United States: European Commission Publishes Consultation On Proposed Amendments To EU Leniency Notice Intended To Address U.S. Discovery Concerns

On February 23, 2006, the European Commission (the "Commission") published draft amendments to the 2002 Commission Notice on Immunity from fines and reduction of fines in cartel cases (the "Leniency Notice") for public consultation.¹ Comments on the proposed amended Leniency Notice should be made to the Commission before March 20, 2006.

The proposed changes raise a number of questions, some of which are noted below, that suggest that the amended Leniency Notice may not accomplish its intended purpose.

The main proposed change formalizes the procedure (already applied in practice) for a cartel participant to make an oral "corporate statement" voluntarily disclosing information about the cartel with the goal of obtaining immunity from or reduction of Commission fines. A new Annex to the Leniency Notice provides:

1. A procedure for making oral corporate statements,² and
2. Rules governing how parties under investigation can get access to the Commission’s file (including corporate statements) and the use of information therein, including disciplinary sanctions for any "misuse".

These proposed reforms are meant to address concerns that making corporate statements increases the (mainly U.S.) litigation risk and (potentially treble) damages exposure for leniency applicants because of the possible discovery of such statements in private civil damages litigation. The Commission is concerned that this undermines its leniency program (allegedly the Commission’s most effective tool in the fight against cartels) as it increases the risks of coming forward, and the Commission has therefore intervened in legal proceedings in the U.S. arguing that U.S. judges should refuse to order discovery of corporate statements made to the Commission on international comity grounds.

Corporate statements form part of the Commission’s case file. After the Commission issues its "Statement of Objections" (SO) describing the evidence and charges against the (alleged) parties in the cartel, it grants each such party access to the case file to allow them to prepare their defense in light of all of the evidence against them. Under the proposed rules, addressees of an SO may read or listen to recordings of the corporate statements of other addressees at the Commission’s premises and may take notes but will not be allowed to make mechanical copies of those statements. Each party seeking access to the file will also be required to sign a document committing to these rules and accepting that the information in the corporate statements may be used only for the purpose of administrative and judicial proceedings in the EU for the application of Article 81 EC.

These rules are meant to ensure that no party (including the leniency applicant making the corporate statement) retains a discoverable copy of the corporate statement within its possession or control.

The Commission proposes to introduce a new feature – disciplinary measures, to which it intends to have recourse in the event a party "misuses" information from the file. First, if a party breaches its signed commitment and uses a corporate statement for any purpose other than the application of Article 81 EC, the Commission may report the incident to the bar association of the outside legal counsel of the party concerned. Second, the Commission may regard such action as lack of cooperation under the Leniency Notice and refuse a fine reduction that would otherwise have been granted (or if the Commission has already adopted a decision it may instead ask the Court to increase the fine).

While the proposed disciplinary measures may apply to a situation of clear "misuse", e.g., wrongfully obtaining a mechanical copy of another addressee’s statement or voluntarily (without compulsion) making information on another addressee’s statement available to an actual or potential plaintiff, it is more difficult to see how the proposed rules could be applied in the case of disclosure of information in response to a mandatory discovery order issued by for example a U.S. court.

While U.S. courts are likely to g ive deference to the Commission’s concerns about the effect of discovery on the EU leniency program,U.S. judges nevertheless have discretion to order discovery on a case-by-case basis even if the information requested is subject to a non-disclosure rule in the EU. It is unclear what, if any, legal effect the Commission’s Leniency Notice has that can shield an alleged cartel member that has exercised its right to access the file and that is subject to a discovery request from a private plaintiff from the obligation to produce information if so ordered. It is similarly unclear if it is actually a case for disciplinary action under national bar rules for a lawyer having sought access to the Commission’s file to then abide by a discovery order issued by a U.S. judge.

The Commission’s approach raises a number of questions suggesting that it may not be as effective as hoped in avoiding discovery risks:

• In any case, companies are likely to be sued once it becomes known that they have applied for leniency and the facts of the cartel will become known in the SO (which may be discoverable), or at least in the Commission’s final decision (which will be officially published). Avoiding discovery of the corporate statement may therefore only slow things down without necessarily reducing the risks.
• Once it is known that a company has applied for leniency in the EU, the information in the corporate statement can likely be brought into U.S. court proceeding through other means, e.g. , depositions of the cor poration or its employees/representatives or interrogatories.
• Discovery proceedings are not only available in the United States but also in some European jurisdictions such as the United Kingdom. The Commission in its separate consultation on damages actions in Europe is supporting increased private litigation to enforce Article 81 EC. On its face, such private litigation would fall within the allowed use of a corporate statement "for the purposes of … judicial proceedings for the application of Article 81", although the Commission may have intended this use to be limited to judicial proceedings challenging the lawfulness of the Commission decision (i.e., in the Community Courts).
• Finally, the new rules appear to apply only to the corporate statement itself. Evidence of the cartel which a leniency applicant will have to submit to the Commission together with the corporate statement (e.g., notes of meetings) will still be available to all addressees of the SO without any specific sanctions for misuse. In its recent damages consultation the Commission even goes so far as to suggest that such evidence may have to be turned over to plaintiffs in European civil damages litigation. Therefore, the proposed new rules might make it harder for plaintiffs to get access to the corporate statements, but the position in relation to all other evidence remains unchanged.

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