Originally Published by Global Competition Review
Applicable law and enforcement
The legal basis for cartel enforcement in Germany is the Act against Restrictions of Competition (ARC), which has been modified by the Seventh Amendment. The changes came into effect on 1 July 2005 after a lengthy debate of more than two years. Following the Seventh Amendment, further Amendments entered into force. However, they did not change the applicable rules on cartels enforcement.
Following the entry into force of the European Commission's Modernisation Package of Regulation 1/2003, the German ARC required revision to allow for the parallel application of EU and national competition rules and for a system of cooperation within the European Competition Network (ECN). In essence, the Seventh Amendment modified the general prohibition of anti-competitive agreements and concerted practices to mirror article 81 of the EC Treaty even more closely than before and also now provides for the application of the European Commission's block exemption regulations under national law. In addition, the amendment has removed a number of national legal and administrative exemptions, and increased the level of fines that can be imposed for infringements of the ARC.
To the extent that agreements or concerted practices may affect trade between the EU member states, the ARC and articles 81 and 82 of the EC Treaty apply in parallel (section 50 of the ARC and article 3(1) of Regulation 1/2003).
The ARC is enforced primarily by the Federal Cartel Office (FCO) in Bonn and the fight against hard-core cartels (agreements between companies on the setting of prices or sales quotas and on market sharing) is one of the authority's key enforcement priorities. The FCO has 10 independent divisions which are responsible for different industry sectors and product markets. Two additional divisions are solely in charge of conducting cartel investigations and fining proceedings (with technical support from a special unit for combating cartels (SKK)). Infringements with regional effects only are dealt with by the State Cartel Offices. However, the majority of cartel cases are dealt with by the FCO.
Section 1 of the ARC corresponds to article 81(1) of the EC Treaty and broadly prohibits agreements or concerted practices between undertakings that have as their object or effect the prevention, restriction or distortion of competition. Until 1 July 2005, when the Seventh Amendment came into force, section 1 of the ARC only prohibited anti-competitive agreements or concerted practices between competitors (horizontal restrictions). The prohibition has been extended to cover agreements or concerted practices between undertakings at different levels of the supply chain (vertical restrictions). Practices that are prohibited under section 1 of the ARC include price fixing, bid rigging, allocation of customers, quotas or territories, limiting production or distribution and the exchange of sensitive market data (eg, prices).
Section 2 of the ARC corresponds to article 81(3) of the EC Treaty and exempts agreements from the prohibition of section 1 of the ARC if they contribute to an improvement in the production or distribution of goods, or help promote technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which do not impose restrictions on the undertakings which are not indispensable to the attainment of these objectives; or afford the undertakings the possibility of eliminating competition in respect of a substantial part of the products in question. In addition, section 2 of the ARC incorporates the European Commission's block exemption regulations, even for cases that do not have an effect on trade between member states and are therefore governed by German competition law only.
Apart from the European Commission's block exemption regulations, the only exemption available under the ARC applies to agreements that are concluded between small and medium-sized undertakings and are designed to rationalise economic processes through cooperation between undertakings without significantly limiting competition in the relevant market.
Agreements that violate the ARC are void and are therefore not enforceable before German courts. In addition, the FCO can impose fines on individuals and companies.
The substantive law can be enforced on the basis of two different proceedings. German law distinguishes between administrative orders and administrative offences. The FCO's proceedings are governed by the ARC to the extent that the case involves only minor infringements that require a cease-and-desist order. However, where the FCO intends to impose fines, the proceedings are governed by the Code on Administrative Offences and the Code on Criminal Procedure. The key steps of the process are similar under both regimes.
Where the FCO discovers anti-competitive conduct (ie, through third-party complaints or a leniency application by one of the companies involved), it normally gathers further information and evidence regarding the infringement. To collect this further information and evidence, the FCO has a broad arsenal of investigative powers, which are described in more detail below.
Once the FCO has completed its fact finding, it will issue a statement of objections setting out the underlying facts of the case, the alleged infringements and the FCO's legal assessment. Around the same time, the targets of the FCO's investigation will be given access to the FCO's file and have the opportunity to comment on the allegations.
The FCO's decisions are subject to appeal to the higher regional court in Düsseldorf. Further appeal against the decision of the higher regional court is only permitted on questions of law, to the Federal Supreme Court.
The FCO publishes its decisions in administrative proceedings in a non-confidential version on its website, www.bundeskartellamt.de , whereas fining decisions rendered under the Code on Administrative Offences are not normally published.
The rights of third parties are broader in Germany than under EU rules. Third-party complainants can get access to the nonconfidential part of the FCO's files in administrative proceedings without having to demonstrate a specific interest. In proceedings governed by the Code on Administrative Offences, third-party access to the non-confidential part of the file is limited to companies or individuals directly affected by the anti-competitive conduct, if they are able to demonstrate a legitimate interest for gaining access to it. However, the FCO can deny access to the file where this is necessary to protect public interests or the legitimate interests of the companies or individuals under investigation.
Powers of investigation
The FCO's powers of investigation differ depending on whether the proceedings are governed by the ARC or by the Code on Administrative Offences.
In administrative proceedings, the FCO can conduct sector inquiries (section 32e of the ARC, similar to article 17 of Regulation 1/2003) and has done so in the markets for milk, fuels and outdoor advertising. In addition, the FCO can request specific information from companies (section 59 of the ARC, similar to article 18 of Regulation 1/2003), it can hear witnesses (section 57 of the ARC, similar to article 19 of Regulation 1/2003) and – with the confirmation of the local court – seize documents and other evidence (section 58 of the ARC).
In proceedings governed by the Code on Administrative Offences, the FCO can conduct inspections (dawn raids) provided that it obtains a search warrant issued by the local court. These inspections are not limited to company premises but can be extended to private homes of key individuals, cars, etc. In addition, the FCO can seize documents (eg, business correspondence, calendars, travel expense reports), electronic evidence (including e-mails) and other evidence. Normally, the FCO's officials are accompanied by police staff and IT experts who support the FCO in its investigations.
During the investigation, the company and the individuals concerned are, of course, protected by fundamental rights of defence. Individuals therefore do not have to respond to any questions asked by FCO officials if they have been accused of a violation of the competition rules or if the answer would expose them or a member of their family to the risk of criminal prosecution or prosecution under the Code on Administrative Offences. The fundamental rights of defence also include the right to legal advice and the FCO will normally be prepared to wait for approximately 30 minutes until external legal counsel is present before starting the inspection.
The concept of legal privilege in Germany is not as broad as under the EU rules. Attorney-client communication at the premises of the undertaking under investigation is only protected by legal privilege if the communication specifically relates to the ongoing investigation (defence correspondence). The FCO will have full access to advice that was given before the initiation of proceedings relating to the conduct under investigation.
Where the FCO considers it appropriate, it can impose fines against companies and individuals for intentional or negligent violations of the competition rules, including articles 81 and 82 of the EC Treaty.
The level of fines has been increased by the Seventh Amendment from €500,000 to €1 million for severe infringements (hard-core cartel activity such as price fixing, bid rigging, allocation of quotas, customers or territories) and from €25,000 to €100,000 for less severe infringements. According to statements from the FCO's president, Dr Berhard Heitzer, the FCO intends to impose higher fines in order to increase the deterrent effect.
Similar to article 23(2) of Regulation 1/2003, fines in excess of €1 million can be imposed on companies up to a maximum amount of 10 per cent of worldwide turnover in the last completed business year. This calculation has replaced the previous method of fining up to three times the proceeds gained from the infringement. However, in determining the amount of the fine, the FCO can still take into account the proceeds gained as a consequence of the infringement.
In order to establish a minimum level of legal certainty, the FCO published fining guidelines in September 2006, which are similar to the European Commission's fining guidelines. The FCO uses a two-step procedure to calculate the fines. In a first step, it determines a basic amount, which will then be adjusted in a second step. Depending on the gravity of the infringement, the basic amount will represent up to 30 per cent of the turnover achieved during and from the infringement. The turnover achieved from the infringement is the domestic turnover achieved by the undertaking concerned with the products or services connected with the infringement. In the case of price fixing and quota cartels and other severe horizontal competition restraints, the basic amount is generally set in the upper range of the maximum possible basic amount. The basic amount can in a second step be increased in order to achieve a sufficient level of deterrence or to take into account aggravating circumstances. However, it can also be lowered if there are attenuating circumstances. In any event, the fine is capped at 10 per cent of the company's worldwide turnover.
It should be noted that German law generally does not provide for criminal sanctions for violations of the ARC. The notable exception to this rule is section 298 of the German Criminal Code, which provides for a prison sentence of up to five years for bid rigging in tender proceedings conducted under the public procurement rules. According to a Federal Supreme Court decision, bid rigging could, depending on the circumstances of the individual case, be regarded as a special form of fraud (prison sentence of up to five years), where the tender proceedings are not conducted under the public procurement rules. If the FCO discovers cases involving bid rigging, it must refer the proceedings against individuals to the public prosecutor. The corresponding proceedings against companies may be referred to the public prosecutor as well.
Where the FCO has imposed fines on companies or individuals, interest is payable on the fine, commencing two weeks from the date of the formal notification of the FCO's decision, even where the decision is being appealed.
The statute of limitation is generally five years for severe infringements and three years for less severe infringements. However, investigatory measures conducted by the FCO, the European Commission or competition authorities of other member states will suspend the limitation period.
Measures in administrative proceedings
In cases where fines are not required (ie, cases not involving any hard-core cartel activity), the FCO's proceedings are governed by the ARC. The measures available under the ARC closely mirror the European Commission's powers. In particular, the FCO can order companies to bring an end to the infringement and it can impose interim measures (similar to articles 7 and 8 of Regulation 1/2003). In suitable cases, the authority can also accept remedies and declare these remedies binding on the companies (similar to article 9 of Regulation 1/2003). However, unlike the Commission, the FCO cannot impose fines in administrative proceedings.
In order to provide companies engaged in cartel activity with an incentive to end their involvement and to inform the FCO about the infringement, the FCO introduced a leniency programme in 2000, which was revised in 2006.1 The revised programme largely reflects the European Commission's 2002 leniency notice.2 However, unlike the Commission's programme, the FCO's leniency programme is available both to companies and individuals. Within the FCO, the 11th division and the SKK are the main points of contact for companies and individuals wishing to cooperate with the authority to benefit from the leniency programme.
According to the FCO's revised leniency programme, companies involved in an illegal agreement can be entirely or partly exempted from a fine if they make a decisive contribution to uncovering a cartel and cease their anti-competitive behaviour. In particular, a fine will not be imposed if the offender:
- is the first applicant to contact the FCO before it has sufficient evidence to obtain a search warrant;
- provides the FCO with verbal and written information and, where available, evidence that enables it to obtain a search warrant;
- was not the only ringleader of the cartel nor did it coerce others to participate in the cartel; and
- cooperates fully and on a continuous basis with the FCO.
At the point at which it is in a position to obtain a search warrant, the FCO will still grant a cartel participant immunity from a fine if it:
- is the first applicant to contact the FCO before it has sufficient evidence to prove the offence;
- provides the FCO with verbal and written information and, where available, evidence which enables it to prove the offence;
- was not the only ringleader of the cartel nor did it coerce others to participate in the cartel; and
- cooperates fully and on a continuous basis with the FCO.
Even where the conditions for full immunity are not fulfilled, the fine may also be reduced if the offender makes a significant contribution to proving the offence by voluntarily revealing its knowledge and discontinues its participation in the cartel. To the extent that the above conditions are fulfilled, they will be taken into account by the FCO in setting the amount of the fine.
The submission of all relevant documents, together with an explanation of the information given will be deemed to help contribute to detection. Undertakings are also expected to encourage their members of staff to cooperate.
Individuals from a particular company will not be subject to individual fines if the company immediately and unreservedly cooperates with the FCO and contributes to uncovering cartel activity.
The revised 2006 leniency programme has for the first time introduced a marker system, under which applicants can place a marker with the FCO by declaring their willingness to cooperate.
The timing of the placement of the marker is decisive for the status of the application and the marker must contain basic information on the cartel. After having placed the marker, the applicant will be set a time limit of up to eight weeks for the submission of a complete leniency application.
The FCO will confirm immediately that a marker has been placed and that the application has been received. If the requirements for immunity are satisfied, the FCO will assure the applicant in writing that he or she will be granted immunity.
According to the FCO, cooperation with the authority can, in principle, be treated as confidential. In particular, the authority is committed to protect the identity of a 'whistle-blower' to the extent that this is possible. However, there are certain limits to this as the other cartel members will necessarily have access to the nonconfidential part of the FCO's file once a statement of objections is issued and could, in certain cases, be able to draw conclusions from the content of the file. In addition, where the FCO has no other evidence, it may have to rely on the testimony of the whistle-blower and will have to disclose this evidence to the other companies.
It should be noted that the FCO's leniency programme has no effect on civil antitrust litigation or on criminal investigations conducted by the public prosecution. Whistle-blowers can therefore still be subject to damage claims and individuals could face criminal prosecution where the case at hand involves bid rigging.
Unlike the European Commission, the FCO does not have a formalised settlement process. However, informal 'fast-track proceedings' used by the FCO in suitable cases can lead to a reduction of fines if the companies concerned admit their participation in illicit conduct and confirm that they will not appeal against a fining decision before court.
Until the entry into force of the Seventh Amendment it was very difficult, if not impossible, for customers of cartel members to successfully bring lawsuits against their suppliers before German courts for damages incurred as a result of the cartel conduct. A number of German courts have rejected such damage claims for various reasons.
In light of this, the Seventh Amendment has introduced new rules to facilitate private litigation in cartel cases.
As some courts have rejected claims of customers because the prohibition on anti-competitive conduct is not intended to specifically protect individual customers, the ARC now contains a clause entitling competitors and 'other market participants' to bring damage claims, provided that they are affected by the anti-competitive conduct. Although this clause is designed to catch direct customers of the cartel, it is unclear whether it also entitles indirect customers to bring damage claims.
The Seventh Amendment further facilitated damage claims by making decisions of the FCO, the European Commission and of competition authorities in other EU member states binding on the relevant court in so far as they find an infringement of the competition rules. Moreover, the ARC makes it more difficult for the defendant to invoke the 'passing-on defence'. The mere fact that the goods in question have been sold by the claimant no longer excludes the possibility of damage being caused at the level of the direct customer. However, where the defendant can demonstrate and provide full evidence that the claimant was in turn able to pass on the higher price to his customers, the claimant has arguably been compensated for any damage and will therefore not be in a position to bring damages.
In addition, the ARC contains a rule on statute of limitation for private antitrust litigation under which the statute of limitation is suspended if the FCO, the European Commission or competition authorities of other member states initiate proceedings.
These rules have led to an increase in private antitrust litigation in Germany and the Federal Court of Justice has recently confirmed that professional claimants can bundle customers' individual damage claims and commence proceedings against cartel members. (For further information, please refer to the chapter on private antitrust litigation in Germany.)
The FCO has always cooperated closely with the European Commission and the other member state competition authorities. Formal cooperation agreements of limited relevance are in place with France and the US.
With the introduction of Regulation 1/2003, cooperation between the European competition authorities has been formalised in the ECN. Corresponding rules have been added to the ARC by the Seventh Amendment, allowing the FCO to exchange information and evidence with the Commission and competition authorities in other member states for the purpose of the application of articles 81 and 82 of the EC Treaty. In essence, these rules mirror article 12 of Regulation 1/2003.
2 Commission notice on immunity from fines and reduction of fines in cartel cases OJ C 45, 19 February 2002, pp3-5.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.