AU$10 million or three times the gain from the violation. Where the gain from the violation cannot be determined, the alternative standard will be 10 percent of the corporate group's turnover during the 12 months prior to the violation. It is expected that the latter standard will lead to a significant increase in fines.

The Amending Act also gives Australian courts the authority to disqualify individuals involved in a contravention of the TPA from being corporate directors or managers. Companies also will be expressly prohibited from indemnifying officers against any penalties and legal costs they may have to pay in connection with a TPA violation in which they were complicit.

The Amending Act implements the Government's response to some of the recommendations made in the Dawson Report (April 2003). However, the Amending Act does not deal with recommendations made in the Dawson Report regarding the criminalisation of cartel conduct. Now that the Amending Act has been passed, the Government has indicated that it will move quickly to consult on and introduce further amendments to the TPA. The Federal Treasurer has committed to introducing a further Bill which will introduce criminal penalties for serious cartel conduct. It is believed that further amendments will include the possibility of imprisonment for individuals engaged in cartel activity.

At its fifth annual conference in May 2006 – held in Cape Town, South Africa – the International Competition Network focused on obstruction of justice as a serious impediment to anti-cartel enforcement. According to Philip Lowe, Director General of Competition Policy for the European Commission, who spoke at the conference, obstruction "is a major problem in cartel investigation" because it "swings the balance further in favour of cartelists".⁶

One way that competition authorities attempt to discourage obstruction is by imposing additional penalties on cartel members who are discovered to have interfered with investigations. There were several instances of authorities taking punitive measures of this nature in recent months:

• New Zealand: In August 2006, Osmose New Zealand, and its former General Manager Mark Greenacre, were fined for obstructing an investigation by the New Zealand Commerce Commission into a cartel in New Zealand's wood preservative chemicals industry. Specifically, (i) Osmose had not provided the Commission with relevant documents, including a nonpublic price list that had been obtained from another cartel member, and (ii) Greenacre had lied to investigators when he denied having met with competitors to discuss price fixing. Another member of the cartel, Koppers Arch, and a senior executive of that company were also fined for obstruction in June 2005 after it was disclosed that, among other things, the executive had concealed relevant company documents under his house. ⁷
• EU: Several cartel fines imposed recently by the European Commission included "mark-ups" to punish instances of obstruction. For example, the fine received by one of the participants in the copper fittings cartel was increased because it had provided the Commission with misleading information. ⁸ Similarly, the fine imposed against one of the members of the bitumen cartel included a component for twice refusing to grant Commission inspectors access to its premises, thereby forcing the Commission to invoke the aid of the Dutch Competition Authority and Dutch Police. ⁹

Several appeals from cartel fines imposed by the European Commission were decided in the period since April 2006. All of these challenges were rejected, although the fines imposed were adjusted in some cases. The cartels at issue involved products such as graphite electrodes, citric acid, sodium gluconate, and amino acids. ¹⁰

Some of the key principles that emerged from these cases are that:

• the Commission is not required to take into account fines imposed by other jurisdictions in setting its own fines for the same cartel activity;
• the Commission is entitled to exceed the level of fines previously imposed in other cases and also to change its methodology for calculating fines;
• providing documents required by the Commission does not justify cartel participants receiving any reduction in fines for cooperation because production is required by law; and
• the Commission is entitled to apply a multiplier to increase a fine if necessary to achieve a deterrence effect.

South Korea's Supreme Court confirmed in a recent decision that the country's Monopoly Regulation and Fair Trade Act applies to conduct occurring outside of South Korea that has anticompetitive effects within South Korea. ¹¹ The case concerned the graphite electrodes cartel, which was the first time that the Korea Fair Trade Commission had imposed penalties against an international cartel (a total of six Japanese, German and U.S. companies were fined and had corrective orders issued against them). The Supreme Court dismissed the companies' appeal against the KFTC decision, ruling that the KFTC could exercise extraterritorial jurisdiction in this case, even if the companies in question had no South Korean operations, because their conduct had caused substantial harm to the South Korean market. The Court also decided that it is permissible for the KFTC to serve process on foreign parties by registered mail and that the fiveyear statute of limitations did not apply because the companies' actions over the duration of the cartel were to be regarded as a single act, which meant that the limitation period only commenced from the date of the cartel members' final meeting in February 1998.

On October 19, 2006, the UK Court of Appeal dismissed appeals brought by three parties from judgments of the Competition Appeal Tribunal in cases involving price fixing of (i) certain toys and games and (ii) football (soccer) replica kits. ¹² The Tribunal (or "CAT") had upheld the Office of Fair Trading's decisions to impose fines in these cases, although it had slightly reduced the quantum of the penalties. The Court of Appeal confirmed the CAT's holdings with respect to both liability and penalty. The Court's decision marks the first time that it has reviewed cases involving price fixing under the U.K.'s Competition Act 1998.

The CAT recently upheld another OFT cartel decision, this one involving price fixing and market allocation in the U.K. market for the supply of store checkpads (i.e., paper notespads with tear-off sheets that are used by staff in restaurants and similar establishments to record customers' orders). ¹³ The OFT had found two parties guilty of the infringement: Bemrose Group Limited (including a subsidiary) and Achilles Paper Group Limited. Bemrose had its penalty reduced by 100 percent for providing the OFT with information which uncovered the cartel. Achilles was fined £127,848.75, which represented a 50% reduction for cooperation. Notwithstanding this reduction, Achilles appealed the fine to the CAT, arguing that its financial ill-health justified a lower penalty. The CAT rejected this argument and dismissed the appeal.

In France, the Paris Court of Appeal has confirmed the decision of the Conseil de la concurrence in November 2005 to fine six Parisian luxury hotels for operating an unlawful cartel. In a judgment released on September 26, 2006 the Court agreed with the Conseil that the relevant market should be limited to luxury hotels in Paris based on identifiable and specific consumer demand for this type of accommodation. The Court also confirmed that the hotels' sharing of their pricing data, marketing and promotional strategies, and other non-public information constituted illegal cartel conduct. ¹⁴

Hungary's Competition Authority also has enjoyed recent success in withstanding a challenge to one of its decisions. On April 26, 2006 Hungary's Court of Appeal confirmed a judgment of the Metropolitan Court of Budapest, which in turn had upheld the Hungarian Competition Authority's decision in November 2002 to fine three operators of multiplex cinemas for colluding in setting ticket prices. The companies had all raised their ticket prices by the exact same amount on the same day in April 2002. ¹⁵

Things went less well for the Netherlands' Competition Authority ("NMa") in an appeal from its decision to fine five mobile phone operators for allegedly colluding to reduce the fees paid to dealers for the sale of prepaid and postpaid mobile telephone subscriptions. In a judgment dated July 13, 2006, the district court of Rotterdam held that there was insufficient evidence to prove that two of the alleged conspirators (Telfort and Orange) had participated in an agreement with the other three (KPN Mobile, Vodafone and T Mobile). As to these latter companies, the Court held that (i) there was also insufficient evidence that they had coordinated fees for the sale of prepaid subscriptions and (ii) the NMa had erred in disregarding the defenses offered by the three with respect to the alleged coordination of postpaid subscriptions, namely that their parallel behavior was the result of purely autonomous decision making and not collusion. ¹⁶

Brazil's CADE also has one of its cartel decisions under attack. In July 2006, Brazilian steelmaker Companhia Siderúgica Belgo- Minera filed an application in Federal Court to annul CADE's decision in 2005 to fine three steelmakers – including Belgo – for price fixing in the steel rod market. Belgo alleged that CADE's decision was incorrect on the facts and also violated its constitutional rights. On August 31, 2006, the Federal Court agreed to temporarily suspend CADE's ruling and the imposition of penalties. ¹⁷

On December 7, 2006, the European Commission adopted a revised Notice on Immunity from Fines and Reduction of Fines in Cartel Cases (the "Leniency Notice").¹⁸ This followed a preliminary consultation process on proposed changes to the corporate statements procedure of the Leniency Notice that was initiated in February 2006¹⁹ and a more comprehensive consultation process that was initiated after the release of draft amendments to the Leniency Notice on September 29, 2006. ²⁰

The revised Leniency Notice is intended to provide greater guidance and clarity for companies applying to the Commission for immunity from or a reduction in fines. It is also designed to streamline the procedures for handling such applications so that applicants can receive responses more promptly. Finally, the revised Leniency Notice is intended to bring the Commission's process into closer conformity with other major leniency programs.

The revised Leniency Notice, among other things:

• introduces a discretionary "marker" system, pursuant to which an applicant's place in line for leniency can be protected for a limited period of time;
• sets out what type of information and evidence immunity applicants should submit as part of their "corporate statements" (which can be made orally);
• describes the procedure for protecting these corporate statements from disclosure;
• links the threshold for immunity to providing the Commission with the information it needs to carry out a "targeted" inspection of an alleged cartel; and
• clarifies the cooperation obligation of immunity applicants, including the obligation not to destroy, falsify or conceal information.

The revised Leniency Notice entered into force on December 8, 2006.

On September 29, 2006, the European Competition Network launched a Model Leniency Programme as a first step towards a harmonized leniency policy throughout the EU. ²¹ The Model Leniency Programme sets out the main procedural rules and substantive elements that the ECN members believe should be common to all of their respective leniency programs. It also introduces a model for a uniform summary application system for immunity applicants when more than three Member States are involved. This is intended to make it easier for companies to report cross-border cartel conduct. The members of the ECN have agreed to use their best efforts to align their own leniency programs to that of the Model Programme. As an example, the European Commission's revised Leniency Notice described above is consistent with the Model Programme. The ECN members will assess the progress made towards convergence in 2008.

• Sweden and Portugal have now joined the ranks of jurisdictions with leniency programs. Sweden's program was published on April 28, 2006 (effective as of March 15, 2006). Portugal's program (adopted in the form of legislation) was published on August 25, 2006. ²²
• As noted in the Spring 2006 edition of the Committee Newsletter, Japan introduced its own leniency program in January 2006. In a report issued on May 31, 2006, the Japanese Fair Trade Commission reported that it had already received 26 leniency applications in the first three months following adoption of the leniency program. Although it certainly cannot be assumed that this high rate of applications will continue, the JFTC report appears to dispel concerns that Japanese businesses would not be willing to participate in this leniency program²³
• In July 2006, the Finnish Competition Authority announced that it had granted immunity for the first time to a cartel member pursuant to the leniency provisions of the Finnish Act on Competition Restrictions. These provisions came into force in May 2004. In June 2004, a vehicle spare parts wholesaler requested immunity from fines in connection with an alleged cartel in the Finnish vehicle spare parts wholesale market. Immunity was granted to the applicant in July 2004 and the FCA conducted "dawn raids" on other alleged cartel members. As a result of its investigations, the FCA concluded that some of Finland's largest spare parts wholesalers had engaged in price fixing and a collective boycott of a customer. The FCA has proposed to the Finnish Market Court (which is the body authorized to impose penalties) that the cartel participants be fined (other than the party granted immunity). ²⁴
• Finland's Supreme Administrative Court has released its first decision regarding third party access to leniency applications made to the FCA. The case involved a leniency application submitted by UPM-Kymmene in connection with an alleged wood procurement cartel. One of the other alleged cartel members requested access to the leniency application and to the list of documents seized by the FCA during its dawn raids. The FCA refused disclosure on the grounds that this would jeopardize its ongoing investigation of the alleged cartel. The Supreme Administrative Court affirmed the FCA's decision and reasoning, although this leaves open the question of whether disclosure of the leniency application might be required in circumstances where an investigation is not ongoing. For example, the Court also ruled in another case decided at around the same time (April 2006) that a cartel participant could obtain access to the FCA's investigation files (the investigation having been completed) in order to prepare for a hearing on penalties before the Market Court. ²⁵

• In April 2006, France's Conseil de la concurrence announced the first application of its leniency program in connection with price fixing/market allocation cartels in the wooden door manufacturing market. The Conseil fined nine manufacturers a total of 5 million, but granted the leniency applicant (France Portes) immunity from financial penalty. France Portes had approached the Conseil with information about the cartels in May 2002 and was granted conditional immunity in July 2002. Absent the grant of leniency, France Portes would have been fined 1.25 million by the Conseil. ²⁶

On September 25, 2006, the EU Competitiveness Council unanimously agreed to accept a proposal by the European Commission to repeal a "block exemption" which permits liner shipping conferences to fix prices and regulate capacities on routes to and from the EU. ²⁷ Absent the block exemption, these agreements would be prohibited under Article 81 of the EC Treaty. The Commission's proposal to repeal the block exemption was the product of a three-year investigation involving extensive consultation with stakeholders.

The repeal of the block exemption will come into force in October 2008. Until then, existing liner conferences will be able to continue operating on routes to and from Europe. After October 2008, conference activities will no longer be permitted on these routes.

The European Commission intends to publish guidelines on the application of its competition laws to maritime transport services prior to the expiry of the two-year transition period. To that end, the Commission published a "staff paper" for consultation purposes on September 29, 2006. ²⁸ One particular issue addressed is a proposal by the European Liner Affairs Association – which represents approximately 90% of world containership capacity – that the block exemption be replaced by a new system that would continue to allow exchanges of information between shipping lines. Perhaps not surprisingly, the view of the Commission staff is that while certain elements of the ELAA's proposal might be acceptable, the proposal taken in its entirety would appear to remove all of the pro-competitive effects of the abolition of the block exemption. These anticipated benefits include lower transportation costs and improved reliability and service quality.

The Commission recognizes that other jurisdictions continue to tolerate liner conference activities. This means, for example, that nothing will prevent EU firms from taking part in conferences on non- EU trade routes. However, the Commission also has stated that it "will take all appropriate initiatives to advance the removal of price fixing liner conferences that exist elsewhere in the world". For example, it is seeking to "establish close and frequent contacts" on the subject with the EU's other major international trade partners (e.g., the U.S., Canada, Australia, Japan, China, and Singapore). ²⁹

The European Commission also has moved to repeal block exemptions that allow members of the International Air Transportation Association ("IATA") to operate passenger tariff, slot, and scheduling conferences.³⁰ These conferences have been permitted since 1993.

As with the shipping liner conferences, the Commission's decision to repeal the block exemptions affecting airline conferences followed consultations with industry participants. These consultations persuaded the Commission that the purported benefits of airline conferences to EU passengers do not outweigh their negative impact on competition.

According to the new regulation, the IATA passenger tariff conferences for EU routes must terminate as of January 1, 2007; as of June 30, 2007 for routes between the EU and the U.S. and Australia; and as of October 31, 2007 for routes between the EU and other non-EU countries. All slot and scheduling conferences will be prohibited as of January 1, 2007.

IATA exemptions under Australian competition law also will be coming to an end. On September 7, 2006, the Australian Competition and Consumer Commission announced that IATA has agreed to a phased removal of its current immunity ("authorization") under Australian law for passenger and cargo tariff coordination systems. ³¹ The authorization was granted in 1985 for an "indefinite" period. Its phased removal over two years will give IATA time to devise and implement new procedures and to seek ACCC approval if necessary.