www.contrast-lawseminars .be

18 June 2015

Cartel Investigations Masterclass

Set-up

• 5 topics

• Frank Wijckmans introduces the topic and chairs debate

• 1 or 2 panelists provide their do’s and don’ts in respect of

the topics

• Other panelists to comment / Q&A

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Panelists

PUBLIC ENFORCERS

• Ralf Sauer (European Commission)

• André Bouquet (European Commission)

• Eddy De Smijter (European Commission)

• Pablo Amador Sánchez (ACM)

3

Panelists

PRIVATE PRACTITIONERS

• Stephanie Pautke (Commeo)

• Thomas De Meese (Crowell & Moring)

• Vincent Verouden (E.CA Economics)

• Jan Bocken (Eubelius)

• Filip Tuytschaever (contrast)

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Program

PART I (09.30 – 11.00 am)

I. Cartel investigation / dawn raids

II. Detection of cartels / leniency

III. European Commission is heading towards a fining decision

/ what to do

BREAK (11.00 am – 11.30 am)

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Program

PART II (11.30 am – 01.00 pm )

IV. Procedures before the Court

V. Private damages actions

PRESENTATION OF LEEN HOEBRECHTS – CHARITY

(01.00 pm – 01.15 pm)

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Overview

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Cartel investigations

(Dawn Raids)

The Commission is

heading towards a

fining decision

Detection of cartels

(Leniency)

Procedure before

European Courts

Private damages actions

Key points

• Without notice to the undertaking

• Inspection mandate

• Entering premises and land,

examining books, …

• Sealing of premises (risk of fine)

• Private houses

• Access to all electronically

stored data

• Full cooperation IT staff

(e.g. blocking email accounts)

• Assistance external lawyers

(e.g. shadowing)

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1. Cartel investigations (Dawn Raids)

Legislation

Council Regulation 1/2003

Article 20 Council Regulation (EC) No

1/2003 of 16 December 2002 on the

implementation of the rules on

competition laid down in Articles 81

and 82 of the Treaty [2002] OJ L1/1

Explanatory note

Explanatory note to an authorization

to conduct an inspection in execution

of a Commission decision under

Article 20(4) of Council Regulation

No 1/2003 [2013]

Cartel investigation (dawn raids)

Dr. Ralf Sauer, LL.M. (Yale), Legal Service, European Commission – strictly personal views

Is a One-Million-$-Tip really sufficient?

Procedural fine (Article 23(1) (c)-(e) of Reg 1/2003)

Refusal to submit to inspection

Production of the required books or other records related to the business in incomplete form

Failure to give (complete) answer to questions asked during inspection; incorrect or misleading answer; failure to rectify

Breach of seal

e.g. EPH (2.5 mio), Suez Env (8 mio), E.ON (38 mio)

Cartel fine (Article 23(2) of Reg 1/2003) – refusal to cooperate/obstruction as aggravating circumstance (uplift)

e.g. Professional Videotapes (Sony); Bitumen NL (KWS)

Organisational Measures

Determine responsible person(s) within company: General Counsel, Head of IT, etc.

Outside lawyer (comp law specialist who knows company well): controls boundaries of mandate, acts as 'shadow', defends LPP, etc.

Train reception desk (allow entry, immediately contact responsible persons; organigram/room plan)

Regularly train staff: do's and don'ts; duty of active cooperation; awareness of fines risk; manual? simulation?

In particular: train IT staff; guard that seal

Have all keys available (offices, cabinets); have passwords ready (computers, encrypted emails)

LPP: clear identification of documents; 'shadow'

Cooperation

Legal framework

Case T-272/12, EPH: provides main principles

Explanatory Note: http://ec.europa.eu/competition/antitrust/legislation/explanatory_note.pdf

– Rights of defence, but …

– Duty of active cooperation: access (physical, electronic) (e.g. KWS); reply to questions, etc.

– No obstruction: tampering with emails, diversion of emails, seal, etc.

– Leniency: start immediately, look for added value

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1. Cartel investigations (Dawn Raids)

Key points

• General condition:

genuine cooperation

• Full immunity: first in

– Reduction of fines: evidence

with significant added value

– First (after immunity applicant):

30-50%

– Second: 20-30%

– Subsequent: up to 20%

• Partial immunity:

first in with evidence

increasing gravity or duration

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2. Detection of cartels (Leniency)

Legislation

Commission Leniency Notice

Commission Notice on Immunity from

fines and reduction of fines in cartel

cases [2006] OJ C298/17

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Fact Finding – what is at stake?

Availability of immunity rank?

• Nature/duration/gravity of infringement

• Role of company in infringement

• Nature and quality of evidence for infringement

Level of potential fines

Likelihood of credible damage claims

• Not being first impacts entire assessment

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Evaluation of probabilities – is there still a choice to

wait and see?

Selected counseling points

• Limitation period

• Likelihood of ex officio investigation

• Likelihood of customer/competitor complaints

• Likelihood of other leniency applicants

• Access to the right people for an accurate risk assessment

• Termination of an ongoing infringement without triggering an

investigation

• Situation on other markets

• Impact of the Damage Claim Directive

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2. Detection of cartels (Leniency)

Key points

• Departing from general

methodology of setting fines

• Reduced or increased fine

• Particularities of a given case

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3. The Commission is heading towards a fining decision

Legislation

Fining Guidelines

Point 37 Guidelines on the method of

setting fines imposed pursuant to

Article 23(2)(a) of Regulation No

1/2003 [2006] OJ C210/2

Calculation of fine

• Not “profit” • Presumption that all

sales on market affected by cartel

• Up to 30% • Numerous “relevant factors”

but not exhaustive and no relative weighing

• Non tax deductible • Payable regardless of

appeal

Conduct, role played, profit obtained, size, market share, “threat” of infringement, content of conduct, intensity, market affected, damage done…

“What if we are unable to pay the fine?”

• No requirement for SO to mention fine (range) that will

be imposed

• GC traditionally limits itself to “light” judicial review

• “Inability to pay” application? • Commission discretion • Only where fine would “irretrievably” eliminate

undertaking • “specific economic and social context” • “request during admin procedure” Commission

can deny request where made after fine decision

• Discuss ITP/ATP with case team after SO and before fine decision? Disclosure/confirmation of fine range?

• Which gravity percentage? • Further clarity on criteria used by DG COMP for

evaluating ‘inability’ to pay a given amount?

Relevant provisions (1)

• “In exceptional cases, the Commission may, upon request, take account of the undertaking's inability to pay in a specific social and economic context” (EU Commission, Fining Guidelines, September 2006, point 35)

• “the reduction of a fine pursuant to point 35 of the 2006 Guidelines […] is subject to […] the submission of a request during the administrative procedure” (GC, Team Relocations, 16 June 2011, T-204/08, para 171);

• “The requirement is not impossible to satisfy, including at the stage of the administrative procedure, since, in the light of the information which must appear in the SO and what is stated concerning the method of calculating the fines contained in the 2006 Guidelines, the undertaking in question will be able to assess, before the adoption of the [fine] decision […], whether it is reasonably possible to foresee that the fine which could be imposed on it risks […] irretrievably jeopardising its economic viability […]” (ECJ, Team Relocations, 11 July 2013, C-444/11P, para 185)

Relevant provisions (2)

• “[The SO] will indicate the essential facts and matters of law which may result in the imposition of a fine, such as the duration and gravity of the infringement […]”

• “Although under no legal obligation […], the Commission will endeavour to include in the [SO] … matters relevant to any subsequent calculation of fines, including the relevant sales figures […] and the year(s) that will be considered for the value of such sales.”

• [The SO] will also inform parties that in exceptional cases, [the Commission] may, upon request, take account of the undertaking's inability to pay […]. The undertakings making such a request should be prepared to provide, detailed and up-to-date financial information […]. Usually, [DG Comp] will be in contact with the parties in order to collect additional information […] which will allow the parties to bring further relevant information to the attention of the Commission. […]

• The assessment of the financial situation is carried out for all undertakings that have made an inability to pay request close to the adoption of the decision […], irrespective of when the request was submitted” (DG COMP, Art 101 Best Practices, OJ 20 October 2011, 2011, point 87-88)

The COM is heading towards a fining decision – what now?

Dr. Ralf Sauer, LL.M. (Yale), Legal Service, European Commission – strictly personal views

Exchange of views Starting point

SO: essential facts/points of law; no need to go into fining details

However: Best Practices, point 85

On this basis: targeted reply to SO, administrative hearing

State of play meetings (Best Practices, Section 2.9)

Throughout the procedure DG COMP endeavours to give, on its own initiative or upon request, parties subject to the proceedings ample opportunity for open and frank discussions — taking into account the stage of the investigation — and to make their points of view known Also offered following the SO/Adm Hearing (points 64, 65)

Possibly meeting with DG/DDG, cabinet (Section 2.11)

Preparation (proposed agenda, presentation) (point 43)

Settlement (cartel cases)

Should big companies be more worried?

Value of sales: vertical integration? (C-580/12 P, Guardian)

Aggravating circumstances: recidivism?

Different parts of the undertaking (C-93/13 P, C-123/13 P, Versalis und Eni)

Also infringements established by NCA

Deterrence multiplier (overall turnover as important element)

No 10%-cap?

Internal liability shares?

[Advantage as regards leniency?]

ITP-Request

Need for explicit request (and information) (Best Practices, point 88; questionnaire: http://ec.europa.eu/competition/antitrust/inability_questionnaire_en.pdf)

Better before than post-decision

• ITP Note: post-decision ITP possible, but rather the exception

• Amount of fine foreseeable prior to decision (C-444/11 P, Team Relocations, § 185)

• Avoids (provisional) enforcement of higher fine with potentially negative consequences

• Might help to avoid main/IM case; in case of litigation: avoids multiplication of court cases/adaptation of pleas

Strict requirements (Loss of value of assets; causality; shareholder contribution; social/economic context); publicity

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3. The Commission is heading towards a fining decision

Break

11.00u

11.30u

Key points

• General Court

– Within 2 months

– First instance

– Full jurisdiction

(but only marginal review in cases of

complex economic assessments)

• Court of Justice

– Within 2 months

– Points of law

– Refers back to General Court

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4. Procedure before Courts

Legislation

TFEU

Articles 256, 261 and 263 Treaty on

the Functioning of the European

Union [2010] OJ C83

Regulation 1/2003

Article 31 Council Regulation (EC)

No 1/2003 of 16 December 2002 on

the implementation of the rules on

competition laid down in Articles 81

and 82 of the Treaty [2002] OJ L1/1

Statute of the Court of Justice

Articles 56-58 Statute of the Court of

Justice [2010] OJ C83

Appeals before the Court

• Action for annulment is not “de novo” review

• What to contest in a cartel decision?

• “Plead it or lose it”

• Admission of facts during administrative procedure v. rights of

defence

• Standard of review

• Evidentiary rules and presumptions supporting the Commission

• Unlimited jurisdiction for the review of the fine

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4. Procedure before Courts

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4. Procedure before Courts

Key points

• National Courts

• Cartel decision = (prima facie)

evidence of infringement

• Need to prove damage

+ causal link

• Disclosure of relevant evidence

(black vs grey category)

• Every participant responsible to

compensate for the harm in full

(joint and several liability)

• Recourse action

• Passing on defense

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5. Private damages actions

Legislation

Private Damages Directive

Directive 2014/104/EU of the

European Parliament and the Council

of 26 November 2014 on certain rules

governing actions for damages under

national law for infringements of the

competition law provisions of the

Member States and of the European

Union [2014] OJ L349

Private Enforcement

• Key issues for the private litigant:

– Where can I sue? Options after the judgment in Hydrogen Peroxide (C-352/13)

– Domicile of an anchor defendant

– Place where the cartel was definitely concluded

– Place where the damage occurred : plaintiff’s registered office

– Can I form a group? – Jurisdiction and arbitration clauses

Private Enforcement

– How do I prove damages?

• Gathering information and dealing with data gaps

• Making a plausible case – Belgian elevator cases v. presumption of harm

• Court assisted disclosure of evidence

• Economic experts and reasonable estimates

• Pass-on in all its forms

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5. Private damages actions

Cartel damages – price and volume effects

Potential indirect customers

Indirect customers Indirect customers

of competitors

Potential direct customers Direct customers

Cartel Competitors

Suppliers of inputs or complementary goods

Direct customers of competitors

Overcharge (A)

Output restriction? Undercharge?

Exclusionary practices?

Overcharge due to umbrella effect?

Pass-on (B)

Volume effect (C)

Direct customers’ total economic damage = Overcharge (A) – Pass-on (B) + Volume effect (C)

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Estimation of overcharge

• Requires establishing the ‘counterfactual’ prices − What the prices would have been absent the infringement

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Estimation of overcharge (2)

• Main methods:

1. Comparison methods • Comparisons over time, with other markets, combinations of the two

• Implementation: simple comparisons vs. regression analysis (controlling for other factors)

2. Other methods (simulation, cost based methods, finance-based …)

• No clear hierarchy, choice of preferred method(s) is highly case specific − Data availability

− Accuracy vs. ease of implementation

− Role of assumptions

• Methods may be complementary

• In case of diverging results (not uncommon …), try to understand the reasons

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Pass-on // volume effects

• Pass-on and volume effects always come in pair! − The higher the pass-on, the greater the volume effects (and vice versa)

− But: if cartelised product small part of downstream product, volume effect may be small

• Pass-on analysis can focus on − establishing pass-on rates

• how does the price of the downstream product respond to cost variations

− downstream prices directly (e.g. applying comparison methods)

• but: beware of proportion of cartelised product for downstream product; if small, not much may be ‘visible’

• Volume effects assessment − establishing demand elasticities

− comparison methods

Leen Hoebrechts

CAW

Charity

Remainder of 2015 program

− Help, I am a shareholder (NL)

(10 September 2015)

− Ins & outs of distribution agreements (NL)

(22 October 2015)

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