In October 2022, the European Commission (EC) issued a Frequently Asked Questions (FAQs) document as guidance on its leniency programme.1 According to the EC, the FAQs aim to facilitate leniency applications by providing further transparency, predictability and accessibility to potential leniency applicants.2 Below, we provide an overview of the guidance, assess whether it has created a more attractive environment for leniency applications and discuss the trends likely to emerge in the EC's cartel enforcement practice.
Companies that violate EU competition law may face harsh fines. For instance, in 2016, the EC fined3 a number of truck producers a combined total of €2.93bn for cartel involvement (Case AT.39824 – Trucks). Since the EC's 2006 Leniency Notice4 (Notice) came into effect, the EC has imposed a total of approximately €15bn in fines on companies for cartel participation.5
Since 1996, the EC has run a leniency programme enabling companies to disclose confidentially their cartel involvement and cooperate with the EC in its investigations. The EC has stated that, since the Notice came into force, the fines imposed on companies that participated in the leniency programme have been reduced by a combined total of €16bn.6
Under the leniency programme, companies providing sufficient information on a cartel in which they have participated may be exempt from fines or receive a fine reduction. The benefit is based on the time of submission of the applicant's evidence and the extent to which such evidence represents 'added value' to the EC's investigation.
EC officials on the conference circuit have revealed that in 2022, the EC received 12 leniency applications compared to 6 in 2021 and 4 in 2020. The increase in applications is probably not an indication that companies are spontaneously deciding to seek leniency following an internal audit. On the basis of public statements by EC officials, it seems likely that in many cases, companies are making leniency applications in the context of conduct already under investigation by the EC as a result of its own ex officio investigations (which have increased following a lull during the COVID-19 pandemic) or via contacts made by individuals through the EC's whistle-blower tool.
Since the launch of the Notice, the EC received over 550 leniency applications, and adopted 54 cartel decisions.7 The EC has, nevertheless, seen a significant decrease in leniency applications, particularly from 2014 onwards. While one might hope that the efficacy of companies' competition compliance programmes contributed to the decline, it seems more likely to be due to the implementation of the Damages Directive (Directive 2014/104/EU) and the explosion of private damages litigation in Europe. Other factors causing the decline may include companies' perception of a low risk of ex officio detection, the burden of multiple leniency filings required in cases of global cartels, and companies' uncertainty over what type of conduct can benefit from leniency where less traditional cartel behaviour is at play (e.g. buyer cartels, cartels on product characteristics, information exchange cartels).
It therefore seems unlikely that leniency applications will return to the numbers seen in earlier times (e.g. 60 applications in 2011). nbsp;
2 The FAQs' key points
It is worthwhile noting that the FAQs do not modify main provisions of the Notice but aim at making them easier to understand.
2.1 Clarified concepts
The FAQs reiterate that the first company to disclose its participation in a cartel will be granted immunity from fines, provided that the conditions are met8 (e.g. the company provides information and evidence that allows the EC to conduct a targeted dawn raid or to find an infringement of Article 101 TFEU where it otherwise was not in a position to do so).
Any other cartel member applying for leniency after the start of the investigation may obtain a reduction of a possible fine by providing evidence with 'significant added value',9 cooperating genuinely and meeting the other conditions.10 The FAQs clarify that the EC assigns leniency applicants to appropriate leniency bands in the order in which they provide significant added value, rather than in the order of submission of leniency applications. EC officials have pointed out that, in almost all cases, companies that have applied for leniency have successfully achieved the significant added value standard and were granted a fine reduction. Companies were unsuccessful only in a handful of instances and generally where they have not fully cooperated with the EC, by refusing to admit their participation in the infringement, for example.
If a company applies, the EC is keen to grant rewards. The FAQs highlight that the EC has the discretion (already used a few times) to reward successful applicants with fine reductions towards the higher end of the leniency bands.11 The EC is increasingly awarding large reductions, as seen in recent cases.12 'Facilitators', i.e. companies that, despite not having been active on the cartelised market, have actively aided the objectives of the infringement and so could be held liable and subject to fines, can also apply for immunity or a fines reduction.
Furthermore, the EC has clarified the notion of 'partial immunity'. Applicants that are first in supplying compelling evidence to the EC that it can use to prove new facts enhancing the gravity or duration of the violation will benefit insofar as the EC will ignore such additional facts when calculating that applicant's fine.
2.2 Facilitating leniency applications: consultation on a 'no-names' basis and Leniency Officers
Whilst the Notice already granted companies the chance of making a hypothetical application and this possibility remains, EC officials are now available for informal talks concerning prospective immunity applications on a 'no-names' basis, without requiring disclosure of the sector, the participants or other data identifying the cartel.
A new practical arrangement under the FAQs foresees that this initial no-names conversation can be with a 'Leniency Officer'. Leniency Officers provide informal guidance, information about the leniency procedure, and meet with prospective applicants (or their legal representatives) to discuss potential applications. This will allow a potential applicant to assess whether its conduct amounts to a 'secret cartel', and whether reporting it to the EC would allow it to benefit from the leniency programme. The EC envisages that this option would be especially helpful where the relevant behaviour is innovative, uncertain or non-traditional or if the potential applicant is unsure whether its conduct falls within the scope of the Notice.
Furthermore, the FAQs clarify that potential immunity applicants can contact the Leniency Officer through their legal representative to see whether immunity is available for the cartel in question. Whilst the potential leniency applicant may receive immunity, this is not a decision to be taken lightly because it risks exposing a cartel that may have been previously unknown to the EC. This is especially true because the legal representative must reveal the product concerned notwithstanding that the identity of the client can remain undisclosed. Furthermore, the legal representative must commit (on the client's behalf) that they will immediately file an application for immunity/marker if the Leniency Officer confirms that immunity is available. The EC has confirmed that the initial marker period may be extended, depending on the facts of the case and the progress achieved (and duly demonstrated) by the immunity applicant.
Whilst the EC's examples of cartel behaviour (typically involving price fixing, market sharing or customer allocation) in the Notice are not exhaustive, the FAQs do helpfully explain a few examples of non-traditional behaviours that may be considered a cartel, such as buyer cartels, no-poach agreements, discussion of price-setting factors on weekly reference prices, or coordination to restrict competition on technical development.13 Indeed, EC officials have publicly noted that the pursuit of a broader portfolio of cases in many different sectors, including against less obvious cartel conduct, is intended as both a deterrent and to clarify that companies can seek leniency for these less traditional types of cartel conduct.
2.3 Benefits for leniency applicants beyond fine reductions
In an attempt to make applying for leniency more attractive, the FAQs highlight several additional advantages and safeguards.
Under the Damages Directive, the EC and the national competition authorities of EU Member States (NCAs) cannot disclose leniency statements in damages proceedings before national courts of the EU. Additionally, if a damages lawsuit is brought against a leniency applicant in a third country, the EC may support the applicant against a request for disclosure of leniency submissions produced for the EC.14 The FAQs confirm that the EC has already supported leniency applicants in a number of cases. It has, for example, successfully invoked the principle of international comity in proceedings before U.S. courts.
Furthermore, under the Damages Directive, an immunity recipient is only jointly and severally liable to its direct and indirect customers and where full compensation cannot be secured from the other cartelists. This constitutes a derogation from the rule that co-infringers can be held jointly and severally liable for the entire harm caused by the infringement. Nevertheless, a leniency application does not protect a company from private damages actions completely and these actions appear to be one of the key reasons why leniency applications have plummeted in the EU and beyond. This issue is in fact a widespread phenomenon – the number of leniency applications decreased from more than 400 in 2015 to around 150 in 2020 in the OECD countries, as reported in the OECD Competition Trends 2022. For instance, in the U.S., the average number of leniency applications per jurisdiction dropped 64% between 2015 and 2020 (from 12 in 2015 to 4.4 in 2020).15 In Canada,16 the number of leniency applications has declined remarkably in recent years. Between 1 April 2021 and 31 March 2022 the Competition Bureau awarded two immunity markers (compared to four in the previous year) and granted no leniency marker.17
Many commentators suggest that the Damages Directive and the Notice should provide more protection to the immunity applicant to further incentivise leniency applications. EC officials have noted that there is some scepticism as to the overall benefits of making such amendments for the following reasons:
- Market structure: If the largest player in a particular market achieves immunity from the administrative fine and is also immune from paying private damages, that company could gain an advantage over its competitors who may well be subject to an administrative fine and private damages.
- Public enforcement: If companies know that only the immunity recipient receives immunity from private damages, they may be reluctant to go in second, third, etc. and the EC may miss out on vital evidence and information regarding the cartel.
- Private enforcement: Providing immunity from private damages may lead to some victims not being fully or even partially compensated for their losses.
Whilst these concerns seem valid to some extent, a change of the position on immunity from private damages seems inevitable if the EC wants to reverse the overall decline in leniency applications.
In addition to the (limited) benefits in relation to private damages, under the ECN+ Directive (Directive (EU) 2019/1), EU Member States must ensure that current and former employees of immunity applicants at NCAs and the EC are protected from sanctions at national level, if they cooperate with the relevant authorities.
Finally, under the EU Financial Regulation (Regulation 2018/1046) and the Public Procurement Directive as transposed into national law (Directive 2014/24/EU) a company found guilty of grave professional misconduct (including participation in cartels) may be barred from participating in EU and/or national public tender procedures or face a financial penalty. A leniency applicant, however, may still be permitted to participate in public tender procedures at both EU and national level because the tendering authority can take active collaboration with the competition authority into account when evaluating the reasons for exclusion. Despite not being mentioned in the Notice, these certainly constitute useful benefits.
2.4 Advantages of using the upgraded eLeniency platform
Concerning other procedural aspects of leniency applications the FAQs mention the EC's upgrade of its eLeniency platform in September 2022. This tool, introduced in 2019, allows applicants to submit their leniency applications (including marker applications) online. The new version allows for efficient interaction with the parties and adapts the tool to today's digital economy. By using the eLeniency platform companies can avoid traveling to the EC premises for accessing documents otherwise only accessible there or having to make oral statements in person. Additionally, applicants can type in the statements directly online on the EC's server and can upload supporting documents. Once formally submitted, the typed information is only accessible to the EC, cannot be copied or printed and no trace remains on the applicant's computer.
The EC believes that using the platform provides the applicant with the same guarantees in terms of confidentiality and legal protection, including discovery, as the traditional procedure of oral statements. As a result, with the exception of contemporaneous evidence uploaded as supporting documents, the statements and submissions filed via eLeniency are shielded from disclosure in civil litigation.
2.5 Explanations on the cooperation between the EC and other competition authorities
Furthermore, given parallel competences between the EC and the NCAs, the former has underlined that an application for leniency to one authority does not constitute an application to another authority. Consequently, under the ECN Model Leniency Programme, the ECN+ Directive and the summary applications system, a leniency applicant who considers the EC to be particularly well placed to deal with its case may submit a full application to the EC and just a (short) summary application to the NCAs. This mechanism would safeguard the applicant's place in the leniency queue if the case is later re-assigned to one or more NCAs because the EC does not plan to prosecute it (or is only partially pursuing it). Finally, while the Notice makes leniency conditional on applicants informing the EC about any applications they have filed or intend to file with other competition authorities (including outside the EU),18 the FAQs explain that the EC expects applicants to supply a full waiver of confidentiality. This allows the EC to communicate the applicant's confidential information to other authorities in order to coordinate the relevant investigations.
3 Conclusion
The EC aims to increase the number of leniency applications but it remains to be seen whether an increased number of companies will actually apply. They will have to consider the risk to pay much more in private damages including the litigation costs than they would have 'saved' by avoiding an administrative fine from the EC (a risk that may continue to strongly deter companies from applying for leniency).
While the FAQs are probably not a game changer, they are nevertheless a welcome tool providing prospective leniency applicants with clarification on certain concepts in the Notice, on the benefits of leniency applications as well as on the risks arising from cartel–related conduct such as private damages claims.
Companies should implement internal mechanisms to detect possible cartel violations and potential leniency applicants should seek advice and guidance from external counsel as soon as feasible. Whilst the EC may grant (progressively lesser) fines reductions, only the first applicant will be granted immunity.
Footnotes
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.
