UK: Settling Cartel Cases: Recent Developments In Europe

Last Updated: 18 February 2009
Article by Simon Holmes and Philipp Girardet

This article first appeared in the second edition of The International Comparative Legal Guide to: Cartels & Leniency; published by Global Legal Group Ltd, London (

1 Introduction

While there is a long tradition of settling cartel cases in the US under the Department of Justice's "plea bargaining" arrangements, the concept of making admissions in cartel cases outside the scope of a leniency policy is still fairly novel and untested in Europe. Having said this, several significant developments in this area suggest that settlements will feature more in European cartel cases in the future. The most significant development in this respect is the adoption by the European Commission of a formal settlement procedure for EU cartel cases which came into force on 1 July 2008. There are, however, also interesting developments in relation to the increasing use of - sometimes more and sometimes less formal - settlement procedures at national EU Member State level which should not be overlooked. This article summarises the general state of play on settlement procedures in Europe and then explores some of the tensions between attempts to develop settlement procedures and the promotion of other established policy objectives of European competition authorities, such as safeguarding effective leniency programmes and encouraging private claims for cartel damages.

2 The Concept of Settlement

The introduction of settlement procedures into European cartel proceedings, both by the Commission and a number of national competition authorities in Europe is rightly considered a significant step in the field of anti-cartel enforcement. With ever-increasing numbers of companies revealing the existence of cartels through leniency applications, competition authorities are struggling with a growing backlog of cartel cases. (The Commission as well as 25 of the 27 EU Member States now operate their own separate leniency regimes whereby companies can approach competition authorities and provide evidence of the existence of a cartel, in return for a reduction, or complete immunity, from any fine.) The length of time it takes to prosecute a cartel and reach a fully reasoned decision (a process which can take four years or more from dawn raid to a decision at the Commission level), means that enforcement agencies and in many cases also businesses under investigation have a considerable interest in seeking to find ways of concluding such cases more speedily.

Furthermore, with as many as two thirds of the Commission's decisions being appealed to the Court of First Instance (with the possibility of subsequent appeals to the European Court of Justice), the authorities and the parties concerned can find themselves engaged in a process which takes many years to reach a conclusion. Settlement procedures offer an alternative means to leniency for all parties involved in such procedures to resolve the matter more quickly, avoiding protracted legal arguments, costs and a significant diversion of management time. It allows businesses to move on which at an advanced stage of an investigation decide "to put the matter behind them".

While leniency procedures are designed to assist a competition authority with building their case, settlement procedures are designed to speed up the resolution of a case after the investigation phase of the case has been concluded. To achieve this settlement procedures normally offer a reduction of financial penalties in return for specific admissions of liability or at least a promise not to challenge the authority's contemplated infringement findings and a promise to only make limited use of a party's right to be heard.

Cooperation under settlement procedures is therefore different to cooperation provided by a company under a leniency regime. Leniency rewards companies which produce evidence which either triggers an investigation or significantly advances an investigation at an early stage. Leniency also requires an open-ended commitment by a company of complete and continuous cooperation with the competition authority's investigation. By contrast, settlement procedures reward companies which decide (having been provided with details concerning the strength of the authority's case against them) to admit liability rather than defend the case. In this regard, settlement procedures usually require only specifically delineated acts of cooperation to enable competition authorities to expedite the conclusion of the case. In more pragmatic terms, leniency can be described as helping the authority to build its case whereas settlement forms part of an attempt to speed up the arguably inevitable conclusion of an otherwise protracted procedure.

Leniency and settlement are therefore related but distinct processes in a competition authority's anti-cartel enforcement regime. This is, among other factors, illustrated by the fact that, as a general rule, the window for leniency applications closes before the window for settlement discussions opens. At the same time, most competition authorities which operate settlement procedures of some form treat leniency and settlement as cumulative forms of cooperation in cartel cases and cooperation under both policies can therefore lead to cumulative reductions in fines.

While the basic concept of settlement is widely accepted across the EU as having the potential to be of benefit for both enforcement agencies and parties under investigation, formal settlement procedures are not a common feature in the EU yet. The Commission's adoption of a formal policy for settlement procedures in July 2008 is therefore likely to lead to an increase of such policies at EU Member State level (albeit with possibly different features). It should, however, be noted that it is not necessary to have in place a formal settlement policy in order to settle cases in practice. Two interesting examples for this are the UK and Germany. While the UK does not have a formal settlement policy, there is by now a fairly developed practice of settling cases in the UK which is based on a case-by-case approach with case specific settlement offers. The UK's OFT refers to these procedures either as "settlements" or as "early resolution agreements". In Germany, there is also no formal settlement policy and the Federal Cartel Office (or Bundeskartellamt) (the "FCO"), in contrast to the UK, has so far not publicly acknowledged that it applies de facto settlement procedures. However, a number of recent cases strongly suggest that the FCO is also prepared in appropriate cases to apply innovative early resolution procedures which appear to amount to de facto settlement procedures. This article will consider the principal aspects of the different approaches to settlements across Europe before looking at a number of wider policy implications of the increasing use of such settlement procedures.

3 The Commission's New Settlement Procedures in Cartel Cases

As noted above, the success of the Commission's leniency programme has led to an increasing backlog of cartel cases in DG Competition. While the Commission is trying to speed up its general administrative procedures this is not easily achieved given the adversarial nature of cartel proceedings and the often considerable size of the Commission's investigation file in cartel cases to which it must grant all parties extensive access. The Commission therefore developed a new formal policy for settling cases over the past few years which is distinct from cooperation under its leniency policy. The Commission consulted on draft proposals in October 2007 and adopted its final settlement policy on 30 June 2008 under which the Commission offers (i) a fixed reduction in fines of 10% and (ii) a cap to any multiplier for deterrence of 2 under its fining guidance (which may in particular benefit larger companies). In return, the Commission requires that a party must make specific admissions of liability and must limit its requests for access to the Commission's file and its submissions in response to the Commission's Statement of Objections (the "SO"). Competition Commissioner Neelie Kroes emphasised in a press notice that the policy was not a sign of the Commission going soft on cartels:

"This new settlements procedure will reinforce deterrence by helping the Commission deal more quickly with cartel cases, freeing up resources to open new investigations."

Commentators have tended to agree with her but have questioned whether the policy offers sufficient incentives for parties to settle cases with the Commission to allow the Commission to achieve the procedural efficiencies the policy is designed to generate (this will be explored further below).

Before the introduction of the new settlement procedure, the Commission was (and still is) able to settle competition investigations where parties offer binding commitments (Article 9 of Regulation 1/2003). However, the provisions of Article 9 make it clear that such procedures are not suitable where cases involve fines. As a result, the Commission was not able to use this existing procedure for cartel cases; a new legislative instrument was therefore required. The Commission's settlement procedure is now set out in a new Article 10a of Commission Regulation 773/2004 which lays down the core practical rules concerning the conduct of EU competition cases. (The amendments to Regulation 773/2004 are contained in Commission Regulation (EC) No 622/2008 of 30 June 2008, OJ L 171/3 of 1 July 2008.) In addition, the Commission has published an explanatory notice (the "Commission's Settlement Notice") which contains further details as to how the Commission will conduct settlement procedures.

(See the Commission Notice on the conduct of settlement procedures in view of the adoption of Decisions pursuant to Article 7 and Article 23 of Council Regulation (EC) No 1/2003 in cartel cases, OJ C 167/1 of 2 July 2008.)

Like the Commission's traditional fully adversarial administrative procedure, the new settlement procedure is based on Articles 7 and 23 of Regulation 1/2003. This means that, as in the fully adversarial procedure, there will be a formal decision (based on Articles 7 and 23) finding an infringement of Article 81 EC and imposing a fine, but the process followed to this end is quite different.

Under the new settlement procedure, the Commission has a broad discretion as to whether to make a settlement offer in a given case. The first necessary pre-condition for a case to be capable of being settled under the new procedure is that the case amounts to a "cartel case". The Commission's Settlement Notice defines cartels for this purpose broadly as:

"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." (The Commission's Settlement Notice, at footnote 2.)

When assessing whether a cartel case may be suitable for a settlement procedure, the Commission will have regard to:

  • the probability of reaching a common understanding with the parties involved in view of: (i) the number of parties involved in the case; (ii) any likely contestation of the facts; and (iii) any foreseeable conflicting positions on attribution of liability;
  • the prospect of achieving procedural efficiencies, for example in relation to the provision of access to the Commission's file; and
  • the possibility of setting a precedent.

Once the Commission has provisionally concluded that a cartel case is in principle suitable for its settlement procedure, the Commission will write to all parties under investigation, requesting them to express their interest in entering into settlement discussions. The parties under investigation will be given a period of at least two weeks during which they must inform the Commission of their interest in entering into settlement discussions. Parties must not coordinate their decision whether or not to enter into settlement discussions which are then subsequently conducted with those parties who have accepted the offer to explore a settlement option on a strictly bilateral basis. The initial declaration by a party of its willingness to enter into settlement discussions does not imply an admission of liability. Once the Commission has received and considered any expressions of interest in settlement, it will decide whether or not to go ahead and enter into settlement discussions with those parties which expressed an interest (as before the Commission enjoys a broad discretion in this regard).

The Commission's Settlement Notice states that the Commission will provide the parties engaged in settlement discussions with information concerning:

"the essential elements taken into consideration so far, such as the facts alleged, the classification of those facts, the gravity and duration of the alleged cartel, the attribution of liability, an estimation of the range of likely fines, as well as the evidence used to establish the potential objections." (The Commission's Settlement Notice, at paragraph 16.)

Upon request by a party, the Commission will also provide them with a list of all accessible documents in its case file at this point in time and will grant access to non-confidential versions of any specific documents the party may request access to "in so far as this is justified for the purpose of enabling the party to ascertain its position regarding a time period or any other aspect of the cartel". (The Commission's Settlement Notice, at paragraph 16.)

It is on the basis of the above information provided by the Commission that the settlement discussions take place. The nature of these discussions remains unclear at the moment. While the Commission insists that it will not be "cutting deals" (see "Settlements in cartel cases", speech by Commissioner Kroes at the 12th Annual Competition Conference at Fiesole on 19 September 2008), the settlement procedure does foresee that there will be an "exchange of arguments on potential objections, liability [and] fines range" (Section III of the final "Overview" section of the Commission's Settlement Notice) during the settlement discussions.

If no agreement can be reached during the settlement discussions, the procedure reverts back to the normal adversarial process. Where a party and the Commission have reached a "common understanding" on the scope of the potential objections and the range of the likely fine, the Commission will ask the party willing to settle to produce formal written settlement submissions in which the party will need to:

  • acknowledge in clear terms its liability for the alleged facts (including the duration of the unlawful conduct and its role within the arrangements);
  • give an indication of the maximum level of fine it would accept under the settlement framework; and
  • confirm that its right to be heard has been fully protected (i.e. that it has been adequately informed of the objections and that it will not request further access to the Commission's file or an Oral Hearing).

The Commission will then issue a streamlined SO, reflecting the common understanding and the party's subsequent settlement submissions. The settling party would then reply to the SO with a simple confirmation that the SO is consistent with its settlement submissions and that the party remains committed to the settlement procedure. Next, the Commission would issue a streamlined final decision, which again should reflect the settlement submissions, including significantly a fine which does not exceed the maximum fine specified in the settlement submissions.

It should however be noted that the Commission has reserved its right to discontinue the settlement procedure at any stage up until the final decision should the Commission form the view that - in the round - the settlement procedure does not give rise to the expected procedural efficiencies. Where the Commission abandons a settlement procedure after a party's reply to an SO, the Commission must issue a new SO and grant full access to its file to ensure that all parties' rights of defence are fully protected.

By contrast, the Commission's Settlement Notice states that a company cannot revoke a settlement commitment unilaterally after it has made its settlement submissions. The Notice however also states that a party's reply to a streamlined settlement SO which does not simply confirm the accuracy of the SO may be deemed as a termination of the settlement procedure by the Commission. In practice, this means that the prohibition for a party's ability to withdraw from the settlement procedure unilaterally may only be effective after it has reconfirmed its commitment to the settlement in its reply to the Commission's streamlined SO.

In addition to the above outline of the basic procedures under the Commission's settlement policy, the following further elements of the policy are noteworthy:

  • Leniency applications cannot be made once the settlement procedure has started.
  • The Commission will consider settlement up until the publication of an SO.
  • Settlement submissions can be made orally to minimise subsequent disclosure risks (similar to the procedure applied by the Commission in leniency cases).
  • If several companies which are seeking settlement belong to the same group (i.e. form part of the same undertaking), a joint legal representative must be appointed.
  • The party must agree to receive the SO and the final decision in an agreed official EC language.
  • It is not necessary for all parties in a cartel case to settle with the Commission in each case, i.e. the Commission's policy does not rule out hybrid cases where some parties settle and others do not.
  • The parties under investigation remain free to appeal a Commission decision, even when they have settled the case with the Commission (although it is unlikely that such appeals will be as frequent as following a fully adversarial procedure).

Based on the Commission's policy alone, and in the absence of actual cases having settled under the policy to date, there remains a considerable degree of uncertainty as to whether the procedure will be attractive to parties under investigation. We would note in particular the following considerations in this regard.

  • Low fine reduction - The fixed 10% reduction would appear to be not sufficiently attractive to persuade parties to enter into settlement talks if the Commission is not prepared to engage in some form of discussion during the settlement discussions of the scope and/or the fine range of a case. The Commission noted in its press release announcing the introduction of the Commission's procedure that "the Commission neither negotiates nor bargains the use of evidence or the appropriate sanction, but can reward the parties' cooperation to attain procedural economies". In contrast, parties will look to offer the lowest possible maximum level of fine which they are prepared to accept and make their willingness to settle conditional upon the imposition of a reasonable fine. It therefore remains to be seen whether the Commission's practice is more nuanced than its press release suggests and some form of "negotiation" seems in practice virtually inevitable if the procedure is to work in practice. (We note, however, that in certain cases, for example cases involving companies with large turnover, the Commission's promise under its Notice to limit any multiplier for deterrence to a factor of 2 may offer a further incentive to settle.)
  • Effects of "hybrid" cases - Given that many cartel cases are multi-party cases, and given that the low fine reduction on offer creates only limited incentives to engage in settlement discussions, it can reasonably be expected that (at least initially) many of the parties which have not applied for leniency in cartel cases may prefer to defend a case rather than settle. It remains to be seen whether the Commission will in practice decide to settle hybrid cases, i.e. cases where not all implicated parties agree to settle (its policy would allow the Commission to do so). Should the Commission decide to settle hybrid cases, it is unclear whether the Commission is likely to achieve the significant procedural efficiencies the settlement procedure is designed to generate. Should the Commission decide not to settle hybrid cases, the number of settled cases may remain low for some time and again the Commission would fail in its objective to introduce procedural efficiencies under its settlement policy. In this context, it would be important to better understand the Commission's attitude to some form of coordination between parties in a case which the Commission is in principle prepared to settle.
  • Scope of "early disclosure" - It remains to be seen how extensive the "early disclosure" access to the Commission's file will be during settlement discussions. A party whose "early disclosure" access requests have been refused may not be prepared to confirm in its settlement submissions that its rights of defence have been fully protected and the settlement deal would be "off the table". Should the Commission grant generous access to its file under its "early disclosure" regime, this would again reduce the Commission's procedural efficiencies.
  • Lack of legal certainty - The asymmetry in relation to a party's ability to withdraw from the settlement procedure seems highly unsatisfactory from a company's perspective. In particular, it will be a significant disincentive for settlements that the Commission reserves the right to discontinue the settlement procedure vis-à-vis a party after that party has made extensive admissions in its settlement submissions and may have confirmed these in its response to an SO. The Commission's assurance that such admissions will not be used against that party subsequently may provide little comfort, given that its admissions are likely to remain implanted in the minds of the Commission's case team.
  • Lack of transparency - It seems that the Commission can decide to withdraw from a settlement process for reasons unconnected with a specific bilateral agreement, e.g. the Commission may decide that it did not receive a sufficient level of "buy in" from the parties under investigation. By way of an example, the Commission could therefore decide to terminate settlement procedures with Party A for reasons related to Parties B and C of which Party Ahas no knowledge. This lack of transparency is likely to be a significant disincentive to parties considering whether to settle a case (in the absence of any permissible coordination between the parties on settlement issues).

On the basis of the above considerations, it would appear that for now there are only clear-cut incentives for engaging in settlement discussions with the Commission where a party has already made admissions under the Commission's leniency policy. This would allow a leniency applicant to maximise its reductions of the fine, having already made its admissions under the leniency policy. Only practical experience will tell whether the Commission's settlement policy is attractive for parties which have chosen not to apply for leniency at an earlier stage of the investigation. In this respect, it will be of interest to see to what extent 'private damages related' considerations will play a role (possibly a decisive role) in deciding whether to settle or not. Should the Commission be willing to remove a significant amount of evidence from a settled decision (compared to a contested decision) this may over time become the overriding incentive to settle a case for non-leniency parties. Such an approach would however be in direct conflict with the Commission's stated policy objective to encourage private enforcement in Europe. This issue is further discussed in Section 5.2 below.

4 Other European Approaches to Settling Antitrust Cases

While we are still waiting for the first Commission case to settle under the Commission's new policy, it should be noted that the use of settlement procedures in cartel (and indeed a number of noncartel) cases is already occurring in various forms at EU Member State level.

4.1 The United Kingdom

The UK's Office of Fair Trading ("OFT") has over the past few years established a significant track record for settling cases on an informal and case-by-case basis, in the absence of a formal published settlement policy.

The OFT first used settlement procedures in the Independent Schools case (OFT Decision No CA98/05/2006 of 20 November 2006) where, following the publication of an SO stating that 50 feepaying schools in the UK had illegally exchanged information regarding the schools' anticipated fees and fee increases, the OFT and a body representing the Independent Schools entered into a settlement agreement. In the agreement, all of the schools admitted their involvement in the conduct, admitted that such actions amounted to an infringement of Chapter I of the UK's Competition Act 1998, and agreed to pay a nominal fine of £10,000 per school. (Indeed, the settlement agreement was conditional on all schools agreeing to settle the case on identical terms.) The schools also agreed to make ex gratia compensatory payments totalling £3 million into a charitable educational trust for the benefit of the pupils who had attended the schools during the years in question. The OFT then used settlement procedures again in August 2007 in its Competition Act case against British Airways and Virgin Atlantic concerning collusion on fuel surcharges for long-haul passenger flights. Virgin benefited from immunity under the OFT's leniency policy in this case. British Airways was fined a total of £121.5 million. The OFT noted in its press release announcing the settlement that "the level of penalty reflects not only the granting of leniency to BA but also the additional cooperation BA has agreed to provide to enable the case to be resolved more speedily and effectively". This suggests a cumulative application of leniency and settlement policies in this case. A final decision confirming the settlement terms in this case has not been adopted by the OFT pending its ongoing parallel criminal prosecutions of various allegedly implicated BA executives.

In December 2007, the OFT has used what it has termed "early resolution agreements" to settle investigations with a number of supermarkets and dairy producers for collusion in relation to the setting of retail prices for milk, cheese and other dairy products. In its press release, the OFT commented that "the early and constructive cooperation of [the supermarkets and dairy producers] has enabled some of this case to be resolved effectively and swiftly, which will significantly reduce the costs of pursing the investigation to the OFT and the businesses concerned". The OFT went on to comment that this "case demonstrates the flexible approach the OFT is prepared to take to reduce the burden of investigations, while maintaining strong and effective competition law enforcement".

In July 2008, the OFT reached another "early resolution agreement" with six companies (including the supermarket chains Asda and Somerfield and tobacco firm Gallaher) which admitted engaging in unlawful practices in relation to the retail price setting for tobacco products in the UK. Each party will receive a significant reduction in the financial penalty that might otherwise have been imposed as long as they continue to co-operate with the OFT in its investigations which are continuing against some six companies which have not reached early resolution agreements. The OFT also adopted a similar settlement approach in March 2007 when it announced that it would reduce the financial penalties on companies which are under investigation for bid-rigging in the construction industry in England (and who had not applied for leniency), if they were prepared to admit participation in the offence and co-operate with the OFT's investigation. Again, this case is ongoing.

Aside from the OFT using settlement procedures in cartel cases, it is noteworthy that the UK's Office of Rail Regulation ("ORR") (which has concurrent competition law powers with the OFT in the rail sector) also adopted a de facto settlement approach in a dominance case (under Chapter II of the Competition Act and Article 82 of the EC Treaty). In this case, ORR noted the following in its press release announcing its decision on 17 November 2006:

"ORR has had regard to EWS' co-operation in the investigation and has applied a 35 per cent discount to the penalty. In particular, EWS has accepted ORR's infringement findings as set out in the decision which has allowed the case to be more quickly and effectively resolved than would otherwise have been the case."

It should be noted that EWS' cooperation to ORR was not provided under the leniency policy as the case did not concern cartel conduct. It is therefore clear that the OFT takes a case-by-case approach on the issue of settlement and that other sector regulators may be prepared to adopt de facto settlement procedures to cases which do not qualify as cartel cases. While the specific terms of the OFT's settlements referred to above are not yet a matter of public record, it appears that the OFT required in each case an admission of liability and the waiving of certain rights of defence (possibly regarding contestation of the facts, limited access to file, limited written submissions on the SO and no oral hearing) in return for a reduction of fines. While the amount of the applicable reductions have not been made public by the OFT so far, the public accounts of one party which settled in one of the above cases suggests that the OFT may be prepared to grant a reduction of up to 35% to parties willing to settle a case. This would of course be significantly above the Commission's fixed 10% level.

4.2 Germany

German law does not expressly provide for settlement procedures and the German Federal Cartel Office (or FCO) has like the UK's OFT, no formal published settlement policy. However, in practice, the FCO appears to be willing to adopt a de facto settlement approach to resolve a case more quickly than normal in appropriate cases.

A striking example of this is the FCO's cartel investigation against the private German TV broadcasters RTL and Pro7Sat.1 in 2007. In its decision of 30 November 2007, the FCO fined RTL and Pro7Sat.1 €96 million and €120 million respectively for applying exclusionary rebate schemes for TV advertising on their channels that unfairly discriminated against smaller TV broadcasters. In its press release announcing the decision, the FCO stated that RTL and Pro7Sat.1 had accepted the fines imposed by the decision at the beginning of October 2007. It would also appear that the fines were significantly lower than they could have been under German law. The case is further exceptional in that the parties' apparent cooperation allowed the FCO to close its investigation less than five months from the FCO's dawn raids on the offices of RTL and Pro7Sat.1. While the FCO makes no reference to settlement procedures in its press release, it would appear that it has applied a de facto settlement procedure in its dealings with RTL and Pro7Sat.1.

A further interesting de facto settlement case in relation to a noncartel case may be the FCO's proceedings against 35 gas providers in Germany on suspicion of abusive pricing. In October 2008, the FCO closed the investigation into six regional gas providers that are controlled by the energy service provider E.ON after consumer benefits were offered in return. The agreement provides for €55 million of benefits to be made available to customers of these six gas providers (through rebates and delayed price increases). While this case has similarities to a more traditional case closure decision based on behavioural commitments given (which has been possible both at EU and national level for some time now), it is unusual for these commitments to be of a direct financial (and indeed compensatory) nature. In this sense there are parallels between this case and the OFT's Independent Schools settlement (see Section 4.1 above). This is another example of the innovative approaches taken by some European competition authorities at national level in relation to adopting case specific settlement or early resolution procedures in appropriate cases.

4.3 France

In France, the French Competition Council has the power to grant fine reductions in relation to anticompetitive behaviour where a company does not contest the alleged infringements and offers commitments to modify its behaviour in the future.

An example of this policy is the announcement of the Council in June 2008 that it had granted a 20% fine in the context of a settlement in a cartel case concerning bid-rigging activities in the building maintenance sector. In this case, the implicated companies engaged in a settlement process which involved, among other things, the admission of the infringement and the roll-out of a competition law compliance programme (which included a commitment to dismiss any employee found to have engaged in anticompetitive behaviour in the future). It appears from this case as well as from prior decisions by the Council that when settling a case, the Council has regard to an internal indicative "reduced fines schedule" which sets out fine reduction levels for certain cooperative acts by companies under investigation, e.g. 10% for setting up a compliance programme; 20% for implementing a whistle-blowing procedure; and 25-30% for undertaking further significant behavioural commitments.

4.4 The Netherlands

As regards other Member States, the Dutch Competition Authority (the "NMa") has for some time made extensive use of settlement procedures with, it would appear, significant reductions in fines in return for admissions and cooperation in its long-running investigations into bid-rigging activities in the Dutch construction industry. See the NMa website at for further information.

5 Effects of Introducing Settlement Proceedings Into Cartel Enforcement

Whilst the introduction of settlement procedures into European cartel enforcement has been broadly welcomed by the legal community, it is clear that competition authorities will have to be careful to ensure that its introduction does not adversely affect other elements of their cartel enforcement regime, in particular, their leniency programmes and their efforts to promote private enforcement in relation to cartel damages.

5.1 Settlement and Leniency

Under the Commission's 2006 Leniency Notice, companies can (assuming that the relevant criteria are fulfilled) obtain immunity from fines, or a reduction in their fine by providing the Commission with evidence of an infringement. The focus of the reward for a leniency applicant is therefore related to the provision of "evidence" which enables the Commission to successfully prosecute the cartel. This is different to the objective of a settlement procedure where the Commission seeks to reward companies for enabling the Commission to attain "procedural efficiencies".

Companies which wish to make use of either the Commission's leniency regime, or its settlement procedure, will be required to "cooperate" with the authority. Under the Commission's Leniency Notice, leniency applicants are under a duty to cooperate "genuinely, fully on a continuous basis and expeditiously from the time of submitting its application throughout the Commission's administrative procedure". Parties who fail to meet this duty may be refused leniency or have its provisional award of leniency withdrawn. (It must be assumed that this cooperation requirement does, however, not extend to compelling leniency applicants also to settle cases with the Commission as the Commission has been at pains to emphasise that it will not impose settlements on any parties.)

Parties are also under a duty of cooperation under the Commission's settlement procedure, i.e. they are required to offer a "commitment to cooperate in the expeditious handling of the case" (the Commission's Settlement Notice, at paragraph 21). This cooperation is, however, not as indeterminate and open-ended as under the Commission's leniency policy. The cooperation required under settlement is now clearly set out in the Commission's Settlement Notice.

Notwithstanding the fact that companies are able to obtain both a reward for leniency and a reward for settlement, there is a risk that some companies may favour settlement over leniency, thus weakening a competition authority's leniency regime. This is particularly true for companies "further down the line" in terms of an award for leniency who are only likely to obtain the lowest reduction in any fine ("up to 20%" under paragraph 26 of the Commission's 2006 Leniency Notice). Such entities may decide to wait and see how the authority's case develops in the knowledge that significant reductions of fines may still be available under a possible subsequent settlement offer. The obvious risk to a competition authority is that if companies choose to adopt such an approach this may potentially lead to less evidence of the infringement being provided to the authority at an early stage of the case, making it more difficult to prosecute the cartel. Competition authorities will therefore have to ensure that settlement procedures do not undermine the attractiveness of their existing leniency regimes.

It would appear that it is precisely this consideration which has led the Commission to set the fixed fine reduction for settlements at a very low 10%. The question now arises whether, while such a 10% level may protect the Commission's leniency policy, it may be too low a level to make the new settlement policy attractive to parties under investigation.

In countries (such as the UK) where there is also a parallel regime for criminal sanctions on individuals for cartel conduct, one distinguishing factor between leniency and settlement rewards may be the availability of individual protection on offer under either regime. It may be that a competition authority in such a country will be prepared to give greater protection (or comfort) on criminal sanctions for implicated executives under leniency (even in cases where a company is not one of the first to apply for leniency) than under a subsequent settlement offer.

5.2 Settlement and Private Enforcement

The theme of private enforcement of competition law has been greatly debated both at a Commission and EU Member State level. On 2 April 2008, the Commission adopted a White Paper on damages actions for breach of the EC competition rules. In the UK, the OFT published its recommendations for private enforcement on 26 November 2007.

The central theme of private enforcement is that harmed consumers will be able to obtain redress for any damage suffered as a result of anticompetitive conduct by suing those parties guilty of an infringement. In order to bring such actions, consumers must have evidence of the company's wrongdoing and must also be able to show that harm was suffered as a result of the infringement.

One of the main ways in which potential litigants can obtain evidence, and seek to prove infringement (and the resulting harm suffered), is by relying on the SO and/or a decision of the Commission, or other competition authority.

For example, as a matter of Community law, the Commission is required to publish an SO prior to adopting any final decision. However, in settlement cases, given that the parties to the settlement agreement will have "agreed" the allegations made against them, the Commission does not have to issue a fully reasoned SO, given that the parties will not contest its conclusions. As a result, any third parties wishing to bring a damages claim in a case where all or most parties have settled may find that there is limited information available on which to bring their claim. This has both a positive and a negative aspect for competition enforcement policy: it would provide a strong incentive to settle cartel cases with the public authorities but make private enforcement more difficult. This is of course a particular concern where all parties in a case settle with the Commission. It is less clear how "streamlined" (in the Commission's words) an SO can be in cases where only some, but not all, parties to a case decide to settle.

In this context, it is also important to consider the position of third party complainants in settled cases. The Commission notes in Regulation (EC) 622/2008 (which implements its settlement procedures) that:

"Complainants will be closely associated with settlement proceedings and be duly informed of the nature and subject matter of the procedure in writing to enable them to provide their views thereon and thereby cooperate with the Commission investigation." (Commission Regulation (EC) 622/2008, at recital 5)

Nevertheless, the Commission goes on to state that:

"in the particular context of settlement proceedings, providing systematically a non-confidential version of the statement of objections to complainants would not always serve the purpose of enabling complainants to cooperate with the Commission's investigation and may occasionally discourage the parties to the proceedings from cooperating with the Commission. To this end, the Commission should not be obliged to provide a non-confidential version of the statement of objections to complainants." (Ibid)

As third parties may not be able to obtain a non-confidential version of the SO in settlement cases, this will obviously limit the amount of information (and the ease with which any information can be obtained) for use in private enforcement actions. The Commission has further made clear that complainants or other interested third parties will not be given access to any settlement submissions.

Another related factor in relation to private enforcement is that any settled (or streamlined) SO and subsequent decision may not include any meaningful evidence and/or discussions about the actual or possible "effects" of the relevant cartel activity. This is because it is unlikely that there will be any chance of a "common understanding" between the Commission and a settling party at the SO stage on the complex and invariably highly contested issue of effects in cartel cases. As a result, the SO and the decision may be largely silent on the issue of effects. A private litigant may therefore not have the benefit of any effects evidence in a settled Commission decision when claiming damages. Having to prove this nexus therefore creates an additional hurdle.

In this regard, it is interesting to note the OFT's approach in the Independent Schools case and the ORR's approach in the EWS case, where the effects of the anticompetitive activities were not discussed in the final infringement decision despite the reasonable assumption that the OFT and ORR must have had some relevant indications or evidence in this respect.

It will be interesting to see whether the Commission (and other competition authorities) will in future cases seek to include in settled SOs and decisions some evidence and/or discussion of the possible effects of the alleged cartel activity. Early indications from Commission officials, however, indicate that the Commission may accept that a settled decision will simply contain significantly less evidence than a contested decision. Should this be the case, it is likely that one of the most significant incentives for settling a case will be the 'removal' of evidence from a decision for the benefit of the settling parties and to the detriment of potential future claimants. Such a practice would of course directly undermine the Commission's stated policy objective that it wishes to encourage private enforcement in Europe.

6 Conclusions

It is clear from the discussion above that the introduction of settlement procedures into European cartel enforcement is gathering pace and the adoption of the Commission's Settlement Notice is likely to further accelerate developments in this area at EU Member State level. Having said this, it remains to be seen whether the Commission's attempt to strike an effective balance between introducing an attractive settlement policy while not undermining the considerable success of its leniency policy will work in practice. It will also be interesting to assess in the future to what extent "streamlined" settled Commission (and other) cartel decisions will have a chilling effect on the development of private enforcement actions which the EU competition authorities are keen to encourage. It may turn out that the greatest incentive for a cartel participant to enter into settlement discussions with, in particular, the Commission is the possibility of reducing the scope of any final decision and/or the evidence contained in that decision, in particular in relation to the possible effects of the unlawful conduct. In turn, the Commission may over-time seek to minimise this effect (although the Commission is currently sending out conflicting messages in this respect).

The one thing that seems certain at the moment is that going forward settlement procedures will play an increasingly significant part in anti-cartel enforcement procedures across Europe, both at Commission level and at national level. As a result, the already high degree of complexity surrounding a company's strategic choices as to whether to defend a case or whether to cooperate with an investigation will increase further in the future.

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.

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